Peter Knox KC and Adam Riley recently appeared in the company law case before the Supreme Court, appearing for Mr and Ms Ahmed in an appeal and cross-appeal in the case of Lifestyle Equities C.V. v Mr and Ms Ahmed.
The appeal by the Ahmeds concerns the liability of directors, or senior executive employees, for causing a company to commit a tort of strict liability – in this case trademark infringement. What if the relevant director or employee, in doing so, had acted in good faith, with due care, reasonably, and in the discharge of his or her duties to the company, and without actual or constructive notice that the company’s acts would amount to a civil wrong. In such circumstances would the director or employee be personally liable with the company, or is the company alone liable? The Court of Appeal in Lifestyle Equities v Ahmed [2021] EWCA Civ 675 answered that in such circumstances the director or employee is personally liable in addition to the company and, further, that such a person could be properly ordered to account for profits made as a result, including salary.
It was argued on behalf of the Ahmeds that the Court of Appeal was wrong to find as such, it being contended that their decision was inconsistent with the authorities in the wider common law world, and in particular Canada and Australia, which had previously analysed this issue and, further, that the Court of Appeal’s reasoning was inconsistent with the limited liability protections which were intended by Parliament to be afforded to directors and others by incorporation.
In the cross-appeal by Lifestyle, it was contended
- that the account of profits should have been assessed by reference to the company’s profits, not just those of the Ahmeds;
- that even if the account was to be assessed by reference only to the Ahmeds’ profits:
(a) those profits should have included, as well as salary, a loan granted by the company to Mr Ahmed, and
(b) they should have been assessed by reference to the Ahmeds’ pre-tax salaries, not their post-tax salaries.
In considering this appeal the Supreme Court will revisit the fundamentals of company law and accessory liability for directors and employees. It will also consider the nature of a duty to account for profits. The decision when handed down is likely to have significant ramifications for businesses across England and Wales.
Peter Knox KC and Adam Riley (along with Laurent Sykes KC of Gray’s Inn Tax Chambers and Dr Tim Sampson of Lamb Buildings) were instructed by Ronald Fletcher Baker LLP.
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