Trade Marks: Lifestyle Equities v Ahmed
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| Lord Leggatt By Supreme Court of United Kingdom - (see Terms and conditions)Licensed under the Open Government Licence 3.0, OGL 3, https://commons.wikimedia.org/w/index.php?curid=97243730 |
Supreme Court (Lords Lloyd-Jones, Kitchin, Leggatt, Stephens and Richards) Lifestyle Equities CV and another v Ahmed and Another [2024] UKSC 17 (15 May 2024)
This was the second excursion to the UK Supreme Court for Lifestyle Equities CV and Lifestyle Licensing BV ("Lifestyle") in 2024. Its first was Lifestyle Equities CV and another v Amazon UK Services Ltd and others [2024] UKSC 8 (6 Mar 2024) which I discussed in Trade Marks: Lifestyle Equities v Amazon on 12 March 2024. As in the previous case, the claim that gave rise to these appeals was an action for trade mark infringement in relation to the BEVERLY HILLS POLO CLUB range of clothing and accessories.
The Issues
The issues in the appeals were summarized by Lord Leggatt in the first paragraph of the Court's judgment:
"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?"
"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?"
The Judgment
The Supreme Court responded as follows. The directors were not primarily liable for trade mark infringement because they had not used signs that infringed the claimants' marks. Nor were they liable as accessories even though they procured their companies to infringe those marks. That was because they lacked the knowledge or intent necessary for accessory liability. As the directors were not liable for trade mark infringement they should not have been ordered to account either for their company's profits or for any portion of their income.
Understanding this Case
The Supreme Court has published a case summary on its website. That page links to a press summary and a video of Lord Leggatt handing down judgment. To trace the history of this litigation it is helpful to read the judgments of Mr Recorder Campbell QC in Lifestyle Equities CV and another v Santa Monica Polo Club Ltd and others [2017] EWHC 3313 (Ch) (21 Dec 2017) and Lifestyle Equities CV and Another v Santa Monica Polo Club Ltd and others [2020] EWHC 688 (Ch) (23 March 2020) and the Court of Appeal in Lifestyle Equities C.V. and Another v Ahmed and Another [2021] EWCA Civ 675 (7 May 2021)). Videos of counsels' arguments on 23 and 24 Feb 2024 are also linked to the case summary. The full judgment of the Supreme Court is available on BAILII and the Supreme Court website (Lifestyle Equities CV another v Ahmed and another [2024] UKSC 17 (15 May 2024)).
The Claim
Lifestyle Equities CV had registered the following device as a trade mark in the EU under registration number EU5482484 for goods in classes 9 and 25 and in the UK under registration number UK1259226 for goods in class 25:
Lifestyle Licensing BV was Lifestyle Equities CV's exclusive licensee. The two Lifestyle companies sued 16 defendants including Continental Shelf 128 Ltd and Hornby Street Ltd. and their directors Kashif and Bushra Ahmed for trade mark infringement and passing off. They alleged that the manufacture, marketing and sale of clothing, footwear and headgear under various signs that showed polo players with the words SANTA MONICA POLO CLUB infringed their trade marks. The action together with a counterclaim for unjustified threats was tried by Mr Recorder Campbell QC. He found for Lifestyle on trade mark infringement and passing off and dismissed the counterclaim in Lifestyle Equities CV and another v Santa Monica Polo Club Ltd and others [2017] EWHC 3313 (Ch) on 21 Dec 2017.
The Account of Profits
When a claimant succeeds at trial he or she can choose between an account of profits or an inquiry as to damages, but not both. In this case, Lifestyle chose an account of profits against Kashif and Bushra Ahmed even though their companies, Continental Shelf 128 Ltd and Hornby Street Ltd. had been placed in administration and dissolved. In Lifestyle Equities CV and Another v Santa Monica Polo Club Ltd and others [2020] EWHC 688 (Ch) (23 March 2020) the recorder assessed Hornby Street Ltd's accountable profits at £3,129,921 but rejected Lifestyle's contention that the Ahmeds were liable to account for that sum. He held that they should account for the proportion of their salaries that resulted from the infringement. In Kashif's case that was £144,192 and in Bushra's £57,007. He also ordered Kashif to account for a £635,789 loan from the company.
The Court of Appeal
Both sides appealed to the Court of Appeal, Lifestyle appealed against the decision that the Ahmeds were not liable to account for the profits made by Hornby Street from its infringements. The Ahmeds appealed against the decisions 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. The Court of Appeal (Lords Justices Moylan, Nugee and Birss) upheld the recorder's judgment but relieved Kashif Ahmed from liability to account for the loan and deducted the Ahmeds' income tax from the amount of accountable profits (see Lifestyle Equities C.V. and Another v Ahmed and Another [2021] EWCA Civ 675 (7 May 2021)).
The Appeal to the Supreme Court
The parties appealed to the Supreme Court pursuing the same arguments as they had advanced in the Court of Appeal, Lord Leggatt, who delivered the judgment of the Supreme Court, noted at para [11] that the issues fell 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?"
"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?"
His lordship decided to take the liability issue first.
Whether the Ahmeds infringed Lifestyle's Trade Marks
After reviewing s.9 (1) and s.10 (2), (3) and (4) of the Trade Marks Act 1994, Lord Leggatt noted that "use" within the meaning of s.10 (4) was a requirement common to the first 3 subsections of s.10. That raised the question of whether the Ahmeds had "used" the offending signs in the course of trade.
The recorder had found that Kashif had been the managing director of both Continental Shelf 128 Ltd and Hornby Street Ltd. He had been the "ultimate decision-maker". He managed the intellectual property portfolio for the companies. He instructed Hornby Street's design director to oversee designing a logo for the Santa Monica Polo Club brand. 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. None of those acts fell within the scope of s.10 (4).
The recorder had found that Kashif had been the managing director of both Continental Shelf 128 Ltd and Hornby Street Ltd. He had been the "ultimate decision-maker". He managed the intellectual property portfolio for the companies. He instructed Hornby Street's design director to oversee designing a logo for the Santa Monica Polo Club brand. 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. None of those acts fell within the scope of s.10 (4).
Mr Campbell had found that Bushra had been head of sales for Hornby Street, Her role had been a very hands-on one managing the day-to-day running of this business with the help of 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. Lifestyle submitted that that was enough to constitute "use" as Bushrah offered goods for sale under the offending signs.
Lord Leggatt recoiled from that submission at para [24];
"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."
Lord Leggatt recoiled from that submission at para [24];
"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."
The Supreme Court concluded that it was the company and not Kashif or Bushrah personally who had used the signs complained of in the course of trade.
Joint Liability
Although the Ahmeds may not have infringed Lifestyle's trade marks in any of the ways provided by the Trade Marks Act 1994, it did not follow that they were without liability. The common law has developed a principle of accessory liability which operates alongside obligations imposed by statute. Lifestyle contended that the Ahmeds were liable for (1) authorizing or procuring Hornby Street to commit a tort and (2) participating in a common design to commit a tort. Both Mr Recorder Campbell and the Court of Appeal agreed and held that the Ahmeds were liable on those grounds.
The Ahmeds had argued that their mental state was a relevant consideration for determining accessory liability but the recorder and the Court of Appeal had ruled that for a tort of strict liability like trade mark infringement accessory liability did not depend on knowledge that Hornby Street's acts were or were likely to be infringements. It was enough that the Ahmeds intended that the company should do acts that were held to be infringements.
Lord Leggatt said that it would be necessary to determine whether that general principle of law was correct but he would deal first with arguments that directors who act properly in performing their duties to their companies and without notice of wrongdoing cannot be held jointly liable for IP infringements or other strict liability torts.
Lord Leggatt said that it would be necessary to determine whether that general principle of law was correct but he would deal first with arguments that directors who act properly in performing their duties to their companies and without notice of wrongdoing cannot be held jointly liable for IP infringements or other strict liability torts.
Directors' Immunity
The Ahmeds had argued the directors' immunity point. According to Lord Leggatt almost all the cases that had been cited in support of that contention concerned directors. The Supreme Court rejected those arguments. The justices said that there was nothing in company law or the law of agency or tort that exempted directors as such from the ordinary principles of tort liability.
The Court considered the rules by which an employer is held liable for the wrongs of its employees. Lord Leggatt warned in para [35] that those rules do not 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 them. The House of Lords held in Lister v Romford Ice & Cold Storage Co. [1956] UKHL 6, [1957] AC 555 that an employer that was vicariously liable for the torts of its employee was entitled to an indemnity from such employee. According to Bowstead & Reynolds on Agency, (23rd ed (2024), para 9-115 et seq, article 113 (and cases cited)). agents were similarly liable for torts committed on behalf of their principals. There was nothing to suggest that directors were in a different position.
The doctrine of limited liability did not exonerate directors for torts carried out on behalf of their companies. It merely limits the amount that a member must contribute to a company's liabilities, Lord Leggatt found it hard to believe that carrying out a director's duties would ever lead the director knowingly into wrongdoing. He could imagine circumstances where a director might inadvertently commit a tort. Such a person might or might not escape liability depending on the nature of the tort. There was no reason why a person who was under a duty to someone other than a victim to act in good faith and with reasonable care should be excused from liability to that victim.
The Court considered the rules by which an employer is held liable for the wrongs of its employees. Lord Leggatt warned in para [35] that those rules do not 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 them. The House of Lords held in Lister v Romford Ice & Cold Storage Co. [1956] UKHL 6, [1957] AC 555 that an employer that was vicariously liable for the torts of its employee was entitled to an indemnity from such employee. According to Bowstead & Reynolds on Agency, (23rd ed (2024), para 9-115 et seq, article 113 (and cases cited)). agents were similarly liable for torts committed on behalf of their principals. There was nothing to suggest that directors were in a different position.
The doctrine of limited liability did not exonerate directors for torts carried out on behalf of their companies. It merely limits the amount that a member must contribute to a company's liabilities, Lord Leggatt found it hard to believe that carrying out a director's duties would ever lead the director knowingly into wrongdoing. He could imagine circumstances where a director might inadvertently commit a tort. Such a person might or might not escape liability depending on the nature of the tort. There was no reason why a person who was under a duty to someone other than a victim to act in good faith and with reasonable care should be excused from liability to that victim.
Lord Leggatt considered Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517 where the New Zealand Court of Appeal held that a director of a one-man company was not personally liable for negligent advice that he had given on behalf of his company to its clients because he had assumed no personal responsibility to those clients. That case was followed in England by Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830, (1998) 17 Tr LR 152, [1998] WLR 830, [1998] 2 All ER 577, [1998] BCC 428, [1998] 1 BCLC 689, [1998] UKHL 17. There the House of Lords found that a company director was not personally liable for negligently prepared financial projections that induced the plaintiffs to enter into a contract with the company because the director had not assumed personal responsibility for the statements.
His lordship explained that 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 made negligently. That is not 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. The reason is that in the case of this particular tort, an assumption of responsibility is necessary to give rise to liability and the agent, unlike the company, had not assumed personal responsibility.
His lordship explained that 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 made negligently. That is not 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. The reason is that in the case of this particular tort, an assumption of responsibility is necessary to give rise to liability and the agent, unlike the company, had not assumed personal responsibility.
Another of the Ahmeds' arguments was that a director or indeed any other employee or agent who causes his company to breach a contract with a third party cannot be sued by that third party for inducing a breach of contract. They relied on the judgment and obiter dicta of Mr Justice McCardie in Said v Butt [1920] 3 KB 497 and subsequent cases. Lord Leggatt summarized their reasoning as follows in para [50]:
"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."
"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."
His lordship regarded that reasoning as flawed pointing out that it could not apply to a case where the act of the employee is tortious. The better view of Said v Butt was as follows:
"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."
"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."
His lordship added at [55]:
"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."
"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."
He proceeded to Mentmore Manufacturing Co Ltd v National Merchandising Manufacturing Co Inc 1978 CanLII 2037 (FCA), 22 NR 161, 89 DLR (3d) 195, 2 ACWS 486, 40 CPR (2d) 164 where the Canadian Federal Court of Appeal held that two directors who had caused their company to infringe a patent in the knowledge of the patent owner's allegations of infringement but without any intention to infringe or having acted recklessly. were found not to be personally liable. His lordship considered subsequent Canadian, Australian and English authorities including C Evans & Sons Ltd v Spritebrand Ltd [1985] 1 WLR 317, 328-329, CBS Songs Ltd v Amstrad Consumer Electronics plc [19988] AC 1013 and MCA Records Inc v Charly Records Ltd [2001] EWCA Civ 1441; [2002] FSR 26. He concluded at para [85]:
"Despite my disagreement, however, with the analysis in Mentmore and other cases influenced by it, I share what I perceive to be their underlying sentiment: 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. But the injustice does not flow from any special feature of the role of company director. The objection is much broader than that. 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."
Procuring a Tort
Having disposed of the argument that directors who had procured their companies to commit torts were subject to special rules, his lordship turned to consider accessory liability.
Lifestyle had argued that the knowledge or state of mind required for accessory liability should be that required to incur primary liability for committing the tort concerned. It relied on the judgment of the Court of Appeal in C Evans & Sons Ltd v Spritebrand Ltd in support of that argument. In that case, the Court refused to strike out a claim against a director who had directed or procured his company to infringe the claimant's copyrights. That was because s.1 (2) of the Copyright Act 1956 provided that copyright was infringed by "any person who, not being the owner of the copyright, and without the licence of the owner thereof, does, or authorises another person to do, any of the said acts in relation to the work in the United Kingdom." Thus, the director could be liable as a primary infringer for authorizing the company to infringe copyright. His lordship noted that there was no equivalent to s.1 (2) of the 1956 Act in the Trade Marks Act 1994. He added:
"..... a claim against a director who instructs an employee to do such an act must be based on the common law and not on the legislation. It cannot simply be assumed that because knowledge or its absence is irrelevant to whether an act amounts to an infringement, it is also irrelevant to whether liability as an accessory will arise under the common law. There is no necessary connection between the two."
The judgments of the Privy Council in Royal Brunei Airlines Sdn Bhd v Tan [1995] UKPC 4, [1995] 3 All ER 97, [1995] 2 AC 378 and the House of Lords in Twinsectra Ltd v Yardley [2002] NPC 47, [2002] 2 WLR 802, [2002] 38 EGCS 204, [2002] 2 AC 164, [2002] 2 All ER 377, [2002] WTLR 423, [2002] UKHL 12, [2002] PNLR 30 indicate that a person who assists in a breach of trust or fiduciary duty is liable as an accessory only where the assistance is dishonest irrespective of whether the primary wrong involves knowledge or dishonesty. The mental element required for accessory liability in equity therefore does not correspond to that required to commit the primary wrong.
The tort of procuring a breach of contract is another instance of accessory liability where the primary wrong involves strict liability but liability for inducement requires knowledge. The leading case is Lumley v Gye (1853) 2 E & B 216; 118 ER 749. That judgment was analysed by the House of Lords in OBG Ltd v Allan [2007] 4 All ER 545, [2007] 2 WLR 920, [2007] EMLR 12, [2007] 19 EG 165, [2007] 2 WLR 0920, [2007] BPIR 746, [2007] UKHL 21, [2008] 1 AC 1, [2007] IRLR 608, [2008] 1 All ER (Comm) 1, [2008] AC 1, [2007] EMLR 325, [2007] Bus LR 1600 which held that the tort requires intention to induce a breach or at the very least wilful blindness.
In Lumley Mr Justice Erle said at page 232 that liability for inducing a breach of contract extended to procuring breaches of other legal rights:
"It is clear that the procurement of the violation of a right is a cause of action in all instances where the violation is an actionable wrong ... he who procures the wrong is a joint wrongdoer, and may be sued, either alone or jointly with the agent, in the appropriate action for the wrong complained of."
"It is clear that the procurement of the violation of a right is a cause of action in all instances where the violation is an actionable wrong ... he who procures the wrong is a joint wrongdoer, and may be sued, either alone or jointly with the agent, in the appropriate action for the wrong complained of."
That reasoning was endorsed by the House of Lords in Quinn v Leathem [1901] UKLawRpAC 40; (1901) AC 495 and the High Court of Australia in James v The Commonwealth (1939) 62 CLR 339, 370. The principle was extended to inducing breaches of statutory duty in Associated British Ports v Transport and General Workers' Union [1989] 1 WLR 939. These authorities were relied upon by the copyright owners in CBS Songs as expressed in the following passage of Lord Justice Buckley's judgment in Belegging-en Exploitatiemaatschappij Lavender BV v Witten Industrial Diamonds Ltd [1979] FSR 59, 66:
"The plaintiffs do not only assert infringement by the defendants. They also say that the defendants have procured, counselled and/or aided other persons to infringe. This may perhaps amount to an allegation of indirect infringement by the defendants themselves, but I am inclined to think that it is a claim in respect of a distinct, suggested tort of procuring infringement by others (based upon the principle enunciated by Erle J in Lumley v Gye, 2 E & B 216, 231) ..."
"The plaintiffs do not only assert infringement by the defendants. They also say that the defendants have procured, counselled and/or aided other persons to infringe. This may perhaps amount to an allegation of indirect infringement by the defendants themselves, but I am inclined to think that it is a claim in respect of a distinct, suggested tort of procuring infringement by others (based upon the principle enunciated by Erle J in Lumley v Gye, 2 E & B 216, 231) ..."
In CBS Songs, Lord Templeman said:
"My Lords, I accept that a defendant who procures a breach of copyright is liable jointly and severally with the infringer for the damages suffered by the plaintiff as a result of the infringement. The defendant is a joint infringer; he intends and procures and shares a common design that infringement shall take place. A defendant may procure an infringement by inducement, incitement or persuasion."
Lord Leggatt identified the relevant mental element for liability as an accessory as an intention to cause the primary wrongdoer to do an act that the accessory knew to be wrongful.
"My Lords, I accept that a defendant who procures a breach of copyright is liable jointly and severally with the infringer for the damages suffered by the plaintiff as a result of the infringement. The defendant is a joint infringer; he intends and procures and shares a common design that infringement shall take place. A defendant may procure an infringement by inducement, incitement or persuasion."
Lord Leggatt identified the relevant mental element for liability as an accessory as an intention to cause the primary wrongdoer to do an act that the accessory knew to be wrongful.
Common Design
Another basis of accessory liability is that parties had participated in tortious acts pursuant to a common design. Participating in similar designs causing independent damage was not enough. There must be concerted action towards a common end. In CBS Songs the copyright owners contended that Amstrad was acting in concert with infringers pursuant to a common design. Lord Templeman rejected that contention:
"My Lords, joint infringers are two or more persons who act in concert with one another pursuant to a common design in the infringement. In the present case there was no common design."
"My Lords, joint infringers are two or more persons who act in concert with one another pursuant to a common design in the infringement. In the present case there was no common design."
Lord Sumption explained at para [44] of Fish & Fish what was involved in acting pursuant to a common design:
"What the authorities, taken as a whole, demonstrate is that the additional element which is required to establish liability, over and above mere knowledge that an otherwise lawful act will assist the tort, is a shared intention that it should do so. The required limitation on the scope of liability is achieved by the combination of active co-operation and commonality of intention. It is encapsulated in Scrutton LJ's distinction [in The Koursk [1924] P 140, 156] between concerted action to a common end and independent action to a similar end, and between either of these things and mere knowledge of the consequences of one's acts."
Lord Leggatt added at para [118] of the Supreme Court's judgment:
"One thing that is clear is that to act in concert in pursuance of a common end, the parties must have interrelated intentions which each understands the other to share. To achieve such active co-operation and commonality of intention, some form of communication between the parties is required. As Mustill LJ noted in Unilever at p 609, this does not call for any finding that the parties explicitly mapped out a plan. The communication need not even involve words. To illustrate how actions may be coordinated without any express agreement, the philosopher David Hume gave an example of two men who pull the oars of a boat together in time: see A Treatise of Human Nature (1740), ed LA Selby-Bigge, at p 490. The significance from a normative point of view of concerted action in pursuit of a shared aim that it confers collective responsibility on the parties who combine to bring about the commission of the tort."
In CBS Songs Lord Templeman appeared to have regarded liability for procuring an infringement as an instance of joint liability based on sharing a common design. That view was not supported by other authorities. At para [120], Lord Leggatt said that the better view was that procuring an infringement and participating in a common design are two separate principles of accessory liability on which a person may be held jointly liable with the infringer for damage caused by the infringement.
In Fish & Fish, there was discussion on whether a shared intention to do harm such as damaging equipment only in certain circumstances was enough to give rise to accessory liability based on a common design, or whether the intention had to be unconditional. The trial judge found that the defendant intended to participate in a campaign against overfishing that might have resulted in cutting nets or other wrongdoing but was not the object of the exercise. Lords Toulson, Sumption and Neuberger thought that conditional intention would suffice.
"What the authorities, taken as a whole, demonstrate is that the additional element which is required to establish liability, over and above mere knowledge that an otherwise lawful act will assist the tort, is a shared intention that it should do so. The required limitation on the scope of liability is achieved by the combination of active co-operation and commonality of intention. It is encapsulated in Scrutton LJ's distinction [in The Koursk [1924] P 140, 156] between concerted action to a common end and independent action to a similar end, and between either of these things and mere knowledge of the consequences of one's acts."
Lord Leggatt added at para [118] of the Supreme Court's judgment:
"One thing that is clear is that to act in concert in pursuance of a common end, the parties must have interrelated intentions which each understands the other to share. To achieve such active co-operation and commonality of intention, some form of communication between the parties is required. As Mustill LJ noted in Unilever at p 609, this does not call for any finding that the parties explicitly mapped out a plan. The communication need not even involve words. To illustrate how actions may be coordinated without any express agreement, the philosopher David Hume gave an example of two men who pull the oars of a boat together in time: see A Treatise of Human Nature (1740), ed LA Selby-Bigge, at p 490. The significance from a normative point of view of concerted action in pursuit of a shared aim that it confers collective responsibility on the parties who combine to bring about the commission of the tort."
In CBS Songs Lord Templeman appeared to have regarded liability for procuring an infringement as an instance of joint liability based on sharing a common design. That view was not supported by other authorities. At para [120], Lord Leggatt said that the better view was that procuring an infringement and participating in a common design are two separate principles of accessory liability on which a person may be held jointly liable with the infringer for damage caused by the infringement.
In Fish & Fish, there was discussion on whether a shared intention to do harm such as damaging equipment only in certain circumstances was enough to give rise to accessory liability based on a common design, or whether the intention had to be unconditional. The trial judge found that the defendant intended to participate in a campaign against overfishing that might have resulted in cutting nets or other wrongdoing but was not the object of the exercise. Lords Toulson, Sumption and Neuberger thought that conditional intention would suffice.
There was also discussion as to the knowledge of wrongdoing that a participant in a common design should possess for accessory liability. Lord Leggatt recalled that in Vestergaard Frandsen A/S v Bestnet Europe Ltd [2013] IRLR 654, [2013] 4 All ER 781, [2013] ICR 981, [2013] 1 WLR 1556, [2013] EMLR 24, [2013] RPC 33, [2013] UKSC 31, [2013] WLR(D) 200 the Supreme Court held that an employee could not be liable on the basis of a common design for the misuse of the claimant's trade secrets because she did not know that the claimant's trade secrets were being misused. To be liable as an accessory for procuring a tort, a person must know the essential facts which make the act wrongful, even if the tort is one of strict liability. Only if all the features of the act done which make it, for example, an infringement of a patent, copyright or trade mark are known to a defendant whose conduct has procured the infringement, will the defendant be jointly liable with the actual infringer. The same criterion must apply where accessory liability is based on assistance given in pursuance of a common design and it would be irrational if it were otherwise. The need for consistency in the law requires the same test of knowledge to apply whichever of the two overlapping bases of accessory liability in tort is relied upon.
Lord Leggatt's Conclusions on Accessory Liability
Lord Leggtt said at [135] that "there is a general principle of the common law that a person who knowingly procures another person to commit an actionable wrong will be jointly liable with that other person for the wrong committed." Where the wrong is a breach of contract the procurement or inducement of the breach will be a tort. Where the wrong is a tort "the procurer is made jointly liable for the tort committed by the primary wrongdoer." Further, "a person who assists another to commit a tort is made jointly liable for the tort committed by that person if the assistance is more than trivial and is given pursuant to a common design between the parties." His lordship added at [137] that procuring a tort and assisting another to commit a tort pursuant to a common design are distinct bases for imposing accessory liability. They must operate consistently with each other and such that the law of accessory liability in tort is coherent.
Lord Leggatt noted that this was not a case of counterfeiting. There were sufficient differences between Lifestyle's trade marks and the signs used by Hornby Street for there to be argument and honest difference of opinion about the extent of the similarity and whether it gave rise to a likelihood of confusion or otherwise resulted in infringement. Examples of the defendants' signs can be found between paras [80] and [84], at para [105] and in the schedule to Mr Recorder Campbell's judgment in this case. Lord Leggatt added that the recorder made findings about the Ahmeds' knowledge that fell well short of a finding that they had the knowledge required for accessory liability. It followed that the courts below were wrong to hold that the Ahmeds were jointly liable with Hornby Street for the infringements of Lifestyle's trade marks committed by Hornby Street. Although the Ahmeds procured acts attributable to the company to be done which amounted to infringements, neither of the Ahmeds was found to have had the knowledge or intend required to make them jointly liable for the infringements on either principle of accessory liability.
Liability to Account
As the Ahmeds were not liable to Lifestyle their appeal against the order to account was allowed. However, as the following issues had been fully argued Lord Leggatt decided to address them:
"(i) Was it appropriate to order an account of profits when there was no finding that the Ahmeds had acted unconscionably or in bad faith?
(ii) If so, should the Ahmeds have been ordered to account for profits made by their company (as Lifestyle contends)?
(iii) If not but the judge was in principle correct to order the Ahmeds to account for profits which they had themselves made from the infringements, was he right to regard (a) the loan made by Hornby Street to Mr Ahmed and (b) a proportion of the Ahmeds' salaries as such profits?
(iv) 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?"
"(i) Was it appropriate to order an account of profits when there was no finding that the Ahmeds had acted unconscionably or in bad faith?
(ii) If so, should the Ahmeds have been ordered to account for profits made by their company (as Lifestyle contends)?
(iii) If not but the judge was in principle correct to order the Ahmeds to account for profits which they had themselves made from the infringements, was he right to regard (a) the loan made by Hornby Street to Mr Ahmed and (b) a proportion of the Ahmeds' salaries as such profits?
(iv) 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?"
Was it appropriate to order an account of profits when there was no finding that the Ahmeds had acted unconscionably or in bad faith?
If so, should the Ahmeds have been ordered to account for profits made by their company?
Lord Leggatt agreed with the Court of Appeal that it followed from the very nature of the remedy that the only profits for which a person should be ordered to account were profits that he or she had made and not those made by anybody else. A person ordered to account for someone else's profits would not be giving up a gain but paying a penalty or fine which would be tantamount to an award of punitive damages.
Lifestyle had relied on the Irish High Court's judgment in House of Spring Gardens Ltd v Point Blank Ltd (No 2) [1983] FSR 489 that an account of profits was an alternative to an inquiry as to damages and could be awarded in similar circumstances. Lord Leggatt criticized that analogy as inapt:
"When two or more defendants have combined to cause loss to the claimant, there is no difficulty or inequity in holding that, as each has caused the claimant's loss, the claimant can recover compensation for that loss from any of them, leaving questions of relative responsibility and apportionment to be addressed in contribution proceedings. Profits received by a defendant, on the other hand, can only be given up by the defendant who received the profits. If a defendant is ordered to pay to the claimant a sum equivalent to a profit made by a co-defendant, it cannot be said that, by making the payment, the defendant is put back in the same position financially as if the infringement had not occurred. The defendant would be placed in a demonstrably worse financial position."
Lifestyle also cited Canada Safeway Ltd v Thompson [1951] 3 DLR 295, 323 where dishonest assistants were held jointly and severally to account for the profits made by a defaulting fiduciary. That case had been followed in Canada but not in this country. Mr Justice Lewison (as he then was) said in Ultraframe (UK) Ltd v Fielding [2005] EWHC 1638 (Ch):
"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."
Another authority on which Lifestyle relied was CMS Dolphin Ltd v Simonet [2002] BCC 600, [2001] EWHC Ch 415 where Mr Justice Lawrence Collins ordered a defendant who had been found to have acted in breach of his fiduciary duty as a director of the claimant by diverting business from the claimant first to a partnership, and then a company, that he had set up to account for the partnership's profits even though he had not received any profits himself. That decision has been criticized by Mr Justice Lewison and has not been followed.
Lord Leggatt concluded at [169] that no good reason or persuasive authority had been identified for impugning the Court of Appeal's finding 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.
Lord Leggatt concluded at [169] that no good reason or persuasive authority had been identified for impugning the Court of Appeal's finding 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.
His lordship considered:
- what profits (if any) the Ahmeds had made from the infringements of Lifestyle's trade marks,
- whether it was 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
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?"
Lord Leggatt did 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 upon which income tax was paid were not such profits.
Lord Leggatt did 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 upon which income tax was paid were not such profits.
Disposal
The Supreme Court dismissed Lifestyle's appeal and allowed the Ahmeds for the following reasons:
- First, it would have been necessary to show that the Ahmeds had knowledge of (or turned a blind eye to) the facts that 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. the recorder made no such finding and Lifestyle's case on accessory liability was therefore not made out.
- Secondly, the orders for accounts of profits had been wrongly made because the only profits for which the Ahmeds could be liable to account were profits that they rather than their company had made as a result of the company's infringements of Lifestyle's trade marks and there was no evidence that the Ahmeds had made any profits from those infringements.
Comment
There is a lot of material in this case and it is quite likely to spark further developments in the law. This appeal is important not just to intellectual property law but also to agency, company law, joint and several liability for wrongdoing and remedies for wrongdoing,
Ever since Fish & Fish if not earlier it has been almost de rigeur for intellectual property owners to join directors of small private limited companies as defendants on the ground that they were the company's controlling minds or that they had participated with the company in a common design to infringe those rights. That is usually because the directors have assets such as a house against which judgment may be executed whereas the company may have none. A great deal more thought will have to be given as to the cause of action. Directors can only be primarily liable if their actions fall within the language of an enactment. If not, it may be possible to sue them as accessories either because they procured an infringement or they participated in a common design in the knowledge or with the intent that their companies would infringe.
The Supreme Court has debunked the notion that special rules apply to company directors because of the doctrine of limited liability, rules of attribution or the assumption of corporate but not individual responsibility in torts that arise in confidential relationships or otherwise.
Finally, there is much less scope for obtaining accounts of profits as opposed to inquiries as to damages. They will be more difficult to obtain against directors. They can only be forced to disgorge the profits that they receive which, if they arrange their own affairs and those of their company carefully, could well be nothing or not very much. Small corporate defendants against which an account can be obtained more easily are less likely to have any assets.
Finally, there is much less scope for obtaining accounts of profits as opposed to inquiries as to damages. They will be more difficult to obtain against directors. They can only be forced to disgorge the profits that they receive which, if they arrange their own affairs and those of their company carefully, could well be nothing or not very much. Small corporate defendants against which an account can be obtained more easily are less likely to have any assets.
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