General Principle under Hong Kong Law

According to the Companies Ordinance (Cap. 622) and common law, directors of a company are generally not personally liable for the company’s torts. Even if a company is found liable for infringement or misconduct, this liability usually does not extend to individual directors.

Exceptions to the General Rule

However, there are exceptions where directors can be held personally liable:

Small Companies with Active Directors: In small-scale companies where directors manage all business operations, especially if the director is the sole shareholder and the only decision-maker.

Directors with Knowledge and Involvement: If a director knowingly participates in or facilitates the company’s infringement, they may share liability with the company.

Companies as Legal Entities

A company, being a legal entity, operates through individuals. In small companies, directors are often seen as both decision-makers and executors of business activities, including infringing activities.

Case Reference

In the Grenade (UK) Ltd. v. Grenade Energy Ltd. case (2016), small company directors were presumed to be personally involved in key decisions, thus assuming potential tort liability.

Liability for Arranged Infringement Activities

A director who plans or arranges for the sale of infringing goods may face personal liability, regardless of the company’s size.

Advantages of Suing Company Directors

Targeting Directors to Prevent Evasion

Intellectual property (IP) owners can consider naming directors as co-defendants in lawsuits. This strategy helps prevent situations where small companies evade liability by dissolving or entering liquidation.

Involvement in Legal Proceedings

Directors are often required to sign Statements of Truth or affidavits, making it difficult for them to deny involvement or claim ignorance of the infringing activities.

Defenses for Innocent Directors

If a director is genuinely unaware and uninvolved in the infringement, they may defend themselves by proving who orchestrated the infringing activities and presenting evidence to rebut the presumption of liability.

Challenges in Rebutting Liability

Successfully rebutting liability is often difficult. If a responsible party is identified, the IP owner may add them as a co-defendant, complicating the legal battle.

Collecting Evidence before Litigation

Before initiating lawsuits, IP owners should gather evidence, such as communications and transactions, to demonstrate the director’s involvement in the infringement.

Issuing Warning Letters

If a director continues to facilitate infringement after receiving a warning letter, their liability becomes more apparent, strengthening the case for suing them alongside the company.

Encouraging Early Settlement

Suing directors not only prevents evasive maneuvers but also motivates early settlement, reducing the cost and duration of litigation.