Trade mark Infringement and Director Liability: Lifestyle Equities C.V. v Ahmed

In the high-profile Court of Appeal decision in Lifestyle Equities C.V. and another v Ahmed and another, the Supreme Court is set to address crucial questions regarding the extent of personal liability for directors and senior executives when their company commits a strict liability tort, such as trade mark infringement.


This case, revolves around the alleged infringement of the BEVERLY HILLS POLO CLUB trade marks by the use of SANTA MONICA POLO CLUB branding and examines if directors can be personally liable for trade mark infringement and can be held accountable for profits gained from such torts, even if those profits were not personally received, and if this liability could extend to their salaries. The judgment will have significant implications for corporate governance and the responsibilities of company directors.


Background and Facts

The dispute centres around registered trade marks owned by the respondents, Lifestyle Equities C.V., which include the word marks for BEVERLY HILLS POLO CLUB and related horse-riding polo player images. Lifestyle Equities brought a claim against multiple defendants associated with the use of the sign SANTA MONICA POLO CLUB, which also depicted horse-riding polo players, alleging trade mark infringement.

Mr. Ahmed and Ms. Ahmed, the appellants, were directors of the companies implicated in the infringement. The first instance court found the directors were liable and did not consider the directors’ motive, the fact that they acted on advice, and delegated the design of the logo were relevant and did not amount to a defence. The judge ordered that the directors should make an account of profits amounting to 10% of their salaries but they were not liable to account of the profits made by their company (which was over £3m).


Lifestyle Equities appealed the decision about the directors not being liable for the profits of the company. The directors appealed the decision on their joint liability.


The Court of Appeal dismissed Lifestyle Equities appeal and the directors’ appeal on most grounds. The Court did though say that the loan made to Mr Ahmed should not be considered and income tax should be deducted on their salaries.


So, the directors were required to pay a proportion of their salaries to the claimants.


Legal Issues


The Supreme Court will now consider the issues namely:

• Director Liability for Strict Liability Torts: What is the nature and extent of a director’s liability when a company they control commits a strict liability tort such as trade mark infringement? Specifically, can directors be held accountable for actions taken by the company without a finding of fault on their part?
• Account of Profits: If a director is found liable, can they be ordered to pay profits made from the tort to the wronged party, even if they did not personally receive those profits? Furthermore, does this liability extend to returning portions of their salary that are attributable to the infringing activities?


Implications

Directors can be liable for the acts of their company under trade mark law and this is another case which confirms this. The Supreme Court’s judgment will have significant implications for corporate governance and personal liability of directors especially in light of directors being liable to hanover their profits/salaries.


If directors can be held personally liable for the strict liability torts committed by their companies, it would impose a higher degree of responsibility and diligence on corporate leaders to ensure their companies do not engage in infringing activities. Moreover, extending liability to directors for profits they did not personally receive and potentially their salaries would mark a stringent stance on holding individuals accountable for corporate misconduct.

The Lifestyle Equities C.V. v Ahmed case underscores the complexities surrounding director liability in cases of trade mark infringement and other strict liability torts. The outcome of this case will set a precedent for how far legal responsibility can extend to individual directors and senior executives in similar circumstances, emphasising the critical balance between corporate and personal accountability in the realm of intellectual property law.