Commercial

Joint Tortfeasorship in IPR claims – Still a “Grenade” in the Tail for Directors?

In a decision handed down in 2016 – Grenade (UK) Ltd. Grenade Energy Ltd. & another [2016] EWHC 877 (IPEC) – HHJ Hacon considered the position of the directors in ‘one-man’ companies...

…when the director is sued alongside the company as a joint tortfeasor in a claim for trade mark infringement; albeit it is clear from recent judgments that the principles enunciated in Grenade will apply to all other IPR related claims: for example passing off and infringement of EU registered designs was at issue in The Zockoll Group Ltd. & Anr. v Mr Handy & Ors [2018] EWHC 324 (IPEC).

In the brief judgment in Grenade the learned judge accepted two propositions of law:

  1. A director of a company is not automatically to be identified with his / her company for the purposes of a claim in tort, however small the company and however powerful the director’s control over that company: MCA Records Inc. v Charley Records [2001] EWCA Civ 141; [2002] FSR 26, at [41]; and
  2. Joint liability between the director and the company in tort requires that the director’s actions must have a “knowing, willing or a wilful quality”:

HHJ Hacon then quoted directedly from his earlier judgment in Vertical Leisure Ltd. v Poleplus Ltd. [2015] EWHC 841 (IPEC), which sought to apply the principle’s set out by Lord Sumption in his judgment in Sea Shepherd UK v Fish & Fish [2015] UKSC 10, where he said:

“`I interpret this to mean that in order to fix an alleged 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 to bring about that act….” [66].

The Judge also concluded that where the company has a sole director this will raise and evidential presumption that the acts of the company were done at the instigation of the director. Clearly, such an evidential presumption will be very hard to displace – effectively resulting in a position where a director in a single director company will be assumed (absent proof to the contrary) to have incurred joint tortious liability with the company for acts of IPR infringement, even when the court specifically holds that the director is not personally liable for the primary tortious act; see The Zockoll Group at [17]. The question in cases of joint tortfeasance (if the decision in Grenade is correct) claimed against a sole director is whether or not the director takes the decisions for the company – whether the buck stops with him or her. A proposition that is in stark contrast with the far more restrictive view of a director’s personal liability in relation to contractual claims.

However, some further consideration and elaboration on HHJ Hacon’s decision in Grenade has been provided in the judgment of His Hon. Judge Biriss in Federation Internationale De L’Automobile v Gator Sports Ltd. & Ors [2017] EWHC 3564 (Pat). It is worth quoting his Lordship’s decision in relation to Grenade in full:

If Grenade v Grenade went as far as the claimant’s submission suggested, then I would respectfully disagree with it. The simple fact that a company has a single director, irrespective of what other individuals might be involved in the company, cannot and should not in my judgment be taken to raise an evidential burden on that director to disprove allegations of personal liability. However, it is plain in my judgment that HHJ’s decision in Grenade does not go that far at all. It was a case in which the company has a sole director and sole shareholder, the same person, and was described by the judge as a “one-man” company (paragraph 23), by which I understand him to mean a company with no employees or any other individuals involved at all. The only human
being involved at all seems to have been an individual, Mr Chawla. In that case the judge held that there therefore arose an evidential presumption that all acts done by the company were done at the instigation of Mr Chawla alone and that he was under an evidential burden to show why, contrary to what one might expect, the acts complained of were not initiated by him” [23].

It should though be appreciated that despite the finding that defendant was not a “one-man” company – in the way that term was used in Grenade – the judge still concluded that the director was a joint tortfeasor with the company.

Conclusions

The question of joint liability between a director and company for acts of alleged IPR infringement is important but not one to which a simple answer can be given in light of the decisions in Federation International De L’Automobile and Grenade. However, it is possible to draw some conclusions.

  1. The“one-man”company referred to by HHJ Hacon in Grenade should be taken to mean a company with a single director and shareholder (not just a single director) and usually no other employees;
  2. The mere fact that a company has a single director–irrespective of what other individuals are involved in the company’s operations – does not of itself raise an evidential burden on the director to disprove allegations of personal liability; and
  3. For a sole director to be jointly liable with the company there must be: (a) material assistance by the director in the primary act of tortfeasance; (b) the assistance must be in relation to a common design between the company and director, and (c) the primary act of tortfeasance must be proved.

What is not clear at present is what possible factual circumstances would in fact relieve or limit a director’s liability for joint tortfeasorship in relation to claims for IPR infringement. And until we have a decision that deals definitively with the point the assumption must be that where a company is run by a single director there is every likelihood that were a company to be found liable for IPR infringement the director will also be on the hook for the same liability – and such director’s must be advised accordingly.

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