Les Laboratoires Servier & Anor v Apotex Inc & Ors [2014] UKSC 55

Servier obtained an interim injunction preventing Apotex selling generic perindopril in the UK, giving the usual cross-undertaking in damages. After the UK patent was held invalid, Apotex claimed on the undertaking. Servier argued illegality, since manufacture would have infringed its Canadian patent. The Supreme Court dismissed the appeal.

Facts

Les Laboratoires Servier (‘Servier’), a French pharmaceutical company, held a UK patent for a specific crystalline form of the perindopril erbumine compound. In August 2006, Servier obtained an interlocutory injunction from Mann J restraining Apotex, a Canadian generic pharmaceuticals group, from importing and selling generic perindopril in the UK, giving the usual cross-undertaking in damages. In July 2007 Pumfrey J held the UK patent invalid and discharged the injunction; the Court of Appeal upheld that decision.

In parallel Canadian proceedings, Snider J held in July 2008 that Servier’s Canadian patent (for the compound itself, expiring in 2018) was valid and infringed. Damages there remained to be assessed. It was agreed that but for the UK injunction, Apotex would have sold an additional 3.6 million packs, with the active ingredient manufactured in Canada by Apotex Pharmachem Inc.

On the assessment of damages under the undertaking, Norris J awarded Apotex £17.5 million plus interest. Servier was later permitted to raise two new points: (i) illegality, since manufacture in Canada would have infringed the Canadian patent; and (ii) that Canadian damages should be treated as an additional cost of manufacture. Arnold J upheld the illegality defence and ordered repayment. The Court of Appeal (Etherton LJ) reversed him, holding that infringement of the Canadian patent was not ‘turpitude’ engaging the defence, having regard to a range of policy factors.

Issues

The principal issue was whether infringement of a foreign patent constitutes a relevant illegality (‘turpitude’) for the purposes of the ex turpi causa defence, such as to bar Apotex’s claim on the cross-undertaking in damages. Subsidiary issues (which did not ultimately require decision) were whether Apotex was ‘founding’ its claim on the illegality and whether Servier could raise the defence having given the undertaking.

Arguments

Servier argued that Apotex’s lost profits would have been earned through manufacture in Canada in breach of Servier’s Canadian patent, and that public policy precluded recovery of damages arising from what would have been unlawful conduct. Apotex, having conceded that Canadian damages must be deducted from any UK recovery, contended that infringement of a foreign patent – a strict liability civil wrong – was not turpitude, and that there was no public policy reason to bar the claim under the cross-undertaking.

Judgment

Lord Sumption (with Lord Neuberger and Lord Clarke)

Lord Sumption held that the ex turpi causa doctrine is a rule of law, not a discretionary power, and is founded on public policy rather than the balance of merits between the parties. He reaffirmed that Tinsley v Milligan [1994] 1 AC 340 remains binding authority, rejecting the ‘public conscience’ test previously articulated in Euro-Diam v Bathurst [1990] 1 QB 1. He was critical of the Court of Appeal’s approach, which required ‘an intense analysis of the particular facts’ to produce a ‘just and proportionate response’ – an approach that was discretionary in all but name and inconsistent with principle.

Addressing what constitutes ‘turpitude’, Lord Sumption held that it is confined to criminal acts and ‘quasi-criminal’ acts which engage the public interest. Quasi-criminal acts include dishonesty or corruption, anomalous categories such as prostitution, and infringements of statutory rules enacted for the protection of the public interest and attracting civil sanctions of a penal character. Torts (other than those involving dishonesty), breaches of contract, and other civil wrongs offend against essentially private interests and do not engage the defence.

Drawing on Hall v Hebert (1993) 101 DLR (4th) 129, he emphasised that the underlying principle is one of consistency and the integrity of the legal system. He cited McLachlin J:

To allow recovery in these cases would be to allow recovery for what is illegal. It would put the courts in the position of saying that the same conduct is both legal, in the sense of being capable of rectification by the court, and illegal. It would, in short, introduce an inconsistency in the law…We thus see that the concern, put at its most fundamental, is with the integrity of the legal system.

Applying this to the case, Lord Sumption held that although a patent is a public grant of the state, breach of patent rights gives rise only to private rights, no different in principle from contractual or other tortious rights. The patentee’s interest was sufficiently vindicated by damages recoverable in Canada, which would be deducted from the UK recovery. The illegality defence was not engaged.

Lord Mance

Lord Mance agreed with the result and with Lord Sumption’s reasoning on turpitude, noting that the Court of Appeal’s proportionality approach fitted uneasily with Tinsley v Milligan. He observed obiter that had the parties not agreed to treat each group as a single entity, questions might have arisen about the identity of the parties potentially liable and entitled under the undertaking and cross-claim.

Lord Toulson

Lord Toulson agreed the appeal should be dismissed but took a different approach. He emphasised that a cross-undertaking in damages is designed to put the enjoined party in the position it would have been in had no injunction been granted (citing Lord Diplock in Hoffmann-La Roche v Secretary of State [1975] AC 295). He considered it appropriate, following Hounga v Allen [2014] UKSC 47, to examine the public policies underlying the illegality doctrine. There was no precedent for applying illegality to a claim arising from a contract involving a strict liability tort, and no good public policy reason to extend the doctrine to bar Apotex’s claim. He observed that a fuller reconsideration of Tinsley v Milligan may be required in a future case.

Implications

The decision confirms that the ex turpi causa defence remains a rule of law rather than a discretionary power, and that Tinsley v Milligan continues to govern until reconsidered. The majority reasoning (Lord Sumption) narrows the category of conduct which can constitute ‘turpitude’ to criminal and quasi-criminal acts engaging the public interest, expressly excluding ordinary torts, breaches of contract, and strict liability civil wrongs such as patent infringement. Dishonesty-based torts remain within the doctrine.

For patent litigation, the decision is of particular practical importance: a party subject to a wrongly granted interim injunction may enforce a cross-undertaking in damages notwithstanding that its hypothetical activities would have infringed a foreign patent, provided that credit is given for damages recoverable in the foreign proceedings. This preserves the utility of cross-undertakings, which Lord Toulson regarded as a valuable feature of commercial litigation.

The judgment also reveals a division within the Court: while Lord Sumption’s approach is rule-based and restrictive, Lord Toulson’s approach is more policy-sensitive and consistent with the majority reasoning in Hounga v Allen. The tension between these approaches, and continuing academic and Law Commission criticism of Tinsley v Milligan, was expressly acknowledged as a matter for future reconsideration. The case is therefore significant not only for its immediate holding on the scope of turpitude but also for signalling ongoing uncertainty about the proper methodology of the illegality defence in English law.

Verdict: Appeal dismissed. The Supreme Court held unanimously that infringement of Servier’s Canadian patent did not constitute turpitude engaging the illegality defence, and Apotex was entitled to enforce the cross-undertaking in damages, subject to giving credit for damages recoverable in the Canadian proceedings.

Source: Les Laboratoires Servier & Anor v Apotex Inc & Ors [2014] UKSC 55