Can a director be personally liable?

18 April 2010

Common design in Intellectual Property

A key aspect to any infringement case concerns tactics. That is who to sue and why; does one party have any assets or any cash in the bank to pay any award or damages? Often bringing a claim against a limited company may well result in a victory although a hollow victory as the victor is left with nothing but a large legal bill as the defendant leaps in to liquidation.

So it is becoming more and more common for a claimant to consider joining an individual in an IP case by way of common design. It can be a useful tactic especially if the defendant owns his own home and the costs consequences can often make an individual think twice.

However the bar is quite high in that the established principle of the corporate veil remains the overwhelming hurdle to overcome. In IP ( copyright in particular) it is well established that a person who procures an infringement of copyright is liable joint and severally with the infringer. Similarly, two or more persons may participate in a common design to infringe rendering them jointly liable. Lord Templeman said in the Amstrad case "My Lords, joint infringers are two or more persons who act in concert with one another pursuant to a common design in the infringement. In the present case there was no common design, Amstrad sold a machine and the purchaser or the operator of the machine decided the purpose for which the machine should from time to time be used. The machine was capable of being used for lawful or unlawful purposes. All recording machines and many other machines are capable of being used for unlawful purposes but manufacturers and retailers are not joint infringers if purchasers choose to break the law. Since Amstrad did not make or authorise other persons to make a record embodying a recording in which copyright subsisted, Amstrad did not entrench upon the exclusive rights granted by the Act of 1956 to copyright owners and Amstrad were not in breach of the duties imposed by the Act"

The test on personal liability and common design can now be considered as a two stage test namely

"The first stage concerned a general question in the law of tort, arising where two persons were acknowledged or found to have committed tortious acts which led to the same damage. The question was whether these persons had committed individual wrongs for which they were individually liable, or whether they had joined together in committing the same wrong. This was formerly of great importance, for there could only be one action in relation to one tort, so that judgment against one tortfeasor A would release any claim against the other tortfeasor B; and so also with any accord and satisfaction of the liability of A. The severity of this rule was mitigated by statute in 1935, but by then a jurisprudence had grown up concerning the distinction between joint and several tortfeasors. The most celebrated example of this is to found in the judgment of Scrutton LJ in The Koursk [1924] P 140 at 156 where three situations are identified where A might be jointly liable with B: i.e., where A was master and B servant; where A was principal and B agent; and where the two were concerned in a joint act done in pursuance of a common purpose. This list may not be exhaustive, but it forms the basis for all subsequent statements of the law. The second line of authority concerns persons who are said to have jointly infringed a patent. Essentially this takes a situation where A is an infringer, and adds to it (via the authorities on joint tortfeasors) the possibility that B may also have infringed, not through any act which he himself has done, but by virtue of a common design with A. This also is a bold step, since it applies a common law doctrine to the interpretation of a statute."[ MCA Records Inc v Charly Records Ltd

But it is important to stress how the law affects a director of a defedant company Lord Justice Aldous, has identifed three circumstances in which a director or employee, could be held personally liable. First, where the director or employee commits the tort himself for example the director of a haulage firm kills someone while driving the lorry. Second, where he accepts at some point some responsibility and third where the director does not carry out the act himself, nor does he assume liability but he procures and induces another, the company to, commit the wrongdoing. Justice Aldous stated : "A person who procures and induces another to commit a tort becomes a joint tortfeasor (see Unilever Plc v Gillette (UK) Limited [1989] RPC 583 and Molnlycke AB v Procter & Gamble Ltd [1992] RPC 583). There is no reason why a director of a company should be in any different position to a third party and therefore it is possible that a director can be capable of becoming a joint tortfeasor by procuring and inducing the company, for which he works, to carry out a tortious act. However there are good reasons to conclude that the carrying out of duties of a director would never be sufficient to make a director liable. That was the view of the Court of Appeal in C Evans v Spritebrand Ltd [1985] 1 WLR 317." The key question is whether or not the individual intends and procures and shares a common design that the infringement takes place and not simply whether or not he was present and voted at board meetings.

Michael Coyle is a Solicitor Advocate and can be contacted at michael.coyle@lawdit.co.uk and through the office numbers on 02380 235979