Piercing of the corporate veil with a Grenade

Grenade (UK) Ltd v Grenade Energy Ltd and another [2016] EWHC 877 (IPEC) (4 March 2016)

A recent decision of the Intellectual Property Enterprise Court reminds us that piercing the corporate veil is possible to hold a sole director liable, especially in the context of intellectual property rights, where the following considerations apply:

• the company’s acts are instigated by the director and they are within his or her control
• the director “intends and procures and shares a common design that the infringement takes place”, or
• the director’s participation goes beyond fulfilling his or her constitutional role governing the company.

Facts

The first defendant, Grenade Energy Limited, supplied food and drinks which were advertised on the first defendant’s website. The second defendant was the sole director and sole shareholder of the first defendant.

The claimant marketed food and beverages under two trade marks, a word mark for “GRENADE”, and the following figurative mark:

 

The claimant sued the first defendant for infringement of the two trade mark and for passing off. The claimant alleged that the director of the first defendant was jointly liable for the infringement.

General Principles

Under English law joint tortfeasance liability requires proof of three elements:

• the defendant had to have acted in a way which furthered the commission of the tort by the principal
• the defendant had to have done so in pursuance of a common design with that person, and
• the defendant had to have done or have secured the doing of the acts which had constituted a tort.

The test, following the Supreme Court in Fish & Fish Ltd v Sea Shepherd UK, is: D will be jointly liable with P if they combined to do or secure the doing of acts which constituted a tort. This requires proof of two elements. D must have acted in a way which "furthered the commission" of the tort by P; and D must have done so in pursuance of a common design to do or secure the doing of the acts which constituted the tort.

Evidential Burden

The factual matrix of the Grenade case raised an evidential presumption that all acts done by the company were done at the instigation of the company’s sole shareholder and director alone. As the defendant put it himself he was a “one-man company”. Thus, where the factual threshold is met (ie that in fact the director controls the company and instigates its actions), then the evidential proof is reversed and it is up to the defendant to show that he/she did not commit and did not intend to commit the tortious act.

Result

In Grenade, the evidential burden was on the sole director to show why, contrary to what one might expect, the infringing acts of the company complained of were not initiated and controlled by him. On the facts, the court held that the defendant actively cooperated with his company to bring about the trademark infringements and passing off, and that he intended his cooperation would bring about those acts and therefore was liable.

Comment

Often in IP disputes the infringing company has no assets, or is quietly wound up when proceedings for IP infringement are commenced. Part of the answer is to join the director or directors, in order to obtain remedies (including injunctions and monetary remedies) against these individuals personally. This case confirms a recent trend in intellectual property cases to pierce the corporate veil readily, particularly where there is a single director/shareholder.