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“One-man” limited companies

The evidential burden is on the sole director/shareholder to show why he or she is not jointly liable

The Intellectual Property Enterprise Court has provided useful observations on the issue of joint liability with regard to companies which are controlled by a sole director and shareholder.

The case of Grenade (UK) Limited v Grenade Energy & Another (2016) related to a claim for trade mark infringement and passing off as a result of the use of the “Grenade” trade mark in relation to energy drinks. Whilst the corporate defendant admitted infringement of the trade mark, the director who was also the sole shareholder did not, claiming that the acts in question were the acts of the company alone and that he was not jointly liable. This cut no ice with the judge who agreed that the defence in this regard had no real prospect of succeeding and, as such, summary judgment (i.e. without a trial) should be granted. The judge added that the most up to date summary of the law in relation to joint tortfeasance is to be found in the judgment of the Supreme Court in Sea Shepherd UK v Fish & Fish Ltd (2016). Reflecting on this judgment the judge stated:

“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 (the act found to be tortious).”

The judge noted that the defendant’s status as the sole director and shareholder raised an evidential presumption that the corporate defendant’s acts were committed at his instigation. The defendant had not identified anyone else who could have been responsible for the acts complained of. The judge therefore took the view that he had actively co-operated with his company to commit the acts complained of and intended that his co-operation should bring about those acts, and was jointly liable for them.

Both defendants also denied passing off but, again, summary judgment was granted on the basis that there was “an absence of reality to the defendant’s case”. The judge noted that evidence of actual confusion had been adduced and, as such, held that it was inevitable that there would be damage to the claimant’s goodwill. Even if the claimant did not lose sales to the corporate defendant, there would be some loss of control of the claimant’s goodwill, and that, in itself, was bound to cause damage.

Roy Crozier, a partner in the Intellectual Property Team said: “The judge’s comments with regard to the evidential burden on sole directors and shareholders are both sensible and welcome. We often deal with Defendants who operate companies which, in reality, are their commercial alter-egos and who seek to hide behind the corporate veil to avoid liability.   This case reiterates the principle that the courts will not tolerate such shams.