The UK Supreme Court recently considered this issue and have taken an approach that emphasizes knowledge of the essential features of the tort is necessary to justify imposing liability, Lifestyle Equities CV v Ahmed [2024] UKSC 17
The Facts
Mr Ahmed and his sister were directors of the defendant company which arranged for manufacturing clothing, footwear and headgear sold to retailers. For roughly 10 years, the defendant company sold various items bearing logos with the words ‘SANTA MONICA POLO CLUB’ and pictures of polo players on horses.
The Lifestyle companies own trademarks featuring a polo player on a horse and the words ‘BEVERLY HILLS POLO CLUB’. Lifestyle sued the company alleging infringement. Lifestyle also sued the Ahmeds claiming that they were jointly liable with the company for the infringements. The Trial Judge found that the defendant company had infringed. The Judge also held that the Ahmeds were jointly liable with the company as they had procured the infringement of Lifestyle’s trademarks and that the infringements were committed pursuant to a common design.
On appeals by both parties, the U.K. Court of Appeal upheld the trial Judgement. Both parties appealed to the U K Supreme Court, the successor of the House of Lords.
The Appeal to the Supreme Court Lifestyle Equities CV v Ahmed [2024] UKSC 17
The primary issue on appeal was the liability of the directors. First, they observed that the approach taken in the Canadian Federal Court of Appeal in Mentmore Manufacturing Co Ltd v National Merchandising Manufacturing Co Inc (1978) 89 DLR (3d) 195) (Mentmore )has widely influenced the approach taken in Commonwealth jurisdictions, including England and Wales, concerning the liability of directors for torts committed by companies. The test for a director liability established by that decision is as follows
“…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.”
The Court said unanimously that liability should be decided by applying ordinary principles of the law of tort. It was not helpful or principled to apply an amorphous test based on the degree and kind of personal involvement of the director with the acts attributed to the company. It is unclear by what criteria the degree and kind of personal involvement are supposed to be judged or how such criteria are to be derived. To suggest that the involvement must be such that the director "makes the tortious act his own" is ultimately circular.
Despite this disagreement, the court shared the underlying sentiment: it was 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. This was not because of any special feature of the role of company director. It was on the broader principle 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.
The relevant principles are as follows. First, 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. The liability of the procurer is an accessory liability. Where the primary wrong is a breach of contract, this accessory liability is a distinct tort. Where the primary wrong is a tort, there is no need to posit a separate tort of procuring another person to commit a tort. Where the general principle applies, the procurer is made jointly liable for the tort committed by the primary wrongdoer.
Second, there is a further, distinct principle of accessory liability by which 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. On the facts of a particular case both principles may be engaged. But in the present state of the law assistance which falls short of procuring the primary wrongdoer to commit the tort cannot lead to liability unless it is given pursuant to a common design.
Third, although 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. 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 infringement of intellectual property rights, the tort does not itself require such knowledge. Strict liability may apply to the primary tort but is not enough for accessory liability.
Comment
It remains to be seen whether the above approach will be followed by Canadian courts. Under the Mentmore approach the court considers “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”. Under the Lifestyle Equities approach the court considers whether the director knowingly procured the company to commit an actionable wrong (infringement) and knowledge of the essential features of the tort (infringement) is necessary to justify imposing joint liability.
Typically, determining liability, whichever approach is adopted, will depend on inferences drawn from the facts and circumstances relating to the infringement.
If you have questions, please contact me at mckeown@gsnh.com
Goldman Sloan Nash & Haber LLP 480 University Avenue, Suite 1600 Toronto, Ontario M5G 1V2 Direct Line: (416) 597-3371 Fax: (416) 597-3370 Email: mckeown@gsnh.com
These comments are of a general nature and not intended to provide legal advice as individual situations will differ and should be discussed with a lawyer.
A version of this article originally appeared in the Law360 Canada published by LexisNexis Canada Inc.
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