Peter Knox KC appeared on behalf of the appellants, leading Dr Timothy Sampson (of Lamb Chambers) and Adam Riley
Peter Knox KC additionally appeared on behalf of the Ahmeds as respondents to Lifestyle’s cross-appeal, leading Laurent Sykes K.C (of Gray’s Inn Tax Chambers). and Dr Timothy Sampson (of Lamb Chambers)
In both the appeal and cross-appeal the counsel team was instructed by Rudi Ramdarshan and Victoria Huxley, of Ronald Fletcher Baker LLP.
Overview
Lord Leggatt, delivering the lengthy and long-awaited unanimous judgment of the Supreme Court, has fundamentally restated the law on directors’ duties, accessory liability and reiterated the correct approach to the equitable remedy of an account of profits in a landmark decision handed down on 15 May 2024.
In summary, the Supreme Court:
- upheld the Appellants’ appeal and dismissed the Respondents’ cross-appeal;
- reasoned that there is no general principle of English law which exempts directors, agents or employees from the ordinary principles of tort liability. The same principles govern their liabilities, whether as primary tortfeasors or as accessories, as apply to anyone else;
- confirmed the following, concerning accessory liability:
- The common law principles of accessory liability operate alongside any relevant statutory tort and, where applicable, impose liability on persons who have not committed the relevant statutory wrong (in the same way that these principles operate in relation to common law torts).
- There is no logical support for the proposition that the mental element required for liability as an accessory should mirror that required for primary liability.
- Procuring a tort and assisting another to commit a tort pursuant to a common design are two distinct bases for imposing accessory liability.
- The relevant test is that to be liable as an accessory for procuring a tort, a person must know the essential facts which make the act done wrongful, even if the tort is one of strict liability. Only if all the features of the act done which make it tortious are known to a defendant whose conduct has procured the infringement, will the defendant be jointly liable with the actual infringer.
- The same test of knowledge applies where accessory liability is based on assistance given in pursuance of a common design.
- Clarified that when ordering an account of profits, an individual cannot be liable to account for profits which they themselves have not made. Further, Lord Leggatt explained the purpose for redirecting profits, when an account of profits is ordered in an intellectual property rights case, is not to punish or deter wrongdoing. It is to achieve the goals which the right exists to further. Namely, to enable the owner of the right to enjoy the fruits of its exploitation. In this way, the redirection of profit causes the infringer to be treated as if he had conducted the infringing business on behalf of the claimant. This places the infringer back in the same position financially as if no infringement had taken place, and provides a sound basis for ordering an account against “innocent” infringers which the law had struggled previously to justify.
Background
High Court
The respondents in the appeal are two companies (referred to collectively in the decision as “Lifestyle”). Lifestyle brought proceedings against some 16 defendants claiming remedies for the infringement of registered trade marks and passing off. The group of defendants 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 both Mr and Ms Ahmed were directors of Hornby Street.
Lifestyle complained that the Juice Corporation companies had been offering for sale various items of clothing which made use of signs which infringed trade marks registered by Lifestyle. Lifestyle alleged breaches of both section 10(2) and 10(3) of the Trade Marks Act 1994 (“TMA”). 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 to so act.
The trial was split into two parts. 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 sections 10(2) and 10(3) TMA for infringing Lifestyle’s registered trade marks and also for passing off.
The second trial addressed the remaining issues. The Trial Judge decided that Mr Ahmed was jointly and severally liable with the two Juice Corporation companies for the acts of infringement, and Ms Ahmed was jointly and severally liable with Hornby Street connected with the “House of Brands” division of that company.
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 liability.
Lifestyle elected to claim an account of profits against the Ahmeds. The Judge rejected Lifestyle’s claim that the Ahmeds were liable to account to Lifestyle for profits made by Hornby Street (which were held to amount to £3,129,921), but held they were liable to account to Lifestyle for profits which they had personally made from the infringements. In so holding, the Judge apportioned 10 per cent of Mr and Ms Ahmed’s salaries. The Judge additionally found that a loan made by Hornby Street to Mr Ahmed was a profit derived from the infringements for which Mr Ahmed was liable to account to Lifestyle.
Court of Appeal
Lifestyle appealed to the Court of Appeal against the decision that the Ahmeds were not liable to account for 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.
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 per cent of the Ahmeds’ salaries during the relevant period represented such profits.
However, the Court of Appeal allowed Mr Ahmed’s appeal that the loan paid to him by Hornby Street was not a profit.
Decision in the Supreme Court
The Supreme Court decided that the findings at first instance as to the Ahmeds’ knowledge fell well short of finding that they had the knowledge required for accessory liability to arise. The only case put against the Ahmeds at the second trial was one of strict liability, which was insufficient, given the Supreme Court’s clarification as to what is required to establish the mental constituent element of accessory liability.
Accordingly, the Supreme Court ruled that the High Court and Court of Appeal 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 on the facts found the Ahmeds procured acts attributable to the company to be done which amounted to infringements, neither of them was found to have had the knowledge required to make them jointly liable for the infringements on either principle of accessory liability.
The Supreme Court’s decision on accessory liability was sufficient to dispose of the appeal, but, given the full argument heard on the topic, Lord Leggatt dealt with the account of profit points in detail.
It was confirmed that the nature of the remedy meant the only profits for which a person could be ordered to account were those which they themselves had made, and not profits made by someone else. A person ordered to account for someone else’s profits would not be giving up a gain, but paying a penalty or fine. 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 their wrongful acts and not profits realised by the primary wrongdoer.
Further, a person does not make a profit just by borrowing a sum of money (and Lifestyle had not argued that the loan in this case was one given interest-free or at a rate of interest lower than a commercial rate or established that the relevant loan constituted a disguised dividend). Even if a loan, as a result of supervening events, is forgiven or ceases to be repayable, that does not alter its character as a loan.
Lord Leggat also reasoned that the Court of Appeal erred in upholding the Judge’s view that the payment of salaries to the Ahmeds could be treated as profits. These were payments made as ordinary remuneration for their services, i.e. for work done, not as dividends. 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, and it had not been suggested that the Ahmeds were paid more for their services to Hornby Street than their services were worth. Given these findings, Lord Leggatt did not consider it fruitful to comment on the income tax point raised by the Court of Appeal.
The Supreme Court’s press releases summarising the judgments:
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