Can the man behind a "one man company" be held to account in tort?

A recent trade mark infringement case at the Intellectual Property Enterprise Court (IPEC) indicates that the answer will often be “yes”.

In a recent case involving trade mark infringement and passing off, Judge Hacon (IPEC) commented that, in his view, where a person is both the sole director and sole shareholder of a company there would be an evidential presumption that all acts done by the company were done at his instigation alone.  In effect, the sole director/shareholder would be under an evidential burden to show why, contrary to what one might expect, the acts complained of were not initiated and controlled by him. In other words, the usual rule that it is for the claimant to provide evidence to prove his case rather than for the defendant to give evidence of his innocence would be reversed in this regard.

Infringement by the company was admitted
The case involved a sports drink.  The claimant, Grenade (UK) Ltd, owned registered trade marks for the word GRENADE and for a logo showing the word GRENADE in which the letter A had been replaced by a picture of a grenade. The defendant company, Grenade Energy Limited, supplied a sports drink called “Epic”; its website, www.grenadeenergy.com,  featured the company name Grenade Energy Limited and the logo. Trade mark infringement by the company was admitted, and Hacon J also held that the company was liable in passing off.  The only question remaining was whether the sole director/shareholder, Mr Chawla, was jointly liable with his company.

A director will not be jointly liable simply because he is a director
The question of the joint liability of directors is often raised in intellectual property cases. The general rule established in earlier cases is that a director is not automatically to be identified with his company for the purposes of the law of tort.  This applies regardless of the size of the company. In order to be liable the director must have acted in a way that would have made him liable even if he wasn’t a director – i.e. the fact that he is a director does not, of itself, make any difference.  The general principles relating to joint tortfeasorship apply to decide whether he is to be jointly liable.
 
These principles were recently reconsidered by the Supreme Court in the case of Sea Shepherd UK v Fish & Fish [2015]. Hacon J summarised them as follows:

“… in order to fix a joint tortfeasor with liability, it must be shown both that he actively co-operated to bring about the act of the primary tortfeasor and also that he intended that his co-operation would help bring about that act (the act found to be tortious).”

The key points here are active co-operation and intention.  Earlier cases have expressed a similar idea by referring to the need for a ‘common design’ or that the joint tortfeasor must ‘make the act his own’.  The thought behind the view taken by Hacon J in this case seems to have been that as a result of his status as sole director and shareholder the man behind the “one man company” by definition controls what the company does, so it is for him to demonstrate that he did not actively co-operate or intend his company’s infringing acts.

When might a sole director/shareholder not be liable?
Mr Chawla was unable to identify anybody else who was responsible for the infringement.  Hacon J comments that in such circumstances there can be no real doubt that he was the sole instigator and controller of those acts and therefore jointly liable.  One could, however, imagine situations in which the director is able to point to somebody else who was responsible for the acts; potentially, perhaps an employee.  An earlier case suggests, for example, that joint tortfeasorship could not arise in a situation where an employee had caused the company to infringe but the director had not known about it.

The case was Grenade (UK) Limited v Grenade Energy Limited & ANR [2016] EWHC 877 (IPEC)

Astrid Arnold, IP Professional Support Lawyer

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