Lifestyle Equities: The UK Supreme Court’s take on accessory liability of company directors

Dhara Reddy, ‘Lifestyle Equities: The UK Supreme Court’s take on accessory liability of company directors: Lifestyle Equities CV and another v Ahmed and another [2024] UKSC 17 (2025) 139 (March) Intellectual Property Forum 85.

The question of accessory (joint) liability can be an important one in practice where a company commits a tort resulting in a harm caused to a third party. In particular, where a claimant is concerned that the company may become insolvent, it will often want to try to join one or more of the directors of the company to the court proceedings and make them personally liable for the infringements as a means to recover compensation for their losses.

This update considers the recent decision in Lifestyle Equities v Ahmed [2024] UKSC 17, where the Supreme Court considered when directors should be held liable as accessories for torts committed by their companies. The decision also provides some helpful guidance on when an accessory might be liable to account for profits made by those with whom it is held to be jointly liable.

Background

The dispute arose when Lifestyle Equities successfully brought proceedings against numerous companies, and their directors, for infringement of their “Beverly Hills Polo Club” trade marks. Two of these companies were Continental Shelf 128 Ltd and Hornby Street Ltd, trading under the name Juice Corporation. Mr Kashif Ahmed was sole director of Continental Shelf as well as a director of Hornby Street alongside his sister Ms Bushra Ahmed. Mr Ahmed’s role included managing the intellectual property rights of the companies. Ms Ahmed was head of sales for a division of Hornby Street called the “House of Brands”. Lifestyle Equities relied on two common law principles to hold the Ahmeds liable as accessories. These were that the Ahmeds had authorised or procured the companies to commit trade mark infringement and that they had engaged in a common design with each other or the companies to cause them to do so.

At first instance, the High Court found the Ahmeds to be jointly and severally liable with their companies. Significantly for the determination of liability, the judge did not think it was relevant to consider whether either party knew or ought to have known that there was a likelihood of confusion or an infringement of the trade marks.

The trial judge also ordered the Ahmeds to account for profits that they had personally made as a result of the infringements, but not for profits made by their companies. A loan made from Hornby Street to Mr Ahmed was held to amount to profit that he had made personally and therefore should be compensated for by Mr Ahmed personally. Lifestyle Equities appealed against the decision that the Ahmeds were not liable to account for the profits made by their companies as a result of the trade mark infringements. The Ahmeds cross-appealed against the findings in respect of their personal liability and the fact that they had made any profits for which they were liable to account to Lifestyle Equities. The finding of personal liability against the Ahmeds was upheld by the Court of Appeal. However, the decision that the company loan should be considered as profit that Mr Ahmed had made was overturned. Both parties then appealed to the Supreme Court.

The Supreme Court: Accessory Liability

On the issue of accessory liability, the two main questions to be answered by the Supreme Court were:

1. When are directors of a company liable as accessories for causing the company to commit a tort of strict liability – in this case, trade mark infringement?
2. In particular, is such liability also strict or does it depend on knowledge (or some other mental element)?

Before addressing the point of joint liability substantively, Lord Leggatt first made a few assessments disagreeing with the position taken by the Ahmeds.

The Ahmeds attempted to argue that, as directors, they should be subject to special rules. They argued that provided that they had acted properly in performance of their duties to the company, these acts should be treated in law as the company’s acts and as a result, they should not be held personally responsible. The Supreme Court wholly disagreed. Lord Leggatt stated that for infringement claims, there is no special protection or shield for company directors under English Law which exempts them from “the ordinary principles of tort liability”. He further went on to state that if an act committed by a director is attributed to a company, this does not mean the director is automatically “dis-attributed” from that act and “immunised from liability”.

Lord Leggatt went on to examine the existing case law on joint liability and provided a helpful reminder of some of the key principles. Perhaps the most important is a confirmation that “procuring an infringement” and “acting in a common design” are two distinct principles of accessory liability on which a person may be held jointly liable with the infringer for damage caused by the infringing acts. For example, a person may procure a tort, such as an infringement of intellectual property rights, by simply issuing instructions on which others subsequently act, without acting in concert to a common end. Lord Leggatt also pointed to previous case law which affirmed the fact that there is considerable overlap between these principles and many cases will qualify under both heads.

Turning to the substantive issue of joint liability, the Supreme Court found that the Ahmeds were not liable as accessories to the companies’ infringement of Lifestyle Equities’ trade marks, overturning both courts’ previous decisions. The High Court and Court of Appeal had concluded that where the underlying tort is a strict liability tort (as was the case here) then accessory liability required no additional mental element. Lord Leggatt clearly disagreed with this.

Lord Leggatt stated that the mental state which is required for accessory liability does not need to be the same as for the underlying tort. Therefore, although trade mark liability is a strict liability tort, it does not necessarily follow that strict liability should be imposed on accessories.

The Supreme Court applied this principle and determined that for a person to be liable as an accessory it would be necessary to show:

1. they had procured the company to infringe or been joined in common design with the company; and
2. they must “know of the essential facts which make the act done wrongful”.

The Supreme Court’s reasoning was that it would be unjust for a director to be personally liable for acts done in the normal course of their employment which might cause the company to commit a tort, if the director has not acted knowingly. The Court clarified that it would not be necessary for a person to have knowledge of the underlying legal principles, but rather all the essential facts which made the act unlawful.

Therefore in the present case, as applicable to trade mark infringement, the Court clarified that for accessory liability of an infringement under section 10(2) of the Trade Marks Act 1994 (UK), knowledge of the existence of the trade mark and a likelihood of confusion would be required. For section 10(3) infringement, it would require knowledge that the claimant’s trade mark has a reputation in the UK, that the use of the sign complained of gives rise to a link and that such use results in unfair advantage or detriment without due cause.

There was no proof that the Ahmeds knew of the infringement and nothing to show that they were even aware of Lifestyle Equities’ trade marks before March 2014 when they received a letter of complaint. The Supreme Court made a distinction, stating that “this was not a simple case where… a company offers for sale counterfeit goods”, instead there were differences in the signs being used and “room for argument and honest difference of opinion about the extent of the similarity and whether it gave rise to a likelihood of confusion or otherwise resulted in infringement”. This distinction helps to illustrate the types of cases where a court might be more inclined to find directors liable as accessories.

The Supreme Court therefore concluded that the High Court judge’s finding of joint liability should be overturned, because although the Ahmeds procured acts attributable to Hornby Street which amounted to infringements, they did not have the requisite knowledge to make them jointly liable under either of the two principles of accessory liability.

The Supreme Court: Account of Profit

Lord Leggatt went on to consider, obiter, how to deal with an account of profits where joint liability has been established. In this regard, the main questions to be answered by the Supreme Court were:

• Does a director need to have acted unconscionably or in bad faith in order for an account of profits to be awarded?
• Whose profits are relevant? And what should be treated as "profit" for these purposes?

On the first point, the Court made clear that an account of profits can be ordered against an innocent infringer. One of the key principles underpinning the protection of intellectual property rights is to promote and reward creativity and innovation. Therefore, allocating profits that might have been made by an infringer, innocent or otherwise, is in line with promoting this purpose.

On the second point, Lord Leggatt agreed with the Court of Appeal that even if a person is liable as an accessory to an infringement, the only profits which they can be required to pay to the rights holder are those profits which they have made personally and not profits that someone else, such as their company, has made. In its reasoning, the Supreme Court stated that if it were permissible to order a director to account for profits made by their company, an order in this regard would amount to a penalty which is not in keeping with the purpose of an account of profits. An account of profits is not to punish a defendant but rather to ensure any profits made as a result of their infringement are transferred to the claimant. Lord Leggatt contrasted the position for damages, where the underlying equitable principle is to allow a claimant to recover compensation from any defendant where multiple defendants might have caused a loss. As a result, the Ahmeds were not liable to account for the profits of their companies.

This left the Supreme Court to consider what profits the Ahmeds themselves may have personally made as a result of the infringements. First, the loan made from Hornby Street to Mr Ahmed was held not to be considered as profit Lord Leggatt stated that this would remain true even if the loan was forgiven or ceased to be repayable, the principle being that a person does not make a profit simply by borrowing money. However, Lord Leggatt did indicate that the situation may be different if, for example, the loan was made at a lower interest rate than a commercial one. That was not the case here. Additionally, ordinary remuneration like the Ahmeds’ salaries was not considered as profit. As with a loan, the Supreme Court recognised that this position may be different where a salary is used as a way of extracting profits; this was not the case for the Ahmeds. Finally, the Court stated that where someone is selling trade mark infringing goods, they are not necessarily liable for the profit made from selling the article itself but instead the profit made from selling it under the trade mark.

Key takeaways

• The decision highlights the fact that directors should not expect to be subject to any special rules when considering joint liability. Courts will simply apply the ordinary principles of the underlying tort as well as the longstanding principles for joint liability.
• It also makes it harder for rights holders to argue that directors should be jointly liable for infringements committed by their companies. However, the judgment alludes to the fact that for more flagrant infringements, such as counterfeiting, it might be more obvious that a director must have known of the facts that make the company’s act an infringement. Therefore, in such cases, it might be that knowledge is implied.
• Such cases are likely to be very fact dependent and evidence will be crucial to show what the directors did or did not know. Claimants should consider putting directors on notice of their rights as early as possible. However, the wording of such notices should be carefully considered bearing in mind the risks of making unjustified threats of trade mark infringement, which could lead to a claim being brought against the claimant for making such threats.
• Parties should also take particular care when electing for damages or an account of profits. Given the findings in this case, it is clear that the courts will construe what constitutes profit narrowly, and it may be that electing for damages would result in a more advantageous remedy.