Alliance Tire & Rubber Company Limited
(Plaintiff)
v.
Alliance Tire & Rubber Company of Canada
Limited & Benjamin Merson (Defendants)
Trial Division, Heald J.—Toronto, February 7;
Ottawa, February 22, 1972.
Trade marks—Parties—Infringement of trade mark by
company—Personal liability of incorporator and director.
An action does not lie against the director and incorpora-
tor of a company for its infringement of a trade mark in the
absence of proof that the company was incorporated for
such tortious purpose or that he directly or by implication
ordered or authorized the infringement.
Performing Right Society Ltd. v. Ciryl Theatrical Syndi
cate Ltd. [1924] 1 K.B. 1; Rainham Chemical Works
Ltd. v. Belvedere Fish Guano Co. [1921] 2 A.C. 465;
Omark Industries (1960) Ltd. v. Gouger Saw Chain Co.
(1964) 45 C.P.R. 169; British Thomson-Houston Co. v.
Sterling Accessories Ltd. [1924] 2 Ch. 33, referred to.
MOTION.
I. Goldsmith for plaintiff.
K. H. E. Plumley for Benjamin Merson.
N. Fyfe for Alliance Tire & Rubber Co. of
Canada Ltd.
HEALD J.—This is an application by notice of
motion dated January 10, 1972 for an order
granting leave to the plaintiff to file an amended
statement of claim in the form attached as
Schedule "A" to said notice of motion.
This matter was previously before the Court
in 1970 when President Jackett by order dated
November 26, directed as follows:
... the prayer for relief against the defendant Merson is
struck out of the Statement of Claim and the plaintiff is
granted leave to file an amended statement of claim (con-
taining a prayer for relief against the defendant Merson)
(a) upon obtaining the consent of each of the defendants
to the statement of claim as amended being filed, or
(b) upon obtaining an order of the Court to the statement
of claim as amended being filed.
The plaintiff has not been able to obtain the
consent of each of the defendants as contem
plated in (a) above of President Jackett's order.
Accordingly, he now brings this motion before
the Court under (b) above of the said order.
The statement of claim sought to be filed
alleges that the defendant Merson is a director
and officer of the defendant corporation. This
action is an action, inter alia, for infringement
of plaintiff's trade mark "Alliance" used in con
nection with the manufacture and sale of motor
vehicle tires.
The new statement of claim (as did the old
statement of claim struck out by President Jack-
ett) seeks relief against the defendant Merson
as a director of the defendant corporation and
seeks to hold him personally liable for the
alleged infringing activities of the defendant
corporation.
The governing principle is clearly stated in
Halsbury's Laws of England, 2nd ed., vol. 24,
para. 1226, pp. 652-3 as follows:
Normally the directors of a company are not personally
liable for the company's torts, even if they are managing
directors or the sole directors and shareholders. In order to
make them responsible it must be proved either (I) that they
have formed the company for a tortious purpose; or (2) that
they have directly ordered or authorised the acts com
plained of; or (3) that they have so authorised or ordered by
implication.
The same principle was stated by Lord Atkin
in Performing Right Society Ltd. v. Ciryl Theat
rical Syndicate Ltd. [1924] 1 K.B. 1 at p. 14,
and by Lord Buckmaster in Rainham Chemical
Works Ltd. v. Belvedere Fish Guano Co. [1921]
2 A.C. 465. The same principle was quoted by
Noël J. (now the Associate Chief Justice of this
Court) in Om ark Industries (1960) Ltd. v.
Gouger Saw Chain Co. (1964) 45 C.P.R. 169 at
p. 176.
Another English decision to the same effect
is British Thomson-Houston Co. v. Sterling
Accessories Ltd. [1924] 2 Ch. 33. At page 38
thereof, Tomlin J. said:
There is no evidence of any fact pointing to the relation
of principal and agent having been established between the
defendant directors and the company, unless the fact that
the defendant directors were the sole directors and the sole
shareholders of the company can be properly regarded as a
circumstance from which the relationship ought to be
inferred.
I do not think that any such inference can be or ought to
be drawn. It has been made plain by the House of Lords
that for the purpose of establishing contractual liability it is
not possible, even in the case of the so-called one man
companies, to go behind the legal - corporate entity of the
company and treat the creator and controller of the compa
ny as the real contractor merely because he is the creator
and controller. If he is to be fixed with liability as principal,
the agency of the company must be established substantive-
ly and cannot be inferred from the holding of director's
office and the control of the shares alone: See Salomon v.
Salomon & Co. [1897] A.C. 22. Any other conclusion
would have nullified the purpose for which the creation of
limited companies was authorized by the Legislature. Nor
does the matter stand otherwise in regard to liability for
tortious acts. This also has been made plain by the House of
Lords in Rainham Chemical Works v. Belvedere Fish Guano
Co. [19211 2 A.C. 465, 475, where Lord Buckmaster in
criticizing the view of one of the Lord Justices in the Court
below to the effect that it was possible to look behind the
company, states the position in this way: "It not infrequent
ly happens in the course of legal proceedings that parties
who find they have a limited company as debtor with all its
paid-up capital issued in the form of fully-paid shares and
no free capital for working suggest that the company is
nothing but an alter ego for the people by whose hand it has
been incorporated, and by whose action it is controlled. But
in truth the Companies Acts expressly contemplate that
people may substitute the limited liability of a company for
the unlimited liability of the individual, with the object that
by this means enterprise and adventure may be encouraged.
A company, therefore, which is duly incorporated, cannot
be disregarded on the ground that it is a sham, although it
may be established by evidence that in its operations it does
not act on its own behalf as an independent trading unit, but
simply for and on behalf of the people by whom it has been
called into existence.
Turning to the facts in the case at bar, and to
the allegations against the personal defendant
Merson in the proposed amended statement of
claim, these allegations may be summarized as
follows:
(1) Merson was at all material times a direc
tor and officer of the defendant corporation,
Alliance, a company incorporated under the
laws of Canada.
(2) The defendant Merson was one of the
incorporators of the defendant corporation,
Alliance. It is alleged that Merson knew that
the trade mark "Alliance" belonged to the
plaintiff and that plaintiff had not consented
to the incorporation of the defendant corpo
ration. This alleged knowledge by Merson is
imputed to the defendant corporation by
virtue of his position as an incorporator and
director.
(3) The defendant Merson is alleged to have
known that, at the time the defendant corpo
ration, Alliance, applied for trade mark regis
trations in Canada of the trade mark "Al-
liance", said trade mark belonged to the
plaintiff and Merson is further alleged to have
known that said trade mark applications were
made without plaintiff's consent. Here again,
said alleged knowledge by Merson is imputed
to the defendant corporation by virtue of his
position as a director.
(4) The defendant Merson wrongfully coun
selled, instigated and induced defendant cor
poration in the alleged wrongful acts. The
particulars of such wrongful acts are simply
that the defendant Merson knew that the
plaintiff owned the said trade mark and that
plaintiff had not consented to defendant's use
thereof and that notwithstanding such knowl
edge, he "actively participated" in the corpo
rate defendant's application for trade mark
registration and in the corporate defendant's
advertising of its tires which are alleged to
infringe plaintiff's trade mark.
First of all, the proposed statement of claim
pleads no facts from which it can be inferred
that the defendant Merson controls the defend
ant company. There is no allegation as to how
many shareholders there are, how many direc
tors there are, the number of shares held by
Merson or by anybody else.
Applying the Halsbury test (supra) there are
not sufficient facts pleaded which would entitle
me to conclude that the defendant corporation
was incorporated for a tortious purpose or that
the defendant Merson directly or by implication
ordered or authorized the alleged infringing
activity. Indeed, no facts are pleaded from
which I could conclude that the defendant
Merson was in a position in the defendant cor
poration to give such order or authorization.
For all I know, the defendant Merson may be
one of many shareholders, he may be one of
several directors with very little real power to
shape the destinies and make the decisions in
the defendant corporation.
Accordingly, I have concluded that plaintiff
has not brought itself within the limited excep
tions to the general rule and is therefore not
entitled to bring its action against the personal
defendant Merson.
Additionally, I have compared the statement
of claim struck out by President Jackett with
the proposed new statement of claim. The new
statement of claim contains nineteen para
graphs. Eight paragraphs are identical. Most of
the other paragraphs are substantially the same,
with some re-organization and condensation
(the old statement of claim had twenty-three
paragraphs).
I could not find one new allegation of fact
pleaded in the proposed new statement of
claim. I agree with counsel for the defendant
Merson when he says that plaintiff is really
trying to re-argue the motion in which he was
unsuccessful before President Jackett.
The motion is therefore dismissed.
Both defendants are entitled to the costs of
this motion, in any event of the cause.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.