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Lifestyle Equities CV & Anor v Ahmed & Anor
Smart Summary
Factual and Procedural Background
The Plaintiff, the proprietor of “Beverly Hills Polo Club” trade marks, sued sixteen defendants for trade-mark infringement and passing off. Two family-owned wholesalers (“Company A” and “Company B”, trading together as “Juice Corporation”) and their directors, Defendant A and Defendant B, were eventually the only active parties. A first trial found Company A liable for infringing the Plaintiff’s trade marks and for passing off; Company A later entered administration and was dissolved. A second trial (with the Defendants acting in person) held Defendant A jointly and severally liable with both companies, and Defendant B liable with Company A for 10 % of its infringing sales. Instead of damages, the Plaintiff elected an account of profits. The trial judge ordered the Defendants to disgorge (i) 10 % of their salaries and (ii) a director’s loan, but refused to award the companies’ own profits.
The Court of Appeal dismissed the Plaintiff’s appeal (seeking the companies’ profits) but largely upheld the Defendants’ liability, save that it removed the loan from the account and allowed deductions for income tax from the salary element. Both sides obtained permission to appeal to the Supreme Court.
Legal Issues Presented
- Whether directors who cause their company to commit a strict-liability tort (trade-mark infringement) are themselves strictly liable, or liable only if they knew (or deliberately ignored) the facts making the acts tortious.
- Whether, and to what extent, an account of profits can be ordered against such directors where no finding of bad faith or unconscionability was made.
- If an account is appropriate, whether it can extend to (a) profits made by the company or (b) items such as directors’ salaries and loans, and whether income-tax deductions are permissible.
Arguments of the Parties
Defendants’ Arguments
- Directors acting bona fide and without knowledge of infringement cannot be liable as accessories; the companies alone “used” the signs.
- Accessory liability requires knowledge of the essential facts that make the act infringing; strict liability of the primary tortfeasor should not be mirrored for accessories.
- Even if liable, they made no personal profit: salaries were remuneration, and the loan was not a gain.
Plaintiff’s Arguments
- Accessory liability is likewise strict where the underlying tort is strict; knowledge is irrelevant.
- The Defendants procured and shared a common design with the companies and should therefore account not only for their own gains but also for the companies’ profits.
- If personal profits alone are recoverable, salaries and the director’s loan are within scope; any tax deducted should not reduce the sum payable.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|
| Unilever plc v Gillette (UK) Ltd [1989] RPC 583 | Origins of common-design liability | Historical overview; not determinative of requisite mental element |
| Arsenal FC v Reed (C-206/01) | Meaning of “in the course of trade” | Supports view that phrase targets economic operators trading on their own account |
| Meridian Global Funds Management v Securities Commission [1995] 2 AC 500 | Rules of attribution | Used to reject argument that acts attributed to a company immunise the actor |
| Lister v Romford Ice & Cold Storage [1957] AC 555 | Employee still personally liable notwithstanding employer’s vicarious liability | Analogy for directors’ personal exposure |
| Standard Chartered Bank v Pakistan National Shipping [2003] 1 AC 959 | Agent’s personal liability for deceit | Illustrated absence of special immunity for directors |
| Said v Butt [1920] 3 KB 497 | Directors not liable for inducing own company’s breach of contract (limited to contracts) | Considered and distinguished: principle does not extend to torts |
| CBS Songs v Amstrad [1988] AC 1013 | Procuring infringement vs common design | Foundation for requiring intention in accessory liability |
| MCA Records v Charly Records [2002] FSR 26 | Directors’ liability where acts go beyond constitutional control | Analysis critiqued; knowledge still required |
| Vestergaard v Bestnet [2013] 1 WLR 1556 | Knowledge requirement for common-design liability in misuse of trade secrets | Cited; court declined to equate strict liability of primary tort with accessory standard |
| Fish & Fish v Sea Shepherd UK [2015] AC 1229 | Elements of common design (assistance + shared intention) | Key authority; but does not remove knowledge requirement |
| Lumley v Gye (1853) 2 E & B 216 | General principle: procuring an actionable wrong creates liability | Core basis for requiring knowing procurement |
| OBG Ltd v Allan [2008] AC 1 | Accessory liability requires knowledge of essential facts | Applied directly to trade-mark context |
| Colbeam Palmer v Stock Affiliates (1968) 122 CLR 25 | Account of profits generally confined to conscious infringers | Discussed; distinguished for innocent primary infringers but relevant to accessories |
| Imperial Mercantile Credit Association v Coleman (1873) LR 6 HL 189 | Fiduciary’s accountability for diverted partnership profits | Considered in rejecting Plaintiff’s claim to company profits |
| Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134 | Limit of fiduciary’s personal accountability to own profits | Analogy used to refuse attribution of company profits to directors |
Court's Reasoning and Analysis
1. Liability of Directors as Accessories
The Court rejected any special immunity for directors: ordinary tort principles apply equally to agents, employees and directors. Two accessory routes exist—(a) knowingly procuring the tort, and (b) assisting pursuant to a common design. Either route requires knowledge of the essential facts that render the primary act tortious. Strict liability attaching to the company does not automatically impose strict accessory liability on those who caused the act.
The trial judge made no finding that either Defendant knew, or wilfully ignored, the similarities between the “Santa Monica Polo Club” signs and the Plaintiff’s marks, nor that they understood the factual predicates of §10(2) or §10(3) Trade Marks Act 1994. As knowledge was neither pleaded nor proved, accessory liability could not be established.
2. Account of Profits
(a) An account aims to strip gains actually received by the wrong-doer, not to punish; therefore only the profits made by the accessory may be disgorged.
(b) Company profits cannot be visited upon the Defendants; to do so would convert restitution into a penalty.
(c) The director’s loan was not a profit; it was simply a borrowing. The subsequent dissolution of Company A did not transform it into a gain.
(d) Salary is remuneration for labour, not profit, absent evidence that it exceeded market value or disguised dividends. The 10 % apportionment was therefore unsustainable.
(e) Because no profit was demonstrated, questions about income-tax deductions became moot.
Holding and Implications
HELD: APPEAL BY DEFENDANTS ALLOWED; PLAINTIFF’S APPEAL DISMISSED.
The Supreme Court set aside the orders holding the Defendants jointly liable and annulled the account-of-profits orders. It clarified that accessory liability for strict-liability torts demands knowledge (or wilful blindness) of the facts constituting the tort and that directors are not automatically liable for their company’s infringements. The ruling narrows the circumstances in which trade-mark owners can pursue company officers personally and limits accounts of profits to gains actually made by the defendant, leaving broader implications for accessory liability across intellectual-property and general tort law.
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