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THE TARTAN ARMY LIMITED AGAINST SETT GMBH AND OTHERS


Submitted: 22 October 2015

OUTER HOUSE, COURT OF SESSION

[2015] CSOH 141

A49/09

 

OPINION OF LORD GLENNIE

In the cause

THE TARTAN ARMY LIMITED

Pursuer;

against

(FIRST) SETT GMBH, (SECOND) OLIVER REIFLER, (THIRD) IAIN EMERSON and (FOURTH) ALBA FOOTBALL FANS LIMITED

Defenders:

Pursuer:  Mackenzie, solicitor advocate;  Shepherd and Wedderburn LLP

Third Defender:  Young;  Drummond Miller LLP

22 October 2015

Introduction

[1]        In this Intellectual Property action the pursuer advances claims against a number of defenders in respect of alleged infringements of various “Tartan Army” trademarks.

[2]        The “Tartan Army” name was first used in the late 1970s, when the Scotland football team qualified for the 1978 World Cup in Argentina.  A novelty song was released entitled “Ally’s Tartan Army”, “Ally” referring to the team manager, Ally MacLeod, and “Tartan Army” referring to the fans who travelled to support the Scotland team.  Since then, the Tartan Army, i.e. the Scotland football supporters travelling under that name, have won various awards for their friendly nature, sporting spirit and charity work.  They have been awarded a FIFA fair play award by the Belgian Olympic Committee and were named as the best supporters during the 1992 European Championship and at the 1998 World Cup in France, where they were presented with a trophy for non-violence in sport and for their sense of fair play.

[3]        The pursuer avers that the “Tartan Army” mark has developed and is now well established as a symbolic renowned brand associated with sporting spirit, friendly travelling support and fair play.  It is the owner of a number of trademarks for the “Tartan Army” mark which have been filed and registered in the United Kingdom and a number of other countries, it having purchased some or all of those trademarks from one Ian Aide in about 2006.  The UK trademarks provide protection in classes which include textile goods, clothing, footwear, headgear and football strips, and the registered trademarks in other countries, including New Zealand, Australia and the USA, providing similar protection.  In addition, it has a Community trade mark which provides protection in, among other things, printed matter and magazines, travel agency services, travel and ticket reservation services and travel information services.  The pursuer avers that it offers a range of high quality goods and services to the public, including various sponsorship deals and travel promotions, through its online Tartan Army shop.  It has granted permission to associated companies to use the brand.  Its website provides a place for all Scotland supporters worldwide to obtain exclusive Tartan Army merchandise, gifts and travel, to obtain the latest sports news, and to take part in discussions with other members of the Tartan Army.  It publishes a monthly newsletter.  It is also involved in charity work and has organised tour co-ordinated events with a view to raising money for charities such as Children in Need.

[4]        The pursuer claims that from about 2007 or 2008 the defenders have infringed its rights in the “Tartan Army” trade mark by publishing a magazine known as “The Famous Tartan Army magazine” and offering other services using the “Tartan Army” mark.  It avers that the defenders’ sign highlights the words “Tartan Army” in a manner which is identical to the way in which those words appear when it uses them, and that the defenders offer goods, travel services and promotions identical with its own offerings.  It seeks interdict preventing the defenders infringing its exclusive right to use the “Tartan Army” mark and from passing off, by use of the that mark, its own goods and services as if they were manufactured or sold by the pursuer; an order for destruction of all products and promotional and marketing material in the defenders’ possession using the “Tartan Army ” mark; and count and reckoning by the defenders for the profits made by them from September 2007 to date from the publication and sale of magazines and the supply of goods and services infringing the trademarks, and payment of the balance found due, which failing the sum of £300,000, plus interest.  It also seeks the expenses of the action.

[5]        The pursuer has settled its dispute with the first and second defenders.  I need say nothing more about them.  However, the action continues as against the third and fourth defenders, namely Iain Emerson (“Mr Emerson”) and Alba Football Fans Limited (“Alba”).

[6]        Alba was incorporated on 4 November 2008.  Mr Emerson is its sole director.

They both admit that Alba publishes the Famous Tartan Army Magazine (“the Magazine”).  However, they raise a number of defences.  Among other things, they say that the Magazine was first published in 2005 by SFM Promotions Limited (“SFM”), a company incorporated by Mr Emerson and his then business partner.  They say that Mr Aide, who then owned the UK trademarks, represented that he had no issue with SFM publishing the Magazine.  They aver that the pursuer was fully aware of this when it purchased the UK trademarks from Mr Aide and even placed advertisements in and contributed to the Magazine thereafter.  When SFM went into liquidation in late 2008 its intellectual property rights were assigned to Alba, which was incorporated by Mr Emerson for the specific purpose of acquiring and continuing SFM’s business.  Since then both Mr Emerson and Alba have invested time and money in developing, producing, promoting and growing the Magazine.  Alba publishes the Magazine; Mr Emerson does not.  No trademark protecting rights in publication of a magazine existed when Alba commenced publication.  Only the Community trademark protected such rights and it did not exist at that time.  In any event, both Mr Emerson and Alba deny that the “Tartan army” mark is sufficiently distinctive to be capable of protection by a trademark.  Mr Emerson counterclaims for declarator that the trademarks are invalid and also for declarator that the Community trademark, which was only registered in 2009, is invalid in whole or in part, having been acquired in bad faith. 

 

Procedure

[7]        The action began some considerable time ago but was sisted soon afterwards.  The fourth defender, Alba, was only brought into the action in February 2015.  Alba lodged defences in March 2015 in substantially the same terms as those already lodged by Mr Emerson.  Those defences raise potentially complex issues of fact and law.

[8]        It is the pursuer’s case that Mr Emerson is personally liable for the actings of Alba in relation to the matters complained of in the action.  Mr Emerson, by contrast, says that every action of which the pursuer complains, to the extent that it was done at all, was done by Alba, not by him personally.  On 1 April 2015, at a preliminary hearing in terms of Rule of Court 55.2E, the pursuer sought and obtained an order for further specification of the structure and management of Alba and, in effect, the relationship between Mr Emerson and Alba.  The preliminary hearing was continued.  Alba complied with the order by providing the information in a precognition by Mr Emerson. 

[9]        At the resumed preliminary hearing in June 2015 the pursuer submitted that the question whether Mr Emerson was properly convened as a party to the action on the basis that he was personally liable for the actions of Alba was likely to have an important bearing on the future conduct of the case and ought to be decided first.  The defenders, for their part, argued that the case should be appointed to a proof before answer restricted to the issues of validity raised in Mr Emerson’s counterclaim.  I preferred the suggestion made by the pursuer.  It seemed to me that the issue of Mr Emerson’s personal liability might well be critical to the future progress of the action and I appointed the case to debate on this question.

 

The relevant averments

[10]      The pursuer’s case on the pleadings on this point is as follows.  In Art.1 of Condescendence it avers that:

“The third defender [Mr Emerson] is the sole director and shareholder of the fourth defender [Alba].  There has never been and there is unlikely to be any employees (sic) of the fourth defender.  The day to day decisions are taken by the sole director, the third defender.  The third defender is the controlling mind of the fourth defender.  The third defender has directed or procured the commission of the wrongful act complained of.  The third defender is convened as he is the personification of the company.”

 

In Art.6 it makes the following further averments:

“Alba Football Fans Limited was incorporated on 4 November 2008.  The third defender is the sole director of Alba Football Fans Limited.  Alba Football Fans Limited was set up by the third defender to provide a vehicle to continue to use the Tartan Army trademark.  The third defender directed and directs or procured and procures the actions of Alba Football Fans Limited.  Alba Football Fans Limited has not files accounts with Companies House and the Annual Return is overdue.  …  The third defender directs and procures the actions of the fourth defender.  The fourth defender is called upon to explain the averment ‘It [the magazine] is not, and has never been, produced and published by the third defender personally.’”

 

In Art.9 the pursuer avers that the Magazine is published by Alba, who own the copyright.  It also avers that “the defenders” (i.e. all four defenders) publish the Magazine and offer travel services and promotions.  Finally, in Art.10, the pursuer says this:

“The third defender incorporated Alba Football Fans Limited in November 2009.  This company was incorporated to continue the publication of the Famous Tartan Army magazine.  The continued publication of this magazine is an infringement of the pursuer’s trade marks.  The third defender avers … that he is the directing mind of Alba Football Fans Limited.  The third and fourth defenders are acting in concert in the publication of the Famous Tartan Army magazine and the offering of travel services using the trade mark TARTAN ARMY.”

 

[11]      There is no specific plea-in-law for the pursuer focusing the issue of Mr Emerson’s liability for the acts of Alba.  The pursuer’s pleas-in-law simply assert that “the defenders” have infringed the pursuer’s trademarks and that “the actings of the defenders” amount to a passing off of their goods as those of the pursuers.

[12]      In his defences Mr Emerson admits much of the detail in the pursuer’s pleadings.  But he does not accept the assertion (a) that he has directed or procured the actions of Alba, (b) that he is acting in concert with Alba or (c) that he is in any way liable personally for any of the acts about which the pursuer complains.  For the avoidance of doubt, the averments in Mr Emerson’s defences relevant to the question of his personal liability for the acts of Alba can be summarised as follows:

  1. In January 2005 Mr Emerson and his then business partner incorporated SFM with the intention that it publish a Scottish football magazine (Ans.6);

(2)        In late 2008, after SFM had been put into liquidation, Mr Emerson arranged for Alba to be incorporated with the specific purpose of acquiring and continuing SFM’s business of publishing the Magazine (Ans.6);

(3)        Mr Emerson is the sole director and shareholder of Alba (Ans.1);

(4)        Alba has never had any employees and is unlikely to have any employees in the future (Ans.1). 

(5)        Day to day decisions within Alba are taken by Mr Emerson (Ans.1);

(6)        Mr Emerson relied on the continued acquiescence of the pursuer in the production of the Magazine (Ans.8 and 10);

(7)        Mr Emerson has injected significant amounts of his own time, money and effort into the business, and has given up other employment to work on the business and to develop its brand (Ans.10).

In addition, in his precognition lodged in process pursuant to the order of the court referred to in para [8] above, Mr Emerson confirmed that Alba had never had nor was likely to have any employees and that, as sole director, he took the day to day decisions himself.  He added this further information:

(8)        So far as concerns the publication of the Magazine, there is a wide group of people who contribute by providing content and pictures, mostly free of charge.  Digital publication is produced by [a publishing company] who are paid for bringing content and graphics together.  In the past another company had carried out graphic design.

(9)        Mr Emerson provides the editorial content.

(10)      Alba has the final say on all content and layout of the Magazine.

Since Mr Emerson confirmed that he took the day to day decisions himself, I take this last point, (10), to mean that he himself has the final say on all content and layout of the Magazine.

[13]      I should add that the order made at the preliminary hearing on 1 April 2015 required Alba to produce all minutes of board meetings.  None were produced.  I take it from that, and indeed this was accepted on behalf of both defenders at the continued preliminary hearing, that no minutes were kept of any board meetings.  This no doubt reflects the reality of the fact that Mr Emerson was sole director and took all decisions himself.  

[14]      For what it is worth, I should note that, in its defences, Alba repeats Mr Emerson’s averments to the effect that he, Mr Emerson, relied on the continued acquiescence of the pursuer in the production of the Magazine.  It also repeats Mr Emerson’s averments to the effect that he, Mr Emerson, has injected significant amounts of his own time, money and effort into the business and has given up other employment in order to work on the business and develop its brand. 

 

Submissions in outline

[15]      Both parties helpfully submitted detailed Notes of Argument and a joint bundle of authorities.  They elaborated on certain aspects in oral argument.  I summarise the main points below.

[16]      A number of propositions were not contentious.  A company is a legal entity separate and distinct from its shareholders and directors.   A director or shareholder may be held personally liable for the acts of a company in the circumstances where his relationship with the company indicates that he is the true actor, the company simply being used to conceal that fact.  He may also be held liable in the limited circumstances where it is permissible for the court to pierce the corporate veil (in cases where a company is interposed to enable the individual to evade a pre-existing legal liability).  Otherwise the only basis for holding a director or shareholder liable is as joint tortfeasor (counsel used the English terminology and I shall do the same, at this stage at least).  Whether the individual is jointly liable with the company is to be determined by reference to the principles identified in a large number of well-known authorities. In summary they provide that liability attaches when the individual procures the commission of the wrongful act by another or assists in it pursuant to a common purpose or intention that the act, which turns out to be wrongful, takes place.  The joint tortfeasor must have been so involved in the commission of the wrongful act as to make himself liable for it.  He must have made the infringing act his own.  A director or shareholder will not be jointly liable with the company if he does no more than a carry out his constitutional role in the governance of the company.  It is therefore necessary to examine with care what part the director played personally in regard to the act or acts complained of.

[17]      Mr Mackenzie, who appeared for the pursuer, pointed to the admission by Mr Emerson that the purpose of incorporating Alba was to continue the publication of the Magazine, it having previously been published by SFM, another company incorporated by him.  He submitted that, despite the repeated denials in the defences that the company acted as a vehicle or agent for him in carrying out its activities, and despite the assertion in the defences that Alba is a separate corporate entity from Mr Emerson, it was apparent from the admitted facts that Mr Emerson fell squarely into the category of an individual who had made the infringing act his own.  In support of this he pointed to the fact that Alba was incorporated for the purpose of continuing the publication of the Magazine and was, in his words, “a vehicle for the third defender’s activities”; that Mr Emerson was the only individual involved in Alba and therefore only his intentions could exist and be shared with Alba; that Mr Emerson took all day to day decisions and was responsible for all decision-making both commercial and otherwise; and that no minutes were kept of board meetings of Alba, that being consistent not only with Mr Emerson being the controlling mind of the company but also with an absence of any attempt to separate governance and operational responsibilities.  The conclusion, he submitted, was that Mr Emerson had not simply assisted or facilitated the infringement; rather he was the only actor.  The joint tortfeasor with him was the corporate shell which he had created.  The fact that Mr Emerson averred that, in setting up Alba he, Mr Emerson, had relied on the continued acquiescence of the pursuer in the production of the Magazine showed that it was in reality his business, not that of Alba.  On the basis of those submissions, Mr Mackenzie invited the court to exclude from probation the averments in Mr Emerson’s defences which denied his personal liability for such acts of infringement as were proved to have occurred.

[18]      Mr Young, who appeared for Mr Emerson, drew my attention to what he described as the “confused, contradictory and vague” nature of the pursuer’s case.  He pointed out that at times the pursuer made averments about “the defenders” generally, in a sense which must be taken to include not only Mr Emerson and Alba but also the first and second defendants.  More importantly, he pointed out that the basis upon which it was alleged that Mr Emerson was responsible for the allegedly infringing acts was uncertain and changing.  At times it appeared to be averred that Alba was merely a “vehicle” of Mr Emerson, he being described as the directing mind and even the “personification” of the company; whereas at other times the pursuer’s case appeared to be that Mr Emerson had directed or procured the infringing acts or had acted in concert with Alba in their commission.  The pursuer’s Notes of Argument appeared to proceed on the latter basis, alleging that Mr Emerson was, in effect, liable as an accessory, but the pursuer’s pleadings were far from clear.

[19]      Mr Emerson’s position was quite simple and straightforward.  He did not personally undertake any of the infringing acts, whether with others or by himself.  To the extent that any of the alleged infringing acts were committed, they were committed by Alba.  Alba was legitimately set up in November 2008 to acquire the business of SFM.  It did not act as an agent or vehicle for Mr Emerson.  Mr Emerson had simply chosen to take advantage of limited liability and incorporation in order to pursue legitimate business activities.  Mr Emerson did not acquire liability either with or in place of Alba simply by virtue of his position as director and shareholder.  No other coherent basis for holding him liable had been advanced. 

[20]      Mr Young submitted that the pursuer’ s pleaded case made no averments sufficient to bring the case within these principles.  For example, there is no specification of how it is said, if it is said, that Mr Emerson is using Alba to conceal the fact that he himself is carrying out the alleged infringing activities on his own account and for his own profit.  The only case appeared to be that Mr Emerson is liable as an accessory to Alba’s alleged infringement, but no relevant case had been pled against him on this basis either.  In particular the pursuer makes no averments of any particular activities on the part of Mr Emerson that are said to show him acting out with his constitutional functions as a director.

[21]      Mr Young also made submissions about the relevancy of the claim against Mr Emerson for count and reckoning.  In view of the conclusion I have reached on the principal issue, I do not require to set out these submissions in detail.

[22]      The following authorities and other materials were referred to in the course of submissions, and in the Notes of Argument:

Salomon v Salomon [1897] AC 22

Hook v McCallum (1905) 7 F 528

Ellerman Lines Limited v Clyde Navigation Trustees 1911 SC 122

HMA v Lappen 1956 SLT 109

Mentmore Manufacturing Co. Ltd v National Merchandising Manufacturing Co. Inc (1978) 89 DLR (3d) 195

Hoover Plc v George Hulme (Stockport) Ltd [1982] 3 CMLR 186

C Evans & Sons Ltd v Spritebrand Ltd [1985] FSR 267

CBS Songs Ltd v Amstrad Consumer Electronics Plc [1988] AC 1013

Unilever Plc v Gillette (UK) Ltd [1989] RPC 583

PLG Research Ltd v Ardon International Ltd [1993] FSR 197

Credit Lyonnais Bank Nederland NV v Exports Credits Guarantee Department [2000] 1 AC 486

MCA Records v Charly Records Ltd [2002] FSR 26

Sabaf v Meneghetti [2003] RPC 264

Halford v Seed Hawk Inc [2006] FCA 275

Boegli-Gravures SA v Darsail-ASP Ltd, Andrei Ivanovich Pyzhov [2009] EWHC 2690 (Pat)

L’Oreal SA v eBay International AG [2009] RPC 693

Keller & Ors v LED Technologies PTY Ltd [2010] FCAFC 55

Naxos Rights International Ltd v Project Management (Borders) Ltd [2012] CSOH 158

Cairn Energy Plc v Greenpeace Ltd 2013 SLT 570

Prest v Petrodel Resources Ltd [2013] 2 AC 415

Frank Houlgate Investment Company Limited v Biggart Baillie LLP 2013 SLT 993 (OH), 2015 SC 187 (IH)

Fish & Fish Ltd v Sea Shepherd UK [2015] UKSC 10

Jetivia SA v Bilta (UK) Limited [2015] UKSC 23

Gordon, Criminal Law, 3rd ed., vol.1 at paras 5.19-5.36 

Prof Reid Accession to Delinquency: Frank Houlgate Investment Co. Ltd. v Biggart Baillie LLP (2013) 17(3) Edin LR 388

I also considered the following authorities which were not cited but which seemed to me to be directly relevant on one of the issues in the case:

Re Horsley and Weight [1982] Ch 442

Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd [1983] Ch 258

Stocznia Gdanska SA v Latvian Shipping Company [2001] EWHC 500 (Comm) (Thomas J), [2002] 2 Lloyd’s Rep 436 (CA)

 

Discussion

[23]      At the stage of debate the substantive issues have to be considered only on the basis of the parties’ pleaded cases.  The correct approach is that laid down in Jamieson v Jamieson 1952 SC (HL) 44.  Mr Emerson’s motion to dismiss the claim as against him proceeds on the basis that the pursuer’s averments of fact are irrelevant to instruct a case that he is personally liable for the publication of the Magazine and other allegedly infringing acts ostensibly carried out by Alba.  That is a plea to the relevancy of the pursuer’s averments, a plea which will only succeed if it can be shown that the pursuer will inevitably fail to establish its case on this point even if it proves everything which in its pleadings it offers to prove.  Similarly, the pursuer’s motion to exclude from probation Mr Emerson’s denial of personal liability for such acts of infringement as are proved to have occurred will only succeed if his personal liability will clearly be established even on the facts averred by him in his defences and despite his denials.

[24]      There is considerable force in Mr Young’s complaint that the pursuer’s pleadings in relation to the alleged personal liability of Mr Emerson for acts ostensibly carried out by the company, Alba, are confused, contradictory and vague.  But I do not think it would be right to decide against the pursuer on this basis.  Had I considered that there was any merit in the pursuer’s case that Mr Emerson incurred some personal liability for the publication of the Magazine and other allegedly infringing acts, I would not have allowed the case to proceed unless and until the pursuer’s pleadings had been put in better order.  I would have put the case out By Order to give the pursuer an opportunity to do this.  But I have come to the view that, even on the most charitable reading of the averments made by the pursuer, its case against Mr Emerson personally is bound to fail.  In those circumstances it seems to me to be in the interests of all parties that I should express my view on the substantive issue of personal liability, rather than dismiss the pursuer’s case against Mr Emerson on a narrow pleading point.

[25]      The pursuer’s case lays much stress on the closeness of the relationship between Mr Emerson and the company, Alba.  The facts averred on record relevant to that relationship have already been set out.  In short, on the liquidation of SFM (a company set up by Mr Emerson and a business partner for the purpose of publishing a Scottish football magazine), Mr Emerson arranged for Alba to be incorporated to take over and continue that business.  Mr Emerson is the sole shareholder and director of Alba.  It is under his control and his is the guiding and controlling mind.  No board meetings of Alba are ever held.  Alba has never filed any accounts with Companies House and its Annual Return is overdue.  Alba has never had any other employees and is unlikely ever to have any in the future.  Mr Emerson has injected significant amounts of his own time, money and effort into the business, and has given up other employment to work on the business and to develop its brand. Not surprisingly, Mr Emerson makes all the day to day decisions at and concerning Alba and its business.  He makes all the editorial decisions.  It is on this basis that the pursuer seeks to hold Mr Emerson liable for the publication of the Magazine. 

[26]      The starting point for any consideration of the pursuer’s arguments is, as both parties accepted, that a company is a legal entity distinct from its shareholders, with rights and liabilities of its own distinct from those of its shareholders and property of is its own distinct from that of its shareholders.  These principles apply as much to a company that is wholly owned and controlled by one man as to any other company: Salomon v Salomon, Prest v Petrodel Resources Ltd per Lord Sumption JSC at para 8.  It follows that there is nothing wrong in principle in a director or shareholder, even a sole director or shareholder, causing a liability to be incurred by a company, nor is it wrong in principle for such a director or shareholder, in defending a claim, to rely upon the fact that the liability is not his but that of the company he controls – that is what incorporation is all about (ibid at para 34).

[27]      All of that is trite, though it is often overlooked by those seeking to hold a person personally liable for the acts or omissions of a company owned and controlled by him or to hold a parent company liable for the acts or omissions of a wholly owned subsidiary.

[28]      There are a limited number of situations where the court may look behind, beyond or through the corporate structure to hold an individual liable for acts or omissions ostensibly done by a company under his control.  The same principles apply to parent companies and subsidiaries, but it is convenient to identify the principles by reference to the paradigm case of a company with a sole director and shareholder, the type of case with which I am here concerned.  Two of these situations are summarised in the judgment of Lord Sumption JSC in Prest at para 28, an analysis with which the other Justices agreed.  One such situation is where a director or shareholder is held personally liable for the acts of a company where it is clear from his relationship with the company that in a particular transaction he is the true actor, the company simply being used to conceal that fact.  This is sometimes referred to as the “concealment principle”.  The court can look behind the corporate structure to discover the true facts which the interposition of the company into the transaction is concealing.  This is not strictly a case of “piercing” the corporate veil – the “veil” is simply pushed to one side to reveal the true facts.  In such a case, on a proper analysis of the facts, the company may be held to be acting as agent, trustee or nominee of the individual concerned.  Another situation is where a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control.  The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company’s separate legal personality: Prest per Lord Sumption JSC at paras 34-35 and per Lord Neuberger PSC at para 81.  This, which Lord Sumption JSC calls the “evasion principle”, is correctly described as “piercing the corporate veil”.  But the court will only allow the veil to be pierced to prevent abuse of the corporate legal personality and where no other remedy is available to prevent that abuse; it will not allow the veil to be pierced to unravel situations, short of abuse, where incorporation of a company with a separate legal personality is used to cause a legal liability to be incurred by the company rather than by the individual and is relied on to assert, if it be true, that the liability is that of the company rather than that of the individual: (Prest, per Lord Sumption JSC at para 34).

[29]      There may possibly be other situations where it is appropriate to pierce the corporate veil as a “final fall-back” (Prest, per Lord Mance JSC at para 100 and Lord Clarke JSC at para 103), but these are likely to be very rare.  It is unnecessary to explore those possibilities in the present case.

[30]      Although the authorities cited in this area are all English, it was not suggested that Scots law differed in any material respect.

[31]      It was not clear from his pleaded case whether the pursuer was contending that Mr Emerson should be held liable for Alba’s alleged acts of infringement by any of these routes.  However, in his reply Mr Mackenzie confirmed that he was relying on both.  I accept that the relationship between Mr Emerson and Alba, as informed by the facts upon which Mr Mackenzie relies, is undoubtedly close.  Alba is, to all intents and purposes, “his” company.  He makes all the decisions.  He is its directing or controlling mind.  But that relationship is no different in principle from the relationship between individual and company to be found in every case of a one man company set up for the purpose of enabling the individual to carry on a business with the benefits of incorporation.  The fact that Alba can properly be described as a “one man company” does not of itself give any substance to the pursuer’s case: Salomon per Lord Macnaghten at p.53, Prest per Lord Sumption JSC at para 8.  The averment that the company was incorporated for the purpose of taking over and continuing SFM’s business (SFM having, on this hypothesis, been set up by Mr Emerson for the purpose of publishing a Scottish football magazine) likewise adds nothing of relevance.  Nor does the fact, if it be a fact, that, before setting up Alba, Mr Emerson relied on the continued acquiescence of the pursuer in the production of the Magazine add anything; a person setting up a company will inevitably bring into play all his experiences and expectations from before the company is incorporated.  Every company is set up for a purpose, usually informed by past experience, hopes and ambitions, but that purpose, short of fraud or concealment or evasion of some legal liability, is irrelevant to the question of whether the rights and liabilities arising out of acts or omissions of the company are rights and liabilities belonging to the company or the individual: see Salomon per Lord Halsbury LC at p.30, Prest per Lord Sumption JSC at paras 8 and 34.  There is no averment in the pursuer’s pleadings which might open up a case that Mr Emerson set up Alba for any improper purpose, whether to conceal his involvement in publishing the Magazine and offering the goods and services or to evade legal liabilities or obligations placed on him personally.  Nor, from what I heard in argument, do I consider it likely that any such averments could responsibly be made.  In those circumstances these principles do not provide any basis for holding Mr Emerson to be personally liable for Alba’s acts.

[32]      The main thrust of the pursuer’s case, however, as I understood it, was that Mr Emerson was jointly liable with Alba for the acts of infringement.  It made this submission in reliance on the following principles by which a person may incur personal liability jointly with another.

[33]      The first is where he has procured the commission by that other of the wrongful act by inducement, incitement or persuasion.  The leading authority establishing this basis of joint liability is CBS Songs Ltd v Amstrad Consumer Electronics Plc per Lord Templeman at p.1058D-F: see Sea Shepherd UK v Fish & Fish Ltd, per Lord Toulson JSC at para 19.  It is unnecessary to add further authority.

[34]      The second is where he has assisted the principal wrongdoer in the commission of the wrongful acts.  To be liable, he must have assisted in the commission of the wrongful act by another; and have done so pursuant to a common design with that person to do an act which is, or turns out to be tortious or delictual.  The principles are well-established.  They are identified (albeit in slightly differing language) and the leading authorities are discussed in Sea Shepherd, per Lord Toulson JSC at paras 20-24, per Lord Sumption JSC at paras 37-44, and per Lord Neuberger PSC at paras 55-61.  In those judgments there is some discussion about the amount and importance of the assistance required of the person sought to be made jointly liable and the extent and focus of his required knowledge.  But I need not go into that in any detail for the purpose of dealing with the case before me.

[35]      There are no specific averments in the pursuer’s pleadings instructing a relevant case under either of these principles.  There is no averment that Mr Emerson procured any of the acts of infringement carried out by Alba.  There is no averment that Mr Emerson specifically assisted in the commission of any particular act of infringement, or that he did so pursuant to any common design.  That is not a mere pleading point.  The pursuer’s case rests entirely upon the fact that Alba is a one man company, owned and controlled by Mr Emerson.  The inference, presumably, is that Mr Emerson took the decisions to publish and offer goods and services.  That is obviously right, but to my mind it takes the pursuer nowhere.  On that basis every owner or director of a one man company would be liable without more for the acts of the company.  In every case the rule in Salomon, re-emphasised in Prest, could simply be side-stepped by an averment that the director was jointly liable with the company in the commission of the tort or delict.  The “corporate veil” would not only be pierced; it would be left in tatters.

[36]      In MCA Records v Charly Records Ltd, in a passage which has been often cited but never (so far as I know) disapproved, Chadwick LJ, with whom the other members of the court agreed, having analysed the previous cases in some detail, set out at paras 48-52 four propositions which he thought it could be said “with some confidence” were supported by the authorities.  The first two are relevant here:

"49       First, a director will not be treated as liable with the company as a joint tortfeasor if he does no more than carry out his constitutional role in the governance of the company - that is to say, by voting at board meetings.  That, I think, is what policy requires if a proper recognition is to be given to the identity of the company as a separate legal person.  Nor, as it seems to me, will it be right to hold a controlling shareholder liable as a joint tortfeasor if he does no more than exercise his power of control through the constitutional organs of the company - for example by voting at general meetings and by exercising the powers to appoint directors. ... I would hesitate to use the word 'never' in this field; but I would accept that, if all that a director is doing is carrying out the duties entrusted to him as such by the company under its constitution, the circumstances in which it would be right to hold him liable as a joint tortfeasor with the company would be rare indeed. ...

 

50.       Second, there is no reason why a person who happens to be a director or controlling shareholder of a company should not be liable with the company as a joint tortfeasor if he is not exercising control through the constitutional organs of the company and the circumstances are such that he would be so liable if he were not a director or controlling shareholder.  In other words, if, in relation to the wrongful acts which are the subject of complaint, the liability of the individual as a joint tortfeasor with the company arises from his participation or involvement in ways which go beyond the exercise of constitutional control, then there is no reason why the individual should escape liability because he could have procured those same acts through the exercise of constitutional control. ... “

 

[37]      In this case the pursuer makes no averment that Mr Emerson did anything other than in his capacity as sole shareholder and director.  This case falls squarely within the first of Chadwick LJ’s propositions.

[38]      Mr Mackenzie laid some stress on the absence of board meetings and the company’s failure to file accounts.  He submitted that this informality showed that Mr Emerson was not making decisions as part of his constitutional governance of the company; and that there was thus no bar to him being held liable for the actions of Alba in accordance with Chadwick LJ’s second proposition.  To my mind, such a submission reflects a misunderstanding of what Chadwick LJ is saying.  In a one man company, with a sole director and shareholder, there will never be board meetings in any real sense.  There is only one director and no one to have a meeting with.  If minutes are produced they are intended simply to reflect decisions made by the director as and when he makes them.  The appearance of formality is a fiction.  The personal liability of a director or shareholder for decisions taken by him in the name of the company cannot depend on the existence or non-existence of a piece of paper or other trappings of formality.

[39]      This question has been discussed in a number of cases.  They are gathered together in the judgments of the Court of Appeal in Re Horsley and Weight [1982] Ch 442 and Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd [1983] Ch 258.  In both cases it was made clear, following earlier authority, that a company is bound in a matter which is intra vires the company by the unanimous agreement of its members, even where that agreement is given informally and without any meeting: Re Horsley and Weight per Buckley LJ at p.454, Multinational Gas and Petrochemical Co v Multinational Gas and Petrochemical Services Ltd per Dillon LJ at p.289.  In Stocznia Gdanska SA v Latvian Shipping Company [2001] EWHC 500 (Comm), Thomas J (as he then was) considered these cases in the context of claim that the defendants, Latvian Shipping Company (Latco), were liable for inducing breach of contract by their wholly owned subsidiary, Latreefers.  The section of the judgment dealing with direct inducement is at paras 226-255.  At paras 239-244 Thomas J considered the argument that Latco could not be liable for inducing breach of contract if it, as shareholders, had made a decision that Latreefers would not perform the contracts.  He expressed the view that such an argument would have succeeded if that was indeed what Latco had done, notwithstanding that that decision was taken informally and outwith a properly constituted meeting (see paras 242-244).  But Latco had denied throughout the trial that they had made any such decision and therefore that line of defence failed.  That part of the judgment was not considered when the case went to the Court of Appeal (reported at [2002] 2 Lloyd’s Rep 436).

[40]      That line of authority is wholly consistent with my decision that it does not matter that decisions taken by Mr Emerson were taken informally.  If those decisions were taken, however informally, in his capacity as sole shareholder and director of Alba, they provide no basis for a finding that he is jointly liable with Alba for any alleged infringement.

[41]      What Chadwick LJ was focusing on in his second proposition was not the situation outlined above where a decision made by a shareholder or director is made informally and outwith a duly constituted meeting.  He was identifying a different type of case altogether, where a director or shareholder, otherwise in his capacity as such, made decisions or took action which procured the commission of the wrongful act or assisted in its commission pursuant to a common design.  If, for example, it were proved that Mr Emerson in his own capacity owned and operated a printing press or distribution outlets and, through such operations of his own, procured or assisted in the alleged infringement by publishing and distributing the Magazine, then he could be held jointly liable with the company notwithstanding, as Chadwick LJ makes clear, that he could have avoided liability had he organised matters in a different way and arranged for the company itself to print and distribute the Magazine.  An example of such a case is to be found in my decision in Naxos Rights International Ltd v Project Management (Borders) Ltd.  Another is the decision of Arnold J in Boegli-Gravures SA v Darsail-ASP Ltd, Andrei Ivanovich Pyzhov at paras 134-137.  The mere absence of board meetings or other formalities of corporate governance does not bring the case into that category.  Nor is there any averment here suggesting that the case can be brought within that category.

[42]      It has been said repeatedly that the application of the principles affecting the issue of joint liability is highly fact sensitive: see e.g. Sea Shepherd per Lord Sumption JSC at para 37.  In a number of English cases the courts have refused to strike out a claim asserting joint liability in similar circumstances to those of the present case on the basis that it would only do so if it could be said that a director would in no circumstances be personally liable; otherwise the question of liability should be determined after the facts have been ascertained at trial: see e.g. C Evans & Sons Ltd v Spritebrand Ltd at p.329.  I accept that the court must be careful not to jump to conclusions on liability in cases such as this too readily, in the absence of evidence and findings of fact.  But in Scotland the ability to lead evidence at proof is constrained by the pleadings; and our procedure is designed to enable the relevancy of a case to be determined on the averments made in the pleadings at debate or at a discussion on the procedure roll.  If the pursuer makes no averments which would entitle him to seek to prove any facts which could, on any reasonable view, result in a finding of personal liability, then the case (on that basis at least) should be dismissed.

[43]      The discussion of joint liability thus far in this Opinion proceeds on the basis of English authority.  That is because that was the primary way in which the case was presented on both sides in argument.  I sought to apply these principles and some of the relevant English cases in Naxos Rights and Cairn Energy Plc v Greenpeace Ltd.  It was not suggested in those cases that Scots law was any different.  Nor has that been suggested in the present case.  However,  in Frank Houlgate Investment Company Limited v Biggart Baillie LLP Lord Hodge, in the Outer House (reported at 2013 SLT 993), made a finding of accessory liability against the defender on the basis that a party could be held liable as an accessory to a wrongful act by another if he participated in or acceded to that wrongful act, without it having to be shown that he had the mental element necessary for commission of the delict itself.  That, of course, is consistent with the English cases on knowing assistance, but it leaves open the question of whether it has to be proved that his assistance was in pursuance of some common purpose shared with that other person.  The facts of that case were complicated and it is not necessary for present purposes to go into them.  In refusing the reclaiming motion the Inner House expressed differing views on Lord Hodge’s analysis.  Lord Menzies accepted it (on the basis that it was supported by passages in Stair and Glegg, The Law of Reparation in Scotland, 4th ed), though only as an alternative ground of decision, but made it clear that he thought it established that the defender did share a common intention or common purpose with the wrongdoer: see paras 44-45.  His primary ground of decision was that the defender, a solicitor, had failed to correct a continuing implied representation made to the other party to the transaction that he did not know that information he had previously given was untrue.  Lord Malcolm rejected it: see paras [63]-[69].  He considered that some mental element was required, otherwise liability would be opened up in a wide variety of situations.  He found accessory liability established on a different basis.  Lord McEwan agreed in the disposal of the cross-appeal for either of those reasons: see para [91].

[44]      The decision in Frank Houlgate appears therefore to leave open the question whether, for the establishment of accessory or joint liability in Scotland, it has to be established that the person sought to be made liable as an accessory did share a common intention or common purpose with the wrongdoer.  I do not need to resolve this issue for the same reasons as set out above.  There are no specific averments that Mr Emerson did anything specific to assist in or become an accessory to any alleged infringing acts other than taking decisions as sole shareholder and director, and the mere fact that he took such decisions as sole shareholder and director does not make him personally liable for the acts of the company.  In short, the absence of a requirement for a mental element is simply irrelevant to the question of his liability on the case as advanced by the pursuer.

 


Decision

[45]      For the reasons set out above, I consider that the action in so far as directed against the third defender is irrelevant and should be dismissed.  However, before pronouncing an interlocutor to that effect I shall put the case out By Order so that further procedure can be discussed.  I shall reserve all questions of expenses in the meantime.