Lifestyle Equities CV and another v Ahmed and another [2024] UKSC 17

Trade mark owners sued company directors for infringements committed by their company. The Supreme Court held that accessory liability for torts of strict liability requires knowledge of the essential facts making the act wrongful. Directors cannot be ordered to account for profits made by the company, only their own profits.

Facts

Lifestyle Equities CV owned registered trade marks including ‘Beverly Hills Polo Club’ depicting polo players. Hornby Street Ltd, through its directors Mr Kashif Ahmed and Ms Bushra Ahmed, sold clothing bearing ‘Santa Monica Polo Club’ signs which were found to infringe Lifestyle’s trade marks. Lifestyle sued the Ahmeds personally as accessories, alleging they procured or participated in a common design for the company’s infringements. The trial judge found the Ahmeds jointly liable without finding they knew or ought to have known the signs infringed Lifestyle’s marks.

The Company’s Position

Hornby Street was found liable for trade mark infringement under sections 10(2) and 10(3) of the Trade Marks Act 1994 at the first trial. The company subsequently went into administration and was dissolved.

Issues

1. Whether directors can be held liable as accessories for causing a company to commit a tort of strict liability (trade mark infringement) without knowledge that the acts were infringing.

2. Whether accessory liability is strict when the primary tort is strict liability.

3. Whether directors found jointly liable should account for profits made by the company or only their own profits.

4. Whether portions of directors’ salaries and loans from the company constitute accountable profits.

Judgment

The Supreme Court (Lord Leggatt delivering judgment, with Lords Lloyd-Jones, Kitchin, Stephens and Richards agreeing) allowed the Ahmeds’ appeal and dismissed Lifestyle’s appeal.

Accessory Liability Requires Knowledge

Lord Leggatt rejected the proposition that accessory liability mirrors primary liability for strict liability torts:

“Considerations of principle, authority and analogy with principles of accessory liability in other areas of private law all support the conclusion that knowledge of the essential features of the tort is necessary to justify imposing joint liability on someone who has not actually committed the tort. This is so even where, as in the case of infringement of intellectual property rights, the tort does not itself require such knowledge.”

No Special Rules for Directors

The Court rejected arguments that directors acting in good faith in their constitutional role should be immune from accessory liability:

“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.”

The Said v Butt Principle Distinguished

The Court held that the principle protecting agents who procure their principal to breach a contract does not extend to procuring torts. This is because contract involves voluntary risk allocation between parties, whereas tort liability arises regardless of any arrangement between claimant and defendant.

Account of Profits

The Court confirmed that a person can only be ordered to account for profits they personally made, not profits made by others:

“A person ordered to account for someone else’s profits would not be giving up a gain but paying a penalty or a fine.”

The Court further held that directors’ salaries paid as ordinary remuneration are not profits, and loans do not constitute profits absent evidence they were disguised dividends.

Implications

This judgment significantly clarifies the law on accessory liability in tort, particularly for intellectual property infringement. Key principles established include:

1. Knowledge of the essential facts making an act wrongful is required for accessory liability, even for strict liability torts.

2. Directors are subject to ordinary tort principles without special immunity for acting in their constitutional role.

3. The account of profits remedy is personal – defendants account only for their own gains.

4. Ordinary employment remuneration does not constitute accountable profit from infringement.

The decision provides important protection for directors and employees who unknowingly participate in activities that turn out to infringe intellectual property rights, while maintaining that those with actual knowledge remain liable as accessories.

Verdict: Appeal by the Ahmeds allowed; Lifestyle’s appeal dismissed. The orders for account of profits against the Ahmeds were set aside on two grounds: (1) accessory liability was not established as no finding was made that the Ahmeds knew the facts making Hornby Street’s use of the signs infringing; (2) even if liable, the Ahmeds made no personal profits from the infringements for which they could be required to account.

Source: Lifestyle Equities CV and another v Ahmed and another [2024] UKSC 17