Directors ‘Accessory’ Liability: Knowledge Must First Be Proved
Company directors should always sit up and listen when the Supreme Court hands down a ruling clarifying the scope of personal liability. Directors can breathe a welcome sigh of relief following this particular ruling.
While the case1 concerned trademark infringement, the ruling provides important comments on directors’ duties and the limits to which they can be found personally liable as accessories to another’s wrongful act.
The trademark infringement case was brought by two companies against several defendants, including two directors of a (now dissolved) company which sold items bearing a particular logo and pictures of polo players on horses over the course of a decade.
Various defendants were found liable; and in a subsequent trial, the two directors were found liable as accessories.
Directors’ duties
The Supreme Court rejected the directors’ argument that where the directors of a company perform their duties in good faith, with reasonable care, they cannot be held jointly liable with the company for infringements - because their acts are treated in law as being the company’s acts.
However, the court clarified that on the issue of liability as accessories:
· There is no principle of English law exempting a director, acting in that capacity, from ordinary principles of liability for wrongful acts
· But it is unjust to hold an individual, whose act causes another to commit a wrong, jointly liable for the wrong as an accessory if the individual was acting in good faith and without knowledge of facts which made the act of the other person wrongful
· Individuals liable as accessories are liable even though they don’t satisfy all the elements of the tort
· The correct approach is that someone who causes another person to do a wrongful act will only be jointly liable as an accessory if they have knowledge of the essential facts which make the act done wrongful
The SC found that neither of the directors possessed the required knowledge of the essential facts that made the company’s acts wrongful. Therefore, they could not be held jointly liable.
Key takeaways for directors
Directors can take a lot of reassurance from this decision – anyone trying to pin liability on a director as an accessory to a wrongful act will need to prove the necessary degree of knowledge. This will be a major challenge and undoubtedly deter claims against directors for accessory liability.
1Lifestyle Equities v Ahmed [2024] UKSC 17
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