Intellectual Property Infringement | Joint Liability of a Limited Company and Directors
It may be possible for a director to be sued personally, where there is an allegation of Intellectual Property infringement, even in circumstances where the director operates a limited company.
Limited companies are recognised legal entities in their own right, to the extent that they can take such steps as entering contracts, conducting trading transactions and commencing and defending legal proceedings on their own behalf.
For many years trading through a registered limited liability company provided directors with a ‘safe haven,’ to the extent that in the event of the company incurring liability of any nature, the directors could, more often than not, simply walk away unscathed and without the fear of personal financial loss. However, this would not be the case where, for example, the directors had previously given enforceable personal guarantees.
Having limited company status usually means that the liability is limited to the entity. This protection, known as the ‘corporate veil’ has been under attack by the courts in recent years and the availability and effectiveness of such corporate protection continues to be eroded. Company directors are now far more accountable for the financial and other consequences of their decisions and conduct.
Where the financial position of a company which you may wish to sue is unknown or there exist doubts as to its solvency, it may well be considered prudent to include one or more directors into those proceedings. This could potentially expose their personal assets to satisfy any court judgment which may be obtained.
A director’s personal liability following Intellectual Property infringement by a company recently came under the spotlight before the Supreme Court in the case of Sea Shepherd UK v Fish & Fish when the appropriate test for assessing the liability of one or more directors alongside that of their company was provided.
Stuart Southall of KANGS outlines the nature of joint liability where there is an allegation of Intellectual Property infringement involving one or more directors and a company.
Joint Tortfeasor
An Intellectual Property infringement constitutes a common law tort and where there exists joint liability for any infringement, the perpetrators are known as joint tortfeasors. The Supreme Court, in the case of Sea Shepherd UK v Fish & Fish has confirmed the legal test to be applied when seeking to establish joint liability in tort and which, accordingly, includes all cases involving breaches of Intellectual Property Rights.
Even though a limited company enjoys its own legal entity, the reality is that it can only operate as directed by one or more of its directors, forming the joint liability or ‘shared responsibility’ relationship.
The legal test was summarised by stating that a defendant director(s) will be jointly liable alongside a company if:
- he has assisted the commission of the tort by another person,
- it is pursuant to a common design, and
- an act is done which is, or turns out to be, tortious.
However, the court judgment emphasised that establishing joint tortfeasors is highly dependent on the particular circumstances of every case.
The judgment of Sea Shepherd UK v Fish & Fish was affirmed by the subsequent decision of Lifestyle Equities CV-v-Ahmed [2024] UKSC 17, where the Supreme Court was required to consider the extent of a director’s liability for causing a company to commit a civil wrong.
The Court stated that:
- there is no general principle of English law which exempts directors from the ordinary principles of tort liability whether as primary tortfeasors or as accessories,
- it would be unjust to hold a person liable for procuring a wrong where they acted in good faith and without knowledge of the facts which made another’s acts wrongful,
- common law principles of ‘accessory liability’ impose liability on persons who have not committed the relevant statutory wrong,
- for a director to be held personally responsible as an ‘accessory to IP infringement committed by their company, they must have knowledge of the essential facts which make the primary wrongdoer an actionable wrong,’
- undertaking normal ‘day-to-day’ director duties does not make a director liable for the infringement, it has to be evidenced that the director knew of the wrong doing.
Including a Director as a Joint Tortfeasor
As stated above, the Supreme Court has emphasised that establishing joint tortfeasorship between a director and a company is highly dependent on the particular circumstances of every case. The situation remains highly technical and for a director to be held personally liable, as a joint tortfeasor, it must be proven that he had knowingly assisted in the commission of the actual offence. Without knowledge, personal liability cannot be established simply by the participation in the company’s operations.
The obvious potential advantage in including one or more directors as defendants in IP infringement proceedings is the exposure of personal assets which, doubtless, they would wish to protect. Avoiding substantial ongoing costs and the uncertainty of any court decision, is likely to encourage consideration of negotiating an early settlement or entering a form of alternative dispute resolution.
Additionally, the presence of personal assets may avoid the possibility of a pyrrhic victory against a limited company which proves to be insolvent.
How Can We Assist?
Any form of dispute involving Intellectual Property will needs to involve a clear and comprehensive understanding of this extremely complex area of law. It is essential that every aspect is fully explored by an experienced intellectual property solicitor before any court proceedings are commenced.
Our intellectual property lawyers specialise in Trade Marks, IP infringements, and disputes, providing expert legal guidance, alternative dispute resolution and comprehensive protection strategies tailored to your specific requirements.
The IP solicitors at KANGS possesses extensive experience in managing Intellectual Property disputes of every nature and will be pleased to provide you with immediate and professional assistance and support.
If we can be of assistance, please do not hesitate to contact our Intellectual Property solicitors using the details below:
Tel: 0333 370 4333
Email: info@kangssolicitors.co.uk
We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester. Alternatively, discussions can be held through live conferencing or telephone.
