Another Beverly Hills Polo Club Appeal

UK Supreme Court

Author Christine Smith Licence CC BY-SA 4.0 Deed Source Wikimedia

 

Jane Lambert

In Beverly Hills Polo Club Litigation, I discussed the claim by Lifestyle Equities CV and Lifestyle Licensing BV ("Lifestyle") against Amazon UK Services Ltd and others over the sale of American sourced BEVERLY HILLS POLO CLUB merchandise in the UK that ended in the Supreme Court (see Lifestyle Equities CV and another v Amazon UK Services Ltd and others [2024] UKSC 8 6 Mar 2024).  Lifestyle returned to the Supreme Court recently in another dispute over that brand.  This time, the issue was whether the directors of a company that had infringed Lifestyle's BEVERLY HILLS POLO CLUB trade marks should be ordered to account for the profits that their company had gained from its infringement.  The issue is important because IP owners often sue not just the companies that infringe their rights but also the directors of those companies.  That is because the directors tend to have assets such as homes that can be sold or mortgaged to pay damages or accountable profits and costs to successful IP owners.

In this case, Lifestyle sued 16 defendants including Kashif Ahmed, Bashra Ahmed, Continental Shelf 128 Ltd ("Continental) and Hornby Street Ltd. ("Hornby Street") for trade mark infringement and passing off. Both Kashif and Bashra were directors of Hornby Street and Kashif was also a director of Continental. The action was tried by Mr Recorder Campbell QC (see Lifestyle Equities CV and another v Santa Monica Polo Club Ltd and others [2017] EWHC 3313 (Ch) 21 Dec 2017).  

He found that Kashif Ahmed had been the "ultimate decision-maker". He had managed the intellectual property portfolio for Continental and Hornby Street. He instructed Hornby Street's design director to oversee the design of a logo for the SANTA MONICA POLO CLUB brand. He selected the factory with which to place orders and agreed prices for the manufacture of polo shirts bearing the SANTA MONICA POLO CLUB logo. Bushra Ahmed had been head of sales for Hornby Street. Her role had been a very hands-on one managing the day-to-day running of this business with the help of a salesperson and a warehouse assistant. She had a showroom that stocked SANTA MONICA POLO CLUB goods. It was her decision to display those goods.  She also sold them to customers.  Mr Campbell found that both the companies and the Ahmeds had infringed Lifestyle's trade marks and passed off their goods as and for those of Lifestyle.

Actions for IP infringements usually take place in two phases.  First, the court determines whether the IP owner's rights have been infringed.  If they have, the owner can request an inquiry as to damages or an account of profits but not both. The purpose of the inquiry is to determine the injury, loss or damage that the IP owner has suffered as a result of the infringement and the amount of damages that will compensate him or her for that harm.  An account determines the profits that the infringer has gained from his or her wrongdoing and requires their surrender to the IP owner.  As it is not always obvious which remedy would benefit the IP owner more, the court can order an infringer to provide documents and information about his or her business to enable the owner to make an informed decision (see Island Records Ltd. v Tring International Plc and another [1995] 3 All ER 444).

Even though Continental and Hornby Street went into administration shortly after the first trial and were liquidated, Lifestyle opted for an account of profits.  The account was taken once again by Mr Campbell (see Lifestyle Equities CV and Another v Santa Monica Polo Club Ltd and others [2020] EWHC 688 (Ch) (23 Mar 2020)).  He assessed Hornby Street's accountable profits at £3,129,921. Lifestyle argued that that amount was recoverable from the Ahmeds.  Kashif resisted liability on the ground that he had no improper motive, he had acted on advice and had delegated the design of the logo to a professional design team.  Bushra also argued that she had acted without an improper motive or intention to infringe. The recorder ruled that none of those arguments was a defence in law.  However, he also held that the Ahmeds were liable to account only for the profits that they had personally received and not those that had accrued to Hornby Street.  He held that they should account for the proportion of their remuneration that resulted from the infringement which was £144,192 in Kashif's case and £57,007 in Bushra's. He also ordered Kashif to account for a £635,789 loan that he had received from the company.

Lifestyle appealed to the Court of Appeal against the decision that the Ahmeds were not liable to account for the profits made by Hornby Street. The Ahmeds appealed against the decisions that they were jointly and severally liable for the infringing acts of Hornby Street and that they had gained profits from the company's infringements for which they were liable to account to Lifestyle. The Court of Appeal upheld the recorder's judgment on most points but relieved Kashif Ahmed from liability to account for the loan and deducted the Ahmeds' income tax from the amount of accountable profits (see Lifestyle Equities C.V. and Another v Ahmed and Another [2021] EWCA Civ 675 (7 May 2021)).

The parties appealed to the Supreme Court pursuing the same arguments that they had advanced in the Court of Appeal.   The judgment of the Court was delivered by Lord Leggatt in Lifestyle Equities CV and another v Ahmed and Another [2024] UKSC 17 on 15 May 2024.  For those who are interested, I wrote a much fuller note on that judgment in Trade Marks: Lifestyle Equities v Ahmed on 2 June 2024 in NIPC Law.  The Supreme Court allowed the Ahmeds' appeals and dismissed Lifestyle's. 

The Court held that the Ahmeds had not infringed Lifestyle's trade marks because neither of them had personally used a sign that infringed those marks or done any of the acts that fell within s.10 of the Trade Marks Act 1994 or art 9 of the EU Trade Mark Regulation.  Lord Leggatt considered whether the Ahmeds might have been liable as accessories.  Accessory liability was a common law concept that operated alongside trade mark law and required knowledge of wrongdoing and tortious intent. There were sufficient differences between Lifestyle's trade marks and the signs used by Hornby Street for there to be argument and honest difference of opinion about the extent of the similarity and whether it gave rise to a likelihood of confusion or otherwise resulted in infringement. The recorder had made findings about the Ahmeds' knowledge that fell well short of a finding that they had the knowledge required for accessory liability. It followed that the courts below had been wrong to hold that the Ahmeds were jointly liable with Hornby Street for the infringements of Lifestyle's trade marks committed by Hornby Street. 

Having exonerated the Ahmeds from liability as primary tortfeasors and as accessories, it followed that they had ceased to be liable to account to Lifestyle for anything.  However, the Supreme Court agreed with the Court of Appeal that the only profits for which a person should be ordered to account were those that he or she had received and not those that had been received by anybody else. A person ordered to account for someone else's profits would not be giving up a gain but paying a penalty or fine which would be tantamount to an award of punitive damages.  Even if the Ahmeds had been liable as accessories there was no basis for requiring them to account for a portion of their salaries or, in Kashif's case, the loan.

There was a great deal more to Lord Leggatt's judgment than was strictly necessary for the disposal of appeals.  It appears that the Ahmeds had argued that company directors and possibly other agents are exempt from liability for the wrongs of their companies in certain circumstances.  Lord Leggatt analysed their argument and the cases cited in support and found no such rule. His lordship also analysed the development of accessory liability tracing one limb to Lumley v Gye (1853) 2 E & B 216; 118 ER 749 and the other to The Koursk [1924] P 140.  His dicta is likely to be cited in agency, company and employment law cases as well as intellectual property disputes.

Ever since the Supreme Court's judgment in Fish & Fish Ltd v Sea Shepherd UK [2015] AC 1229, [2015] UKSC 10, [2015] 2 All ER (Comm) 867, [2015] 4 All ER 247, [2015] 1 Lloyd's Rep 593, [2015 ] WLR(D) 102, [2015] 1 AC 1229, [2015] 2 WLR 694 it had become almost routine for claimants in intellectual property claims to join directors of small private limited companies as defendants to infringement suits on the basis that they were "controlling minds" or had participated in a common design.  Following Lifestyle Equities, it will be necessary to prove knowledge or intent on the part of company directors.

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