Pursuing allegations of IP rights infringement against a company director, in addition to the company, can significantly impact the conduct and resolution of the dispute. Substantially more pressure may be placed on the alleged infringing parties.
If proceedings are commenced, the director may have to be represented separately to the company if the interests of the two parties do not align. A finding of infringement against the director may also impact the person’s professional standing and ability to secure future director roles. But in what circumstances is a director personally liable?
At the heart of determining whether a director is personally liable at common law is a dilemma. On the one hand, a company is a legal entity that is separate and distinct from the director. One of the reasons to establish a corporate vehicle is to afford limited liability to the director. On the other hand, there is the principle that everyone should answer for their tortious acts.
In grappling with this dilemma, Australian courts have come up with multiple tests for determining the liability of a director at common law.
One test, referred to as the Mentmore test, provides that the director will be liable where their participation in the acts of the company is such that the director has made the infringing acts their own. This arises where there has been a knowing, deliberate, wilful quality to the director’s participation in the company’s infringing conduct.
An alternative test, known as the Root Quality test, provides that the director’s conduct must be such that it can be said that they were so personally involved in the commission of the unlawful act that it is just that the director be rendered liable.
The divergence between these tests and a lack of case law that provides guidance on directors’ liability and the application of the tests themselves is problematic. It does however afford an IP rights owner scope to assert that a director is personally liable in a range of circumstances. On the other hand, the lack of clarity means that director’s, particularly those in smaller companies, need to be especially careful to avoid personal risk of liability.
