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Passing off case makes the corporate veil a little thinner for one man companies



United Kingdom

A sole director has been found to be jointly liable with his company for trade mark infringement and passing off its products as those of another company.

In a recent case in the Intellectual Property Enterprise Court, a sole director was found to be jointly liable with his company for trade mark infringement and passing off its products as those of another company. 

Grenade (UK) Ltd owns two EU trade mark registrations for GRENADE: one a word mark and one a logo mark, which it uses in the marketing and sale of sports performance and energy products. It sought summary judgment against an unconnected company, Grenade Energy Ltd, that was supplying energy drinks using the name "Grenade", alleging infringement of its EU trade marks and passing off.

Grenade Energy conceded infringement of the trade marks.  In relation to passing off, it admitted that Grenade (UK) had goodwill associated with the word "Grenade" and the logo, and that its own marketing amounted to misrepresentation, but queried whether Grenade (UK) had suffered any damage.  The court accepted evidence of actual confusion among customers and concluded that damage to Grenade (UK) was inevitable, through loss of control of its goodwill and possibly through lost sales.  Grenade Energy was therefore liable for passing off.

In addition to claiming against Grenade Energy, Grenade (UK) sued Mr Chawla, the sole director and shareholder of Grenade Energy, alleging he was jointly liable with his company for the trade mark infringement and passing off. 

It is clear that a director of a company is not always jointly liable for the unlawful acts of his company, even in the case of a one-man company with just one shareholder who is also the sole director.  A director will not be jointly liable with his company if he does no more than carry out his role as a director.  However, having noted that Grenade Energy was a one man company, the court took the view this raised a presumption that all acts of  the company were instigated by Mr Chawla alone and it was then necessary for him to show this was not the case.  Since Mr Chawla had not identified anybody else who was responsible for the company's acts, he had no prospect of demonstrating this and he was held to be jointly liable with Grenade Energy.

If the approach adopted in this case is followed, it will make it easier to bring claims against the sole director of a one man company, where the company has committed an unlawful act.  Instead of the claimant having to show that the sole director has done something to procure the company's unlawful act, over and above simply acting as its director, it is for the sole director to demonstrate that the unlawful act was not initiated and controlled by him and to identify someone else who was responsible for it.

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