Limited Liability Has Its Limits

One of the principal reasons for incorporating a business is to benefit from the fact that the liability of company shareholders is limited. However, this protection is not absolute and a recent decision by the Intellectual Property Enterprise Court illustrates one way in which a shareholder may still have personal liability.

The Court ruled that a website advertising escort services in South Africa contained photographs which infringed the UK copyright of the claimant, because they were targeted at the public in the UK. Whilst primarily a copyright infringement case, the Court also ruled that the sole shareholder and director of the company which owned the rights to the website and published the content was personally liable for the copyright infringement, in addition to that company. This has important implications for directors of UK companies, especially if they are sole directors and shareholders.

Mr Carter engaged a South African national to design a website which would advertise escort services in South Africa. The website contained pornographic photographs, which infringed the copyright of the claimant. The website was owned and operated by an English company which was wholly owned by Mr Carter, who was also the sole director of the company.

The claimant brought a claim against both Mr Carter and his company on the basis that the infringing material was targeted at the public in the UK and therefore coming within the ambit of the Copyright, Designs and Patents Act 1988. The case is Omnibill (Pty) Ltd v Egpsxxx Ltd (in liquidation) and another [2014] EWHC 3762 (IPEC).

Having concluded that an infringement of UK copyright had taken place, the judge was required to decide if Mr Carter was personally liable for the infringement, as well as his company...