When you cannot hide behind a company

Whilst you are confident of both your lawyer and your chances of success, the proposed defendant has little or no prospects of being able to pay if you win. It is a limited company with little or no assets. It will probably hide behind the corporate veil and go on to steal some other invention or copyright.

What can you do?

Put it down to experience and move on or continue with the fight? Â

A Court of Appeal case highlights the fact that claimant’s ought to consider bringing an individual director or employee as a joint tortfeasor to assist in the successful prosecution of say a copyright claim.

This followed a decision in MCA Records Inc. v. Charly Records Limited.

In doing so, the Court acknowledged that, in determining whether a director should be held so liable, it was necessary to balance two competing principles: first, the principle that an incorporated company is separate and distinct from its shareholders, directors and officers and, secondly, the principle that everyone should be answerable for his tortious acts.

These competing principles are not always easy to reconcile. The judge at first instance suggested that, in order to hold that a director be jointly liable for the company’s tort, “it is necessary to show either that he was himself the person who committed, or participated in, the act constituting the tort, or that he directed or procured the tortious act to be done by others and that inquiries into the matter will or may involve an ‘elusive question’ turning on the particular facts of the case, and whose resolution may in turn involve the making of a policy decision as to the side of the line on which the case ought to fall”.

The Court of Appeal found no fault with this test as applied by the judge, but itself preferred to state the principle stripped of any reference to “elusive questions” or “policy decisions”. Instead, the appropriate test in such cases is to ask whether it can be established either:

• that the director procured or induced the infringing acts to be done by the company or

• that, in some other way, he and the company joined together in a concerted action to secure that those acts were done?

Of course this is not clear cut but what is absolutely clear is that directors and other individuals who control the activities of small companies cannot escape personal liability for infringement simply by hiding behind the veil of a limited liability company.


Beware !

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