Lifestyle Equities C.V. & Anor v Ahmed & Anor

An accessory who must account for profits is liable only for profits which the accessory actually derived from the wrongful conduct, not profits made by the principal tortfeasor.

A director may incur accessory liability through personal participation in a company’s strict-liability tort. Lack of knowledge, improper motive or breach of fiduciary duty is unnecessary. Protection is narrowly confined to conduct amounting to no more than control through the company’s constitutional organs.

An account may include the proportion of a salary attributable to the wrongdoing, net of relevant income tax. Money received under a subsisting obligation to repay is not a profit.

The claimants owned registered trade marks incorporating BEVERLY HILLS POLO CLUB wording and polo-player devices. Corporate defendants were found liable for trade mark infringement and passing off through their use of SANTA MONICA POLO CLUB branding. There was no appeal from that finding.

At a second trial, reported at [2020] EWHC 688 (Ch), the judge held two directors, Mr and Ms Ahmed, jointly and severally liable for specified infringements. He ordered them to account for profits comprising part of their salaries and, in Mr Ahmed’s case, an outstanding company loan.

The claimants appealed against the ruling that each accessory was accountable only for personal profits rather than the company’s profits. The directors cross-appealed against liability, the grant of an account and the treatment of the loan and salaries.

1. The claimants’ appeal was dismissed. An account of profits operates separately against each defendant. An accessory is accountable for profits which that person actually derived from the wrongdoing, not for profits made by the principal. That conclusion follows from the restitutionary nature of the remedy and avoids inappropriate or duplicative recovery: [10]–[18].

2. The directors’ challenge to joint liability was dismissed. For a strict-liability tort, an accessory need not appreciate that the jointly designed activity constitutes an infringement. A director is judged by the ordinary principles of accessory liability. The narrow protection recognised in MCA Records Inc v Charly applies where the director does no more than exercise control through the company’s constitutional organs, including proved cases of delegated constitutional authority. Acting within employment authority, acting in the company’s interests, obtaining advice, lacking an improper motive and complying with fiduciary duties do not themselves provide defences. The directors’ close personal involvement in selecting, stocking and selling the infringing goods established liability: [28]–[51].

3. An account of profits was properly ordered. Although the trial judge had not separately exercised the equitable discretion, the Court of Appeal could do so under rule 52.20(1) of the Civil Procedure Rules 1998. A successful intellectual-property owner’s choice of an account is an important factor and will ordinarily be respected unless there is a good reason, such as disproportionality, innocence of a relevant kind or delay. Infringement itself supplies the requisite improper conduct; bad faith or knowledge of infringement is not an additional threshold: [52]–[65].

4. The appeal concerning the loan was allowed. While the obligation to repay remained outstanding, the loan was not a profit in Mr Ahmed’s hands. It had not been established to be a gift, disguised dividend or other non-repayable receipt. The company’s later dissolution could not justify the order on the evidence properly before the trial judge: [66]–[72], [90].

5. The salary appeal was allowed only to the extent of income tax. Salary may constitute profit despite being consideration for labour. The court must identify the portion causally attributable to the infringement and permit appropriate costs or allowances. The finding that 10% of each salary was attributable to the infringements was open to the judge. Income tax paid or payable on that portion had to be deducted, producing net liabilities of £78,939.66 for Mr Ahmed and £38,830.94 for Ms Ahmed: [73]–[95].

1. Court of Appeal (Civil Division): In [2021] EWCA Civ 675, dismissed the claimants’ appeal, allowed the directors’ appeal concerning the loan and allowed the salary appeal only to the extent of deducting income tax.
2. High Court: In [2020] EWHC 688 (Ch), held both directors jointly and severally liable for specified infringements and ordered an account of personal profits, including portions of salary and a loan received by Mr Ahmed.
3. High Court, first trial: Held eight corporate defendants liable for trade mark infringement and passing off. There was no appeal from that decision; its citation is not stated in the judgment.