Background
Hornby Street Ltd was a company producing and selling clothing, footwear, and headgear goods bearing the mark SANTA MONICA POLO CLUB and featuring a logo depicting polo players on horseback.
Lifestyle Equities CV and another (Lifestyle), owners of trade marks for BEVERLY HILLS POLO CLUB and a comparable polo player logo (see image below), sued Hornby Street Ltd for trade mark infringement on the basis that the mark being used was similar to their established trade mark rights and covered identical goods and services.
Additionally, and somewhat unusually, Lifestyle also sued two company directors of Hornby Street Ltd, claiming they shared responsibility for the trade mark infringement and were thus equally as culpable as their company.
The question here is less so whether the Hornby Street mark infringed the earlier trade mark rights of Lifestyle Equities CV, but whether the directors of the company were also liable for the infringement.
High Court & Court of Appeal
In essence, the High Court found that Hornby Street’s use of the ‘SANTA MONICA POLO CLUB’ logos infringed Lifestyle’s trade marks.
The Court found the logos were similar enough to cause public confusion and unfairly benefited from Lifestyle’s brand reputation.
Additionally, the Hornby Street directors, Ahmed and his sister, were held jointly liable because:
- They orchestrated the trade mark usage; and
- The infringement was part of a coordinated plan.
By the time of the trial, Hornby Street had dissolved, which prevented the recovery of any damages as a consequence of the infringement decision.
Lifestyle sought to recover profits from the two directors personally. The Court ruled that while the directors were not liable to account for the profits their company had made while in business, they were nevertheless responsible for the profits they had personally made and paid to themselves as salaries.
It was held that 10% of the directors’ salaries during the relevant period would be considered profit from the infringement.
This decision was upheld by the Court of Appeal. Both sides subsequently appealed to the UK Supreme Court.
Supreme Court
The net result was that the UK Supreme Court reversed the previous decisions.
The Court concluded that the directors had been unaware of the facts leading to use of the ‘SANTA MONICA POLO CLUB’ logo as a trade mark infringement. The directors claimed they had only learned of the trade mark issues once they had been notified of the transgressions by Lifestyle.
Therefore, according to the Court, the directors could not be held liable for organising or participating in the infringement.
Trade mark infringement carries strict liability and there is no need to prove whether or not a defendant knew what they were doing was wrong.
However, the Court determined that the directors could not be held responsible as accessories in this case because they lacked any knowledge of the infringement at the time when their company was still operational.
The Court emphasised the unfairness of holding individuals personally to account in a situation where they had acted in all good faith and without any knowledge they had been infringing.
It can be said that the directors had to prove this point and, in this case, the evidence they gave was sufficiently persuasive to satisfy the Court.
The Supreme Court also clarified that even if the directors could be held liable, they could not be required to account for the company’s profits. A person cannot be compelled to pay for profits earned by someone else. The Court noted this would be punitive rather than compensatory, which is the goal of profit accounting.
Therefore, the trial judge had erred when considering part of the directors’ salaries as profits since their pay to themselves had been remuneration for their regular duties.
Case Law
A similar trade mark case arose in Ireland involving companies that had ceased trading with significant debts.
Mr McGarry, who had later formed another company, was found to have knowledge of his previous misdemeanour trade mark infringement acts. This made him personally liable and an order was made against Mr McGarry in this respect.
The UK case MCA Records Inc. v Charly Records Limited was also considered in detail by the Supreme Court. In that case, it was held that a director could be liable if their actions exceeded their “normal” responsibilities.
Having reviewed the MCA Records case, the UK Supreme Court agreed that directors could be liable if their actions went beyond normal duties, added that directors should not avoid liability if they knowingly commit wrongful acts, even within their official capacities.
This aligns with Irish law, holding directors liable for deliberate wrongful acts but not for unknowing actions in their usual roles.
Director Liability and Accessory Claims: Key Takeaways
The Supreme Court’s decision has important implications for director liability.
The Court concluded that ‘accessory’ liability, unlike ‘primary’ liability, requires proof of the director’s knowledge of the wrongful act.
This requirement now creates a significant challenge for trade mark infringement claimants because proving a director’s state of mind can be difficult, especially in the case of a small or family-run businesses. A claimant is highly unlikely to have access to any documents or internal records which show this state (i.e. ‘lack of’) mind.
Furthermore, the Court limited the scope of damages a director will have to pay. Directors are not liable for the company’s profits, but are liable only for personal gains that exceed ordinary remuneration.
This distinction means that even if directors are found liable, the compensation awarded will likely be much less than the company’s total profits from the infringement.
Conclusion
This ruling is a setback for UK brand owners because it limits their ability to seek remedies from company directors where trade mark infringement has been ruled.
It also makes it especially difficult in seeking financial redress when the culpable company legal entity has been dissolved before a ruling can be made.
The Irish courts may follow this new ruling which expands upon the scope of company director liability and it remains to be seen if they will do so. Whilst not binding, UK case law can influence legal rulings in Ireland.
By the same token, company directors in the UK and Ireland can now take some reassurance from this decision because it sets a high bar for proving accessory liability and limits potential personal financial exposure.
