Lifestyle Equities C.V. and another (Appellants) v Ahmed and another (Respondents)

LORD LEGGATT (with whom Lord Lloyd-Jones, Lord Kitchin, Lord Stephens and Lord Richards agree):

1. The main issues raised by this appeal and cross-appeal are these. When are directors of a company liable as accessories for causing the company to commit a tort of strict liability - in this case, trade mark infringement? In particular, is such liability also strict or does it depend on knowledge (or some other mental element)? And if directors are strictly liable, should they be ordered to account for profits made by either (i) the company or (ii) the directors themselves?

I. THE PROCEEDINGS

The claim

1. The claimants are two companies who can together be called “Lifestyle”. Lifestyle brought these proceedings against some 16 defendants claiming remedies for infringement of registered trade marks and passing off. Those sued included two family-owned companies, Continental Shelf 128 Ltd and Hornby Street Ltd, which both traded under the name “Juice Corporation”. The defendants also included Mr Kashif Ahmed and his sister, Ms Bushra Ahmed. Mr Ahmed was the sole director of Continental Shelf and they were both directors of Hornby Street at all relevant times. Lifestyle and the Ahmeds are the respective parties to these appeals.

1. Juice Corporation was a wholesale business which arranged for the manufacture of clothing, footwear and headgear and sold it to retailers, mainly in the UK. Mr Ahmed’s role included managing the intellectual property rights of the companies. Ms Bushra Ahmed was head of sales for a “division” of Hornby Street called the “House of Brands”.

1. Lifestyle complained that the Juice Corporation companies had been offering for sale various items of clothing and footwear with logos displaying the name “Santa Monica Polo Club” and pictures of polo players riding horses. Lifestyle claimed that the use of these signs infringed trade marks registered by Lifestyle which included the words “Beverly Hills Polo Club” and depicted a polo player on a horse. Breaches of both section 10(2) and 10(3) of the Trade Marks Act 1994 were alleged. The Ahmeds were sued 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’s findings

1. The trial was split into two parts. Both hearings took place before the same judge, Mr Recorder Douglas Campbell QC sitting as a judge of the Chancery Division. The first trial dealt with the liability of certain defendants including Hornby Street but not Continental Shelf or the Ahmeds. Hornby Street was found liable under both section 10(2) and 10(3) of the Trade Marks Act 1994 for infringing Lifestyle’s registered trade marks and also for passing off: [2017] EWHC 3313 (Ch); [2018] FSR 15. There was no appeal from that decision. Hornby Street later went into administration at the instigation of its bankers. The company has since been dissolved.

1. The second trial addressed the remaining issues. None of the defendants was legally represented at this trial but the Ahmeds appeared as litigants in person. The judge decided that: (i) Mr Ahmed was jointly and severally liable with the two Juice Corporation companies for the acts of infringement; and (ii) Ms Ahmed was jointly and severally liable with Hornby Street for acts of infringement in so far as its “House of Brands” division was concerned, which the judge found represented 10% of Hornby Street’s business: [2020] EWHC 688 (Ch); [2020] FSR 29, para 104.

1. In reaching those conclusions, the judge did not think it necessary to decide whether, as Mr Ahmed maintained, Mr Ahmed had no improper motive, acted on advice and delegated the design of logos to a professional design team. In the judge’s view, none of these matters gave rise to a defence in law. The same applied to defences raised by Ms Ahmed that she had no improper motive or intention to infringe. The judge made no finding that either Mr Ahmed or Ms Ahmed knew or ought to have known that there was a likelihood of confusion or infringement. On the judge’s view of the law, those matters were not relevant to their liability.

1. Rather than claiming damages, Lifestyle elected to claim against the Ahmeds the remedy of an account of profits. The judge found that sales of infringing goods accounted for about 10% of Hornby Street’s turnover on average during the relevant period and calculated that the profits made by Hornby Street from such sales amounted to £3,129,921. He rejected Lifestyle’s claim that the Ahmeds were liable to account to Lifestyle for these profits but held that they were liable to account to Lifestyle for profits which they had personally made from the infringements. He apportioned 10% of their salaries during the relevant period to such profits. This gave rise to a liability of £144,192 on the part of Mr Ahmed and £57,007 on the part of Ms Ahmed. The judge also found that a loan of £635,789 made by Hornby Street to Mr Ahmed was a profit derived from the infringements for which Mr Ahmed was liable to account to Lifestyle.

The appeals to the Court of Appeal

1. Lifestyle appealed to the Court of Appeal against the decision that the Ahmeds were not liable to account for the profits made by Hornby Street from its infringements. The Ahmeds cross-appealed against the decision that they were jointly and severally liable for the infringing acts of Hornby Street and that they had made profits from those infringements for which they were liable to account to Lifestyle.

1. For reasons given by Birss LJ in a judgment with which Moylan and Nugee LJJ agreed, the Court of Appeal dismissed Lifestyle’s appeal and rejected most of the Ahmeds’ grounds of appeal: [2021] EWCA Civ 675; [2021] Bus LR 1020. On the Ahmeds’ appeal, the Court of Appeal upheld the judge’s conclusions that the Ahmeds were jointly and severally liable for the infringing acts of Hornby Street and that they should be ordered to account for profits which they had personally made from the infringements. The Court of Appeal also held that the judge was entitled to find that 10% of the Ahmeds’ salaries during the relevant period represented such profits. But the Court of Appeal allowed Mr Ahmed’s appeal in relation to the loan made to him by Hornby Street and also decided, having raised the point themselves, that income tax payable on the relevant portions of the Ahmeds’ salaries should be deducted from the sums payable to Lifestyle.

The issues on these appeals

1. Against that decision both the Ahmeds and Lifestyle appeal to this court pursuing the arguments on which they lost in the Court of Appeal. The issues fall into two categories. First, there is the liability issue. The question here is whether the judge and the Court of Appeal were wrong in law to hold 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 Santa Monica Polo Club signs infringed Lifestyle’s trade marks. Second, there are issues relating to the remedy of an account of profits. If the Ahmeds were jointly liable with Hornby Street for its infringements, was it appropriate to award this remedy when there was no finding that the Ahmeds had acted unconscionably or in bad faith? If it was, should they, as Lifestyle contends, have been ordered to account to Lifestyle for profits which the company had made from its infringing trade? If not, but it was in principle correct to order the Ahmeds to account for profits which they had themselves made from the infringements, was the judge right to regard the loan made to Mr Ahmed and a proportion of the Ahmeds’ salaries as such profits? And if it was in principle right to treat a proportion of the Ahmeds’ salaries as profits, was the Court of Appeal entitled and correct to hold that in calculating those profits deductions should be made for income tax?

1. I will first consider the liability issue. Then I will consider the issues relating to the remedy of an account of profits.

II. THE LIABILITY ISSUE

Did the Ahmeds infringe Lifestyle’s trade marks?

1. Although it is not how the claims against them have been put, in addressing the liability issue it is useful to begin by asking whether, on the facts found by the judge, the Ahmeds themselves infringed Lifestyle’s trade marks. If they did, that would have been a straightforward basis on which to find them liable.

1. Section 9(1) of the Trade Marks Act 1994 states that the proprietor of a registered trade mark “has exclusive rights in the trade mark which are infringed by use of the trade mark in the United Kingdom without his consent. The acts amounting to infringement, if done without the consent of the proprietor, are specified in … section 10.”

1. The judge found at the first trial that acts attributable to Hornby Street, done without Lifestyle’s consent, amounted to infringements of Lifestyle’s trade marks under both section 10(2) and 10(3). Section 10(2) states:

   “A person infringes a registered trade mark if he uses in the course of trade a sign where because —

   1. …

   1. the sign is similar to the trade mark and is used in relation to goods or services identical with or similar to those for which the trade mark is registered,

   there exists a likelihood of confusion on the part of the public …”

   Section 10(3) states:

   “A person infringes a registered trade mark if he uses in the course of trade, in relation to goods or services, a sign which —

   1. is identical with or similar to the trade mark,

   1. ...

   where the trade mark has a reputation in the United Kingdom and the use of the sign, being without due cause, takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the trade mark.”

1. Section 10(4), at the relevant time, said that “a person uses a sign if, in particular, he –

   1. affixes it to goods or the packaging thereof;

   1. offers or exposes goods for sale, puts them on the market or stocks them for those purposes under the sign …;

   1. imports or exports goods under the sign; or

   1. uses the sign on business papers or in advertising.”

1. It is common ground that under both section 10(2) and 10(3) liability is strict. To establish an infringement, there is no need to prove knowledge or fault - only that the person concerned, without the consent of the proprietor of the trade mark, did an act of the kind specified in one of those subsections. Nor is it a defence that the person concerned acted in good faith and without any improper motive.

1. The judge’s findings at the first trial conclusively established that the Santa Monica Polo Club signs used by Hornby Street fell within the scope of both section 10(2) and 10(3): that is to say, (i) the signs were similar to Lifestyle’s Beverly Hills Polo Club trade marks and were used in relation to goods similar to those for which Lifestyle’s trade marks were registered; (ii) because of this, there existed a likelihood of confusion on the part of the public (the test under section 10(2)); and (iii) in circumstances where Lifestyle’s trade marks had a reputation in the United Kingdom, the use of the signs, lacking due cause, took unfair advantage of, or was detrimental to, the distinctive character or the repute of the trade marks (the test under section 10(3)).

1. The question then is whether the Ahmeds were themselves persons who used what I will call “the offending signs” in the course of trade. If they did, it would follow that they, as well as Hornby Street, were persons who infringed Lifestyle’s trade marks within the meaning of section 10(2) and (3). They would therefore be liable to Lifestyle under section 14(1) of the Trade Marks Act 1994, which renders an infringement of a registered trade mark actionable by the proprietor of the trade mark.

1. The judge made findings at the second trial that Mr Ahmed was the managing director of the Juice Corporation companies and the “ultimate decision-maker”; that he was the person who managed the intellectual property portfolio for the companies; that he instructed Hornby Street’s design director to oversee designing a logo for the Santa Monica Polo Club brand; and that he selected the factory with which to place orders and agreed prices with the factory for the manufacture of Santa Monica Polo Club polo shirts: [2020] EWHC 688 (Ch); [2020] FSR 29, paras 41 and 42. The judge did not make any finding that Mr Ahmed personally did any acts which were uses of any of the offending signs.

1. As for Ms Ahmed, the judge found that, as head of sales for the “House of Brands” division of Hornby Street, her role was a very hands-on one managing the day to day running of this business, with the help of two members of staff: a salesperson and a warehouse assistant. She had a showroom which stocked Santa Monica Polo Club goods; it was her decision to display those goods; and she sold them to customers: [2020] EWHC 688 (Ch); [2020] FSR 29, para 45.

1. Did Ms Ahmed, in choosing what goods to display and in making sales to customers of goods bearing the offending signs, herself “use” the signs “in the course of trade”? Neither party has found any authority which has decided or even considered whether those words apply to an employee who in the course of their employment does such acts on behalf of their employer. But for the Ahmeds, Mr Peter Knox KC submitted that such a person is not within the scope of section 10. He argued that, even without any pronoun before the word “trade” which would put the matter beyond doubt, it is implicit in the statutory wording that the “trade” in question must be carried on by the person who uses the sign. Mr Knox further submitted that a person who executes sales of goods or does other acts in relation to goods in the course of their employer’s trade does not “use” a sign under which the goods are sold within the meaning of section 10. Thus, he argued, it is only the employer who “uses [the sign] in the course of trade” and is therefore a person who, where the other requirements of any of subsections 10(1)-(3) are met, infringes the trade mark.

1. For Lifestyle, Mr Thomas St Quintin emphasised that Lifestyle has not alleged that the Ahmeds themselves infringed Lifestyle’s trade marks. Its case is solely that the Ahmeds are jointly and severally liable with the company for its infringing acts. But he also submitted that an employee can personally infringe a trade mark by acts done in the course of her employment and that, on the facts found, Ms Ahmed herself “used” the offending signs “in the course of trade” by offering goods for sale to customers under those signs. She could therefore have been held liable on that basis.

1. Particularly given the strict nature of the liability and the fact that there is no need to prove any mental element or fault, it would be a strong thing to impose personal liability for trade mark infringement on, for example, shop assistants who in the course of their employment put on display goods to which an offending sign is fixed or complete sales of such goods to customers over the counter. To make such individuals personally liable as a result of acts of this kind would seem unjust and to cast the net of strict liability more widely than is necessary or reasonable to protect the rights of trade mark owners. It would therefore take unequivocal language to persuade me that section 10 is intended to have this effect. As it is, the more natural as well as more reasonable interpretation is, in my view, that contended for by Mr Knox, which construes the statutory language as referring to acts done by a person on their own account and not as an employee or agent of someone else.

1. I do not think that the words “in the course of trade” are in themselves conclusive. The same phrase is used in European legislation, including Council Directive 89/104/EEC, which the Trade Marks Acts 1994 was intended to implement in the United Kingdom, and its successor, Directive 2008/95/EC, as well as Council Regulation (EC) 40/94 regulating EU trade marks. The Court of Justice has repeatedly held that in those instruments the phrase “in the course of trade” means “in the context of commercial activity with a view to economic advantage and not as a private matter”: see eg Arsenal Football Club plc v Reed (Case C-206/01) [2003] Ch 454, para 40, and other cases cited by Arnold J in Och-Ziff Management Europe Ltd v Och Capital LLP[2010] EWHC 2599 (Ch); [2011] Bus LR 632, para 54. All the same, both the phrase itself and this explanation of it are more naturally understood as referring to persons who are trading on their own account and for their own economic advantage rather than to persons who are simply performing duties for their employer which involve, for example, stocking goods, putting them on display and executing sales on behalf of their employer in the course of their employer’s business and for their employer’s economic advantage. Some further support for this narrower interpretation is provided by the description in judgments of the Court of Justice of a person who “uses” a sign “in the course of trade” as an “economic operator”: see L’Oréal SA v eBay International AG (Case C-324/09) EU:C:2011:474, [2012] Bus LR 1369, paras 54-55; A v B (Case C-772/18) EU:C:2020:341, [2020] Bus LR 1044, para 23. That is an apt description of someone conducting a commercial activity as a principal but not of someone working as an employee in another person’s business.

1. In the present case the relevant trade in clothing and associated goods was being carried on by Hornby Street. Ms Ahmed was not herself trading. On occasions when she put goods bearing the offending Santa Monica Polo Club signs on display in the showroom and sold them to customers, she did so on behalf of Hornby Street, so that Hornby Street was using the signs in the course of trade and thereby infringing Lifestyle’s trade marks. As I construe section 10 of the Trade Marks Act 1994, however, she did not thereby herself infringe Lifestyle’s trade marks. 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.

Joint liability for infringements

1. Absent authority one might suppose that, if a person has not infringed a registered trade mark in any of the ways specified in the Trade Marks Act 1994, then no action can brought against that person in respect of any infringement by the proprietor of the trade mark. That, however, is not the approach which English law has taken. Infringements of trade marks (and other intellectual property rights) are regarded as torts; and the principles by which, under the common law, a person may be held jointly liable with another person for a tort are applied to infringements of statutory intellectual property rights. In Unilever plc v Gillette (UK) Ltd [1989] RPC 583, 603, Mustill LJ described this as “a bold step, since it applies a common law doctrine to the interpretation of a statute.” At the same time, as he also said, the principle is firmly established. I will say more later about the relationship between the statutory rights and the common law doctrine. But I will say now that any perceived doctrinal difficulty in my view disappears once it is recognised that the relevant common law principles are principles of accessory liability which do not alter the scope of the statute; they operate alongside it and, where applicable, impose liability on persons who have not committed any statutory wrong. The principles operate in just the same way as they do in relation to common law torts, where they impose liability on persons who have not themselves committed any tort.

1. Lifestyle relies on two principles by which a person may be held liable as an accessory for a tort committed by another person. In headline form they are: (1) authorising or procuring another person to commit a tort; and (2) participating in a common design to commit a tort. The judge found the Ahmeds liable on both bases, and the Court of Appeal affirmed that finding.

1. The Ahmeds do not dispute that, as a matter of causation, their conduct in giving instructions to manufacture, stock and offer for sale goods bearing the offending signs induced Hornby Street to infringe Lifestyle’s trade marks (limited, in Ms Ahmed’s case, to the infringements attributable to the “House of Brands” division). The dispute is about what mental state is required to make the Ahmeds liable as accessories for these infringements. The judge and the Court of Appeal took the general position in law to be that, for a tort of strict liability like trade mark infringement, accessory liability does not depend on knowledge that the acts of the primary actor were or were likely to be infringements. It is enough that the defendant intended that the primary actor should do the things which have been held to be infringements (as is the case here): see the judgment of Birss LJ, paras 25, 28-30.

1. It will be necessary to examine whether this general proposition of law is correct. But in this court, as in the Court of Appeal, the arguments made by the Ahmeds focused mainly on their position as directors of Hornby Street. Almost all the cases which counsel for the Ahmeds cited as precedents concerned company directors. They advanced various arguments to the effect that directors, provided they act properly in performance of their duties to the company and without notice that the company is acting unlawfully, cannot be jointly liable with the company for infringements of intellectual property rights or other torts of strict liability committed by the company.

1. I will first address these arguments as a matter of principle and explain why the attempt to single out company directors (or a wider class of persons which includes directors) for special treatment in this way is, in my opinion, misguided and was rightly rejected by the Court of Appeal. I will next consider the cases cited by counsel for the Ahmeds and explain why, in my view, they do not justify a different conclusion. On the footing that the same rules apply to directors as to anyone else, I will then turn to what I regard as the critical question. Is it correct that, as Lifestyle contends, where the tort is one of strict liability, accessory liability is also strict?

The Ahmeds’ case on the liability of directors

1. For the Ahmeds, Mr Knox KC submitted that, where directors (or directors and employees) act in good faith and with reasonable care in the discharge of their duties to the company, and without actual or constructive notice that their acts will cause an infringement of intellectual property rights, then they cannot be held jointly liable with the company for infringements. This is because their acts are treated in law as the company’s acts. Mr Knox described this as “the fundamental point.” He elaborated on it by submitting that the law would be incoherent if directors were liable to third parties for doing what the law (as codified in sections 170 to 177 of the Companies Act 2006) requires them to do - in particular, by acting in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole: see section 172(1). He also submitted that the general purpose of the Companies Acts is to enable individuals to trade through a company with limited personal liability; and that imposing liability on owners and the directors who manage the company contradicts this purpose because it treats them as separate from the company rather than as one and the same.

1. I reject these arguments. 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. For this reason it matters whether the Ahmeds themselves infringed Lifestyle’s trade marks. I have concluded that they did not. But if they had themselves infringed Lifestyle’s trade marks, the fact that they did so in discharging their responsibilities as directors (or, for that matter, as employees or agents) of Hornby Street would not have shielded them from liability.

Rules of attribution

1. In the terminology coined by Lord Hoffmann in Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500, the rules of law that determine which acts of individuals are attributed to a company are known as “rules of attribution”. These rules comprise what Lord Hoffmann called the company’s “primary” rules of attribution contained in its constitution and implied by company law, as well as “general” rules of attribution which apply equally to living persons: in particular, general principles of agency and vicarious liability. In some contexts, “special” rules of attribution apply: see pp 506-507.

1. These rules of attribution do not, however, 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. As numerous commentators have pointed out, such reasoning is fallacious: see Peter Watts, “The Company’s Alter Ego - An Impostor in Private Law” (2000) 116 LQR 525; Robert Flannigan, “The Personal Tort Liability of Directors” (2002) 81 Canadian Bar Review 247; Neil Campbell and John Armour, “Demystifying the Civil Liability of Corporate Agents” (2003) 62 CLJ 290; Stefan Lo, “Liability of Directors as Joint Tortfeasors” [2009] JBL 109; Stefan Lo, “Dis-Attribution Fallacy and Directors’ Tort Liabilities” (2016) 30 Australian Journal of Corporate Law 215. In some of these articles the fallacy has been called the “dis-attribution fallacy” - meaning that it is fallacious to suppose that the attribution to B of an act done by A results in the dis-attribution of the act from A.

1. Employees who commit torts in the course of their employment for which their employer is vicariously liable are not thereby freed from personal liability. Indeed, the employer in such a case can claim an indemnity from the employee: Lister v Romford Ice & Cold Storage Co [1957] AC 555. Similarly, agents are in general personally liable for torts and other civil wrongs committed while acting on behalf of their principal, whether or not they were acting within the scope of their authority: see Bowstead & Reynolds on Agency, 23rd ed (2024), para 9-115 et seq, article 113 (and cases cited). It is not obvious why directors should enjoy privileged treatment not accorded to other agents or employees of a company.

Company law arguments

1. The arguments for treating directors differently appeal to company law. I do not accept, however, that company law provides any support for shielding directors from personal liability in tort. An incorporated company is treated in law as a separate person. It therefore has rights and obligations which are distinct from those of the members who incorporated or hold shares in the company and from those of its directors and other officers. 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.

1. A major benefit of incorporation under the Companies Acts is the ability to form a limited company. Unlike an unlimited company, a limited company can be used as a vehicle for trading with the assurance that its members will not lose more than they have agreed to invest in the company if its business fails. This feature of company law, however, has nothing to do with liabilities incurred by directors or managers of the company when acting as such. The protection of limited liability applies only to the members of the company. In the case of an unlimited company, the members have an unlimited liability on a winding up to make up any shortfall in its assets to ensure that its debts are paid. That is not so with a limited company. In the case of a company “limited by shares,” the liability of each member is limited to the amount which the member has agreed to pay on their shares. Once that amount has been paid (so that the shares are “paid up”), the member is under no further liability to contribute to the assets of the company. If directors are also shareholders, they will have the benefit of this limitation on their liability as shareholders. In their capacity as directors they do not have it and do not need it, as they have no relevant liability to limit: being a director does not make a person liable to contribute to the assets of the company if it enters into insolvent liquidation.

1. I also reject the argument that relieving directors of liability for wrongful acts done in the performance of their duties as directors is necessary to avoid incoherence in the law. I find it hard to see that a director’s duties to the company could ever be said to oblige the director to act unlawfully or in a way that causes the company to commit a tort. The duty embodied in section 172(1) of the Companies Act 2006 to act in a way the director considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole cannot reasonably be interpreted as obliging the director to infringe or cause the company to infringe intellectual property rights (or commit any other legal wrong). A director who acts in such a way may be able to say, “I did not realise or have reason to believe that I was acting unlawfully,” but not: “Discharging my duties as a director left me with no alternative but to act unlawfully.” The fact that a person did not realise or have reason to believe that their act was unlawful may or may not, depending on the nature of the tort, prevent that person from incurring liability. But I cannot see why the fact that the person is under a duty to someone other than the victim to act in good faith and with reasonable care should exclude their liability to the victim. The same applies to other duties owed to the company by directors. There is no inherent conflict between the duties of a director and the duty of every individual not to violate the rights of others.

1. In short, there is no question of holding directors liable just because they are directors for acts attributed to the company: see Rainham Chemical Works Ltd v Belvedere Fish Guano Co Ltd [1921] 2 AC 465, 488. The question is whether the fact that they are directors should relieve them of liability for their own tortious acts. There is no reason why it should.

Assumption of responsibility

1. Some confusion on this issue has arisen from cases concerned with the liability of directors for negligent misstatement. In Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517 Mr Ivory, the sole director and shareholder of a company, gave careless advice to some clients of the company. The question was whether Mr Ivory was personally liable for his negligent misstatements. The New Zealand Court of Appeal held that he was not. The rationale common to all three judgments was that Mr Ivory was not liable because he had assumed no personal responsibility to the claimants. In Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 the House of Lords likewise found that a company director was not personally liable for negligently prepared financial projections which induced the claimants to enter into a contract with the company. Again, the reason was that the director had not assumed personal responsibility for the statements made to the claimants.

1. In a case where the individual who makes the statement is (and is understood to be) representing someone else, the normal inference is that only the principal is assuming responsibility for the accuracy of the statement made on its behalf, and not the agent personally. Hence the agent will not be liable if the statement is false and is made negligently. This is not, however, because of any principle that a director who does an act which would otherwise give rise to liability in tort can escape liability if the act is done on behalf of the company. Nor is it because of any principle that an agent who does an act which would otherwise give rise to liability in tort can escape liability if the act was done on behalf of the principal. There is no such principle. The reason is only that, in the case of this particular tort, an assumption of responsibility is necessary to give rise to liability and the agent has not assumed responsibility.

1. The tort of negligent misstatement is analogous in this way to the law of contract. Liability for negligent misstatement arises out of a relationship described by Lord Devlin in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, 529, as “equivalent to contract, that is, where there is an assumption of responsibility in circumstances in which, but for the absence of consideration, there would be a contract.” An agent known to be acting as such who makes a contract is not liable on the contract unless, as a matter of objective interpretation, it has been agreed that the agent is to be liable (along with or instead of the principal): see Bowstead & Reynolds on Agency, 23rd ed (2024), para 9-001, article 97; Robert Stevens, “Why do agents ‘drop out’?” [2005] LMCLQ 101. A similar principle applies when an agent makes a statement intended to be relied on by a third party. The underlying distinction is between liability which is voluntarily undertaken and depends on what has been agreed or communicated between the claimant and the defendant and liability which is simply imposed by law on the defendant in relation to conduct which has injured the claimant. In the latter case the capacity in which the defendant was acting is not normally a relevant consideration.

1. Any room for doubt on this point was removed by the decision of the House of Lords in Standard Chartered Bank v Pakistan National Shipping Corpn (Nos 2 and 4) [2002] UKHL 43; [2003] 1 AC 959. In that case a company director had deceitfully made false statements to a bank in order to obtain payment under a letter of credit in favour of the company. The Court of Appeal held that the director was not personally liable for deceit, reasoning that the relevant statements were expressly made on behalf of the company and the director had not led the bank to believe that he was assuming personal responsibility for the statements: [2000] 1 Lloyd’s Rep 218, 235. They based this conclusion on the decision in Williams. An appeal by the bank to the House of Lords was allowed without the bank’s counsel even being called on. Lord Hoffmann (with whose judgment the other law lords agreed) pointed out, at para 21, that the reason why assumption of responsibility was relevant in Williams was that negligent misrepresentation is analogous to contract and “just as an agent can contract on behalf of another without incurring personal liability, so an agent can assume responsibility on behalf of another … without assuming personal responsibility.” The decision in Williams “had nothing to do with company law” (para 23) and its reasoning did not apply to liability for fraud (para 22). The fact that the director’s representation and knowledge would also be attributed to the company “cannot detract from the fact that they were his representation and his knowledge” and made him liable for deceit (para 20).

The principle in Said v Butt

1. In Standard Chartered Bank, unlike Williams, the director had personally committed a tort. The fact that he did so while acting as a director did not relieve him of liability. The decision in Standard Chartered Bank confirms that there is no rule of company or agency law which excepts directors from the general principles of tort law. I see no reason why the position should be different if the liability of the director is as an accessory rather than as a primary tortfeasor. The reasons for rejecting the notion that directors’ liability in tort depends on special principles apply equally in both cases.

1. Counsel for the Ahmeds, however, have argued that there is a difference. Their argument relies on an analogy with cases of directors who procure the company to break a contract, knowing that this is what they are doing. The leading case is Said v Butt [1920] 3 KB 497. The claimant, Mr Said, knew that he would not be sold a ticket for the first night of a play (because of a dispute with the managers of the theatre company) but bought a ticket through a friend. On the orders of the theatre company’s managing director, Sir Alfred Butt, Mr Said was refused admission to the theatre on that night. He sued Sir Alfred Butt personally for procuring the theatre company to break the contract made by the sale of the ticket. The claim failed because it was held that the company had not made a contract with Mr Said but only with his friend. McCardie J still considered what the position would have been if the company had made a contract with Mr Said. Having referred to the general principle that knowingly inducing a breach of contract is a tort, the judge said, at pp 505-506:

   “But the servant who causes a breach of his master's contract with a third person seems to stand in a wholly different position. He is not a stranger. He is the alter ego of his master. His acts are in law the acts of his employer. In such a case it is the master himself, by his agent, breaking the contract he has made, and in my view an action against the agent … must therefore fail, just as it would fail if brought against the master himself for wrongfully procuring a breach of his own contract.”

   McCardie J concluded, at p 506, that “if a servant acting bona fide within the scope of his authority procures or causes the breach of a contract between his employer and a third person, he does not thereby become liable to an action of tort at the suit of the [third person].”

1. Said v Butt has been followed on this point by courts in England and Wales and elsewhere in the common law world, including by the High Court of Australia in O’Brien v Dawson (1942) 66 CLR 18. The principle is not limited to directors but applies to any agent or employee who is alleged to have procured their principal or employer to act in breach of contract. In PT Sandipala Arthaputra v STMicroelectronics Asia Pacific Pte Ltd [2018] SGCA 17; [2018] 1 SLR 818 theSingapore Court of Appeal, in a thoughtful judgment, gave close consideration to the principle in Said v Butt. They also raised the question whether the principle should apply not only where a director has procured a breach of contract by the company but also where the director has procured the company to commit a tort. They suggested two possible responses to this question. One would be to limit the principle to breach of contract. Said v Butt would be explained on the ground that, having contracted with a specific party, the other party is taken to have accepted that “remedies for any breach of contract would be restricted to the contracting parties and nothing more” (para 76).The second possible response would be to extend the principle to other torts (para 78). The court did not express a concluded view on this question, which was not directly material to the appeal, but said that “there are compelling arguments in support of both views” (para 79).

Does the principle in Said v Butt extend to procuring a tort?

1. Counsel for the Ahmeds submit that the second possible response identified by theSingapore Court of Appeal in the Arthaputra case is the correct one. That approach finds support in Root Quality Pty Ltd v Root Control Technologies Pty Ltd [2000] FCA 980; (2000) 177 ALR 231, paras 125-134, a decision of the Federal Court of Australia, where Finkelstein J treated Said v Butt as authority for a general principle that a director of a company acting in that capacity cannot be held liable for procuring the company to infringe the rights of another. He applied this principle to hold that a director was not personally liable for procuring his company to infringe a patent.

1. In Said v Butt itself McCardie J made it clear that he did not regard his reasoning as extending to claims against a director or employee for procuring their principal to commit a tort. In his words, at p 506:

   “Nothing that I have said today is, I hope, inconsistent with the rule that a director or a servant who actually takes part in or actually authorizes such torts as assault, trespass to property, nuisance, or the like may be liable in damages as a joint participant in one of such recognized heads of tortious wrong.”

   To see whether a principled distinction can be drawn, however, it is necessary to identify with clarity the reason why an agent or employee who procures their principal or employer to break a contract with a third person is not liable in damages to that person.

1. I have quoted at para 46 above the reason given for that rule in Said v Butt. The reasoning seems to be that, if an employee or agent acting within the scope of their authority causes their principal to break a contract, then their act (on ordinary agency principles) is to be attributed to the principal. Thus, if the agent could be held liable in tort for inducing a breach of the contract, so too could the principal. Yet this would result in the principal being liable not only for breaking the contract but for inducing himself to break the contract, which would be nonsensical. Therefore, the agent in this situation cannot be liable for inducing the breach.

1. This reasoning was approved in DC Thomson & Co Ltd v Deakin [1952] Ch 646, 680-681, by Evershed MR, who also adopted this statement of it in Winfield’sLaw of Torts, 5th ed (1950), p 603:

   “If my servant acting bona fide within the scope of his authority, procures or causes me to break a contract which I have made with you, you cannot sue the servant for interference with the contract; for he is my alter ego here, and I cannot be sued for inducing myself to break a contract …”

   See now Winfield & Jolowicz on Tort, 20th ed (2020), para 19-015.

1. I consider this reasoning to be flawed. Certainly, it would make no sense to hold a party liable in tort for wrongfully procuring a breach of their own contract. But the reason for that is that the tort of inducing a breach of contract can only apply in a situation involving three parties. The tort is committed by a person (A) who knowingly procures the doing of an act by another person (B) which violates a right of the claimant (C) under a contract between B and C. The primary actor (B) cannot be liable on this principle. So a party to a contract who breaks the contract cannot be liable for procuring the breach. This objection does not arise, however, where the person who procures the breach is not the contracting party but another person. Contrary to what was said by McCardie J, an employee is not the “alter ego” of their employer. As discussed above, the fact that the employee’s acts “are in law the acts of his employer” does not relieve the employee of liability if the act of the employee is tortious. That is the “dis-attribution fallacy” discussed above. Thus, in my view, McCardie J’s argument does not provide a valid reason for his conclusion that an employee or agent cannot be liable in damages for inducing a breach of contract by their employer or principal.

1. The inadequacy of the reasoning has led some to doubt whether McCardie J’s conclusion can be justified. In Welsh Development Agency v Export Finance Co Ltd [1992] BCC 270, 289, Dillon LJ expressed “grave reservations” about the reasoning in Said v Butt because he could see no relevant distinction which depended on whether the liability of the principal resulting from the agent’s wrongful acts lies in breach of contract rather than tort. He said:

   “Since the agent or employee is normally personally liable for any tortious acts he does to third parties in the course of his agency or employment, I would not find any conceptual difficulty in holding that an employee or agent who, in the course of his employment or agency, wrongfully causes a breach of a contract between his employer or principal and a third party is liable in tort to the third party for his tortious act of wrongfully causing a breach of contract …”

Dillon LJ nevertheless thought that Said v Butt had stood as authority for so long and been so widely accepted that the Court of Appeal should not depart from it. Staughton LJ also expressed scepticism, saying that “[t]he rule, if such it be, seems anomalous to me” (p 305). By contrast, the third member of the court, Ralph Gibson LJ, made no criticism of the rule in Said v Butt. He described its purpose as being to avoid the undesirable consequence of making an agent or employee personally liable in tort for “what could be seen in commercial reality as no more than a breach of contract on the part of the employer.”

Tort’s cooperation principle

1. I think that the rule stated in Said v Butt is sound and that there is a good reason to distinguish between an agent who procures a breach of contract by the principal and an agent who commits or procures the commission of such torts as those mentioned by McCardie J in the passage quoted at para 49 above. Essentially, it is the reason suggested by the Singapore Court of Appeal in Arthaputra for limiting the principle to breach of contract. I would explain it in this way. When parties make a contract, unless the contract is personal in nature, the general rule is that a party may employ agents to carry out its obligations. When the contracting party is a company, that is of course the only possible means of performance. If a company breaks a contract, that must be because one or more agents of the company have caused the breach. When an agent, acting as such, makes a contract, the normal understanding is that the agent assumes no liability towards the other contracting party. Only the principal does. Similarly, the normal understanding is that, if the agent causes the principal to break the contract, only the principal will incur liability to the other contracting party, and not the agent. This is, I think, a general norm or social understanding which the law should and does reflect.

1. It would be inconsistent with that understanding for the law of tort to make an agent who, acting within the scope of their authority, causes or procures a breach of contract by the principal liable to compensate the other contracting party for loss resulting from the breach. By the same token, to allow the injured party to recover damages from the agent would give them a free ride. That is because the same norm or understanding that, unless otherwise specifically agreed, only the contracting parties themselves will be liable in the event of a breach of the contract entails that, if a party wants a right of recourse against an agent of the other party, they must bargain for it.

1. That ordinary understanding can be seen, for example, in the judgment of Waller J in Ridgeway Maritime Inc v Beulah Wings Ltd (The “Leon”) [1991] 2 Lloyd’s Rep 611, where the rule in Said v Butt was applied. In that case a company was found to have wrongly repudiated a contract to charter a ship. As well as suing the company for breach of contract, the shipowners sued its director, Dr Braithwaite, in tort for inducing the breach by writing a letter on behalf of his company which he knew would place the company in breach. The claim against him failed. In response to the contention that Dr Braithwaite was liable for procuring the breach, Waller J said, at p 625:

   “That would seem to me to be providing the plaintiffs with a form of security that they simply never had in this case. They might have sought a guarantee from Dr Braithwaite personally, but they were content to make a contract with [the company], and it would seem to me that, however unfortunately Dr Braithwaite may have behaved …, that cannot render him liable on the contract personally, when he would not otherwise have been.”

1. It is possible to view this consequence as an instance of a wider principle which Jane Stapleton in her recent book, Three Essays on Torts (2021), ch 2, p 36, calls “tort’s cooperation principle”. She argues that it is a general principle of tort law that, where parties come together voluntarily to cooperate with each other on the basis of what parties in their position would reasonably understand to be a particular allocation of risk, the law will not impose obligations in tort which would circumvent that risk allocation. An example is the common case of a building contract under which a single main contractor contracts with the building owner to construct a building and enters into sub-contracts for the performance of the work and the supply of materials. If the work or materials are defective, it is not normally open to the building owner to sue a sub-contractor or supplier in the tort of negligence. This is not because the building owner has made any contractual promise not to sue the sub-contractor or supplier. Ex hypothesi there is no privity of contract between them. It is because the participants have chosen to cooperate with each other on the basis of a risk allocation expressed in a particular contractual structure and the law of tort will not impose obligations which would circumvent this allocation of risk: see eg Simaan General Contracting Co v Pilkington Glass Ltd (No 2) [1988] QB 758; Norwich City Council v Harvey [1989] 1 WLR 828; Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, 196 (Lord Goff of Chieveley).

1. The principle is not limited to cases where the risk allocation is embodied in one or more contracts. Jane Stapleton cites Lord Denning’s observation in Midland SiliconesLtd v Scruttons Ltd [1962] AC 446, 488, that “it is an accepted principle of the law of tort that no man can complain of an injury if he has voluntarily consented to take the risk of it on himself. This consent need not be embodied in a contract. Nor does it need consideration to support it.” Thus, the principle which explains the rule in Said v Butt can also be engaged where liability in tort arises out of a relationship “equivalent to contract” involving an assumption of responsibility.

1. In Williams v Natural Life Health Foods Ltd, discussed above, the claimants advanced an argument in the House of Lords that, even if the director did not himself owe a duty of care to the claimants, he had directed that the negligently prepared financial projections be supplied to the claimants. Accordingly, he was liable as a joint tortfeasor with the company, which had been found liable to the claimants for negligent misstatement. Lord Steyn held that, procedurally, it was not open to the claimants to make this argument. But he dealt with it anyway, saying at pp 838-839:

   “The fallacy in the argument is clear. In the present case liability of the company is dependent on a special relationship with the [claimants] giving rise to an assumption of responsibility. [The director] was a stranger to that particular relationship. He cannot therefore be liable as a joint tortfeasor with the company. If he is to be held liable to the [claimants], it could only be on the basis of a special relationship between himself and the [claimants]. There was none. I would therefore reject this alternative argument.”

1. This reasoning was obiter but was recently relied on by the Court of Appeal in Barclay-Watt v Alpha Panareti Public Ltd[2022] EWCA Civ 1169; [2022] 1 All ER 165, para 76, as persuasive authority for deciding that a director of a company which had given negligent advice to customers could not be held liable as an accessory for the tort committed by the company.

1. Lord Steyn’s reasoning in the passage quoted above may fairly be described as compressed. The passage might be read as saying that the director could not be liable as a joint tortfeasor with the company because he did not owe a duty of care to the claimants jointly with the company. But such reasoning would be wrong. As I will discuss later, a defendant may be liable as a joint tortfeasor with another even though they did not jointly owe a duty of which they were both in breach, and indeed even if the defendant has not himself committed a tort at all. An example of such a case in the tort of negligence is Yuille v B & B Fisheries (Leigh) Ltd [1958] 2 Lloyd’s Rep 596. There a director was held jointly liable with the company for personal injury suffered by an employee serving on one of the company’s ships on the basis that the director had caused the company to send ships to sea in an unseaworthy condition.

1. What again distinguishes Williams is that the duty in that case depended on an assumption of responsibility said to create a “special relationship”. The claimants in Williams, in choosing to rely on information provided to them in negotiating a contract, were prima facie taking the commercial risks of doing so. It would have subverted this allocation of risk if a director of the other contracting party who had not assumed responsibility for the reliability of the information could be held liable in tort - whether as a primary tortfeasor or as an accessory - for loss caused by reliance on the information. This is how I would interpret Lord Steyn’s reasoning (1) that the director was “a stranger” to the relationship between the company and the claimants and (2) that, if the director was to be held liable to the claimants, it could only be on the basis of a special relationship between the director and the claimants - of which there was none.

1. I do not wish to give the impression that the law in this area, as it currently stands, is completely coherent. It is unclear whether the decision of the House of Lords in Henderson v Merrett that a duty of care was owed by the managing agents of syndicates at Lloyd’s to the members of the syndicates can be reconciled with the reasoning in Williams. But it is not necessary to confront these difficulties to decide this case, as the liability of the company here is not based on a contract or an assumption of responsibility. It is sufficient to conclude, as I do, that the rule in Said v Butt does not apply to civil wrongs which do not depend on any contract or voluntary arrangement between the parties and where liability arises even if they are complete strangers to one another. Infringement of a trade mark is a wrong of this kind.

Case law on liability of directors for company’s torts

1. So far I have been considering the liability of directors for torts committed by the company in terms of legal principle. I have concluded that, in the context of a claim for infringement of intellectual property rights, there is no justification for regarding directors, or agents and employees, as subject to any special rules. The same principles should govern their liability, whether as primary infringers or as accessories, as apply to anyone else. I must, however, now examine whether further authorities relied on by the Ahmeds provide any reason to alter this view.

1. I can begin with Rainham Chemical Works Ltd v Belvedere Fish Guano Co Ltd [1921] 2 AC 465, where Lord Buckmaster said (obiter), at p 476, that if directors in control of a company “expressly direct that a wrongful thing be done, the individuals as well as the company are responsible for the consequences.” In Performing Right Society Ltd v Ciryl Theatrical Syndicate Ltd [1924] 1 KB 1, 14-15, Atkin LJ cited this statement as authority for the proposition that a director may be held liable for tortious acts done by employees of the company if the director procures or directs the commission of the acts. That proposition was in turn cited and applied by the Privy Council in Wah Tat Bank Ltd v Chan Cheng Kum [1975] AC 507.

1. Two points may be noted about this line of cases. First, they contain no suggestion that the principle invoked is peculiar to directors. I read them as applying a general principle of tort liability to individuals who, on the facts of those cases, could induce others to act as they did because of the authority they had as directors. But the source of their authority was not legally significant. The same principle would apply to anyone who procures the commission by another person of a tortious act. Second, in none of these cases did the court address the relevance or otherwise to the liability of the defendant of their knowledge or state of mind, which did not arise as an issue.

Mentmore

1. Next in time is a Canadian case which has had a wide influence on the approach taken in Commonwealth jurisdictions, including England and Wales, to the liability of directors for torts committed by companies. In Mentmore Manufacturing Co Ltd v National Merchandising Manufacturing Co Inc (1978) 89 DLR (3d) 195 two directors caused their company to infringe a patent, aware of the patent owner’s allegations of infringement but, on the judge’s findings, without an intention to infringe or having acted recklessly. The Federal Court of Appeal of Canada upheld the decision that they were not liable.

1. Le Dain J, who delivered the judgment of the court, approached the matter, at p 202, on the basis that:

   “What is involved here is a very difficult question of policy. On the one hand, there is the principle that an incorporated company is separate and distinct in law from its shareholders, directors and officers, and it is in the interests of the commercial purposes served by the incorporated enterprise that they should as a general rule enjoy the benefit of the limited liability afforded by incorporation. On the other hand, there is the principle that everyone should answer for his tortious acts. The balancing of these two considerations in the field of patent infringement is particularly difficult.”

1. Le Dain J described the kind of participation in the acts of the company that should give rise to personal liability, at p 203, as “an elusive question,” but suggested that what is required is “that degree and kind of personal involvement by which the director or officer makes the tortious act his own.” While this is “obviously a question of fact to be decided on the circumstances of each case,” he said, at pp 204-205:

   “… in my opinion there must be circumstances from which it is reasonable to conclude that the purpose of the director or officer was not the direction of the manufacturing and selling activity of the company in the ordinary course of his relationship to it but the deliberate, wilful and knowing pursuit of a course of conduct that was likely to constitute infringement or reflected an indifference to the risk of it.”

   Le Dain J added that the “precise formulation of the appropriate test is obviously a difficult one” and that: “Room must be left for a broad appreciation of the circumstances of each case to determine whether as a matter of policy they call for personal liability.”

1. Mentmore has been followed in Canada, including by the Supreme Court of Canada in Cinar Corpn v Robinson 2013 SCC 73; [2013] 3 SCR 1168, para 60. Recent examples cited by counsel for the Ahmeds of Canadian cases applying the test stated in Mentmore are NOV Downhole Eurasia Ltd v TLL Oilfield Consulting Ltd 2017 FCA 32, and Vachon Bakery Inc. v Racioppo 2021 FC 308, paras 118-121.

1. Mentmore has also been influential in Australia. There is no consensus in Australia on the appropriate test to be applied to determine when a director is personally liable for a company’s torts and the question has not been considered by the High Court. But the Australian courts have largely assumed that there are special tests for tort liability for directors and, following the decision of the Full Federal Court of Australia in Keller v LED Technologies Pty Ltd [2010] FCAFC 55; (2010) 268 ALR 613, have favoured approaches derived from Mentmore: see Stefan Lo, “Dis-Attribution Fallacy and Directors’ Tort Liabilities” (2016) 30 Australian Journal of Corporate Law 215.

Comparison with disgorgement claims in equity

1. In the judgments of the courts below and in the argument on this appeal, reference was made to several cases concerned with claims for an account of profits against persons who have dishonestly assisted in a breach of fiduciary duty. Lifestyle cited Canada Safeway Ltd v Thompson [1951] 3 DLR 295, 323, where a judge in British Columbia held dishonest assistants jointly and severally liable to account for the profits made by the defaulting fiduciary. Although no authority or reasoning was given for this decision, it has been followed in Canada.

1. Steven Elliott and Charles Mitchell in their article “Remedies for Dishonest Assistance” (2004) 67 MLR 16, 40, after referring to this line of Canadian cases, questioned “whether it is desirable in principle to make a dishonest assistant liable to account for the fiduciary's profits, where he has received no benefit for himself.” In Ultraframe (UK) Ltd v Fielding[2005] EWHC 1638 (Ch), paras 1595-1601, Lewison J answered that question in the negative. After considering Canada Safeway and an unreported English case, Comax Secure Business Services Ltd v Wilson (HH Judge Seymour QC, 21 June 2001), where a similar approach was taken, he said:

   “I can see that it makes sense for a dishonest assistant to be jointly and severally liable for any loss which the beneficiary suffers as a result of a breach of trust. I can see also that it makes sense for a dishonest assistant to be liable to disgorge any profit which he himself has made as a result of assisting in the breach. However, I cannot take the next step to the conclusion that a dishonest assistant is also liable to pay to the beneficiary an amount equal to a profit which he did not make and which has produced no corresponding loss to the beneficiary.” (para 1600, emphasis in original)

1. In Novoship (UK) Ltd v Mikhaylyuk[2012] EWHC 3586 (Comm), para 99, Christopher Clarke J agreed with Lewison J on this point, observing that “there is no equity to compel someone who has not made a profit from his breach, or dishonest assistance in that of another, to account for a profit which he has not made and which does not represent a loss which the principal has suffered.” On appeal, the Court of Appeal took a similar view: see Novoship (UK) Ltd v Mikhaylyuk[2014] EWCA Civ 908; [2015] QB 499, paras 75-77 and 84. Recently, the Court of Appeal confirmed the proposition that a dishonest assistant may be ordered to account for his profits, but not for the fiduciary’s profit: see Hotel Portfolio II UK Ltd v Ruhan[2023] EWCA Civ 1120; [2024] Bus LR 160, paras 43-44, 60 and 67.

1. Far from assisting Lifestyle, therefore, the comparison with claims against dishonest assistants positively supports the conclusion that the only profits which a person liable as an accessory can be required to disgorge are profits shown to have been derived by the accessory from the wrongful acts and not profits realised by the primary wrongdoer.

1. Lifestyle has also sought to rely on the judgment of Lawrence Collins J in CMS Dolphin Ltd v Simonet [2002] BCC 600. In this case the relevant defendant (Mr Simonet) was a primary wrongdoer rather than an assistant. He was found to have acted in breach of his fiduciary duty as a director of the claimant by diverting business from the claimant to, first, a partnership, and then a company, which he set up. One of the issues was whether Mr Simonet, who had personally made no profits from the business unlawfully obtained, was liable to account for profits made by the partnership and company. The judge held that he was.

1. In the case of the partnership, that conclusion was based on the decision of the House of Lords in Imperial Mercantile Credit Association (Liquidators of) v Coleman (1873) LR 6 HL 189. In the case of the company, Lawrence Collins J noted that where a company is incorporated or used to perpetrate wrongdoing it may be permissible to “pierce the corporate veil”. But he did not think it necessary to rely on that principle as he considered that two authorities (Cook v Deeks [1916] 1 AC 554 and Canadian Aero Service Ltd v O’Malley (1973) 40 DLR (3rd) 371) showed that directors are liable with a company formed by them to take unlawful advantage of a business opportunity, for the reason that “they have jointly participated in the breach of trust” (para 103). He sought to distinguish the decision of the House of Lords in Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 in which Mr Gulliver was held not to be accountable for profits made as a result of his breach of fiduciary duty as a director by two companies in which he had an interest because he had personally made no profit.

1. The reasoning in CMS Dolphin was subjected to sustained criticism in Ultraframe (UK) Ltd v Fielding[2005] EWHC 1638 (Ch), leading Lewison J to decline to follow it. I do not think it necessary to recite the detailed reasons given by Lewison J for that decision at paras 1565-1576 of his judgment, which are compelling. They include a demonstration that the two authorities relied on in CMS Dolphin do not support the proposition for which they were cited and that the reasons given for distinguishing Regal (Hastings) Ltd v Gulliver were insufficient. Lewison J also pointed out that “joint participation” in a breach of trust is not a cause of action in English law. I agree with his conclusion, at para 1576, that the mere fact that a fiduciary has a substantial interest in a company which knowingly receives trust property does not make the fiduciary personally accountable for the receipt.

1. Again, therefore, the analogy on which Lifestyle seeks to rely does not support its case. No good reason or persuasive authority has been identified for impugning the Court of Appeal’s conclusion in this case that, if the Ahmeds had been personally liable for infringements of Lifestyle’s trade marks, they could only have been liable to account for profits which they personally made from the infringements.

What, if any, profits did the Ahmeds make?

1. The next question is what profits, if any, the Ahmeds made from the infringements of Lifestyle’s trade marks. In particular, was it open to the judge to find that a proportion of their salaries and a loan made to Mr Ahmed by Hornby Street constituted such profits?

1. Taking first the loan, I agree with the Court of Appeal that it was wrong in principle to treat the loan as a profit. A person does not make a profit just by borrowing a sum of money. If the loan is interest-free or at a rate of interest lower than a commercial rate, this difference might generate a profit for the borrower. But Lifestyle has not attempted such a calculation or put its case in this way. Equally, had it been shown that the loan was not really a loan at all but a disguised dividend, the position would be different. But there was no evidence or finding to that effect.

1. Lifestyle has argued that the loan became a profit when Hornby Street was dissolved. This is not an argument which Lifestyle could have made at the trial, as the company was then still in existence and in the hands of administrators. But in the Court of Appeal Lifestyle argued that, even if the judge were wrong to characterise the loan as a profit, his decision should be upheld because the subsequent dissolution of the company meant that what had been a loan had become a profit. Alternatively, Lifestyle argued that, even at the time of the trial, it was apparent that the administrators were not going to pursue Mr Ahmed for repayment of the loan. The Court of Appeal rightly regarded these matters as irrelevant. If, as a result of supervening events, a loan is forgiven or otherwise ceases to be repayable, that does not alter its character as a loan.

1. Where the Court of Appeal erred, in my view, was in upholding the judge’s decision that part of the salaries paid to the Ahmeds could properly be treated as profits. Again, payments made ostensibly as remuneration may in reality be a way of extracting profits from a company. But there was no allegation, evidence or finding that the salaries paid to the Ahmeds were anything but ordinary remuneration for their services. Indeed, the judge expressly accepted in his judgment, at para 92(e), that the salary payments “were for work done, not dividends.” Whereas an employer may of course profit from the labour of an employee in that the work done by the employee may earn more income for the employer than it costs to employ that person, an employee who receives in return for their services a sum no greater than the fair market value of those services does not make a profit. It is not suggested that the Ahmeds were paid more for their services to Hornby Street than their services were worth.

1. The Court of Appeal reasoned that the position of an employee is in principle no different from that of a sole trader. Birss LJ, at para 82 of the judgment, gave the example of an individual sole trader in a market stall who sells infringing T-shirts. He said that the profits made on those sales would be potentially available in an account of profits and would include all the relevant receipts, net of appropriate costs which were relevant to the sale of the infringing goods. It is wrong, however, to equate a person who trades in goods and whose income consists of the proceeds of sale of the goods with a person who is paid for their labour. A sole trader whose income is earned by selling goods herself may make a greater profit than if she employs an assistant to sell the goods for her because she has no labour cost to deduct. But that is a consequence of how she chooses to conduct her business. It does not mean that if someone is employed by a trader to sell goods on her behalf and is paid a salary or wage in return for his labour, the employee’s remuneration is a profit. The two situations are not alike.

1. I would comment in passing that, although the Ahmeds who were acting in person at the second trial did not take the point, the profit for which a trader who sells infringing goods is liable to account is not necessarily the difference between the proceeds of sale of such goods and the costs attributable to those sales. As pointed out by Windeyer J in Colbeam Palmer Ltd v Stock Affiliates Pty Ltd, at p 37, the profit for which the infringer of a trade mark must account is not the profit made from selling the article itself but the profit made from selling it under the trade mark. In My Kinda Town Ltd (trading as Chicago Pizza Pie Factory) v Soll [1982] FSR 147, for example, the claim was for passing off by using a name confusingly similar to the name used by the claimant for a chain of restaurants. Slade J, after an extensive review of cases involving trade mark infringement as well as passing off, held that the profits for which the defendant was liable to account were those caused by the confusion, and not all the profits made by the defendant from its restaurant business. The principle was clearly explained by Lewison LJ in OOO Abbott v Design & Display Ltd[2016] EWCA Civ 98; [2016] FSR 27, para 36 (a patent case but where the same principle applies):

   “In a case in which the infringement does not ‘drive’ the sale it seems to me that it is wrong in principle to attribute the whole of the profit to the infringement. In particular it does not follow from the fact that the customer wanted a slat wall that incorporated an insert that the customer wanted a slat wall that incorporated the infringing insert.” (emphasis in original)

1. In estimating the profits for which Hornby Street was liable to account, the question should therefore have been asked whether it is likely that any, and if so what proportion, of the sales of goods bearing the offending signs which were in fact made would have been made if the signs had not been used. The appropriate inference might have been that no sales would have been made but the question was not considered.

Tax

1. Having held that the judge was entitled to find that 10% of the Ahmeds’ salaries represented profit attributable to the infringements, Birss LJ suggested, at para 85 of the Court of Appeal judgment, that a deduction should probably be made for the income tax paid by the Ahmeds on this part of their remuneration. Neither party had raised any point about income tax either before the judge or in the Court of Appeal. The parties were invited to make brief written submissions on the point when they were sent the court’s judgment in draft. Having considered those submissions, the Court of Appeal decided that it was indeed right in calculating the sum due to Lifestyle from Mr Ahmed and Ms Ahmed respectively to deduct a sum equal to the income tax paid on the relevant portion of their salaries. The Court of Appeal accordingly substituted amounts net of tax for the sums ordered by the judge.

1. Lifestyle has argued that the Court of Appeal was wrong to raise this point of its own motion after the appeal hearing, as it was not a pure point of law but a defence which ought to have been pleaded and raised at the trial. Lifestyle has also argued that it was not given an adequate opportunity to deal with the point and that in any event the Court of Appeal got the law wrong.

1. These questions are relevant only if the initial premise is correct that the judge and the Court of Appeal were entitled to regard a proportion of the Ahmeds’ salaries as representing profits attributable to the infringements. I have explained why I do not accept that premise. I do not think it fruitful to consider whether income tax should or should not be taken into account in calculating profits made by the Ahmeds when the sums on which income tax was paid were not such profits. In these circumstances it is also unnecessary to comment on the procedural objections raised by Lifestyle.

IV. DISPOSAL

1. For the reasons given in this judgment, I would dismiss Lifestyle’s appeal and would allow the Ahmeds’ appeal for two reasons, each of them a sufficient reason to set aside the orders made against the Ahmeds for an account of profits.

1. First, to justify the conclusion the Ahmeds were jointly liable with Hornby Street, the company of which they were directors, for its infringements of Lifestyle’s trade marks, either because they procured the infringements or because they participated in a common design, it would have been necessary to show that the Ahmeds had knowledge of (or turned a blind eye to) the facts which made the use of the “Santa Monica Polo Club” signs by Hornby Street infringements of Lifestyle’s trade marks. But no such case was advanced and the judge made no such finding. Lifestyle’s case on liability was therefore not made out.

1. Second, the only profits for which the Ahmeds could in any event 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; and the facts found by the judge did not justify the conclusion that the Ahmeds personally made any profits from those infringements. For this reason too, the orders for an account of profits were wrongly made.