Fraud May Not Always Unravel All'What Does The Contract Say?

• Published date: 19 February 2024
• Law Firm: K&L Gates
• Author: Andrew D. Connelly and Martin King

INTRODUCTION

In the recent case of Innovate Pharmaceuticals Ltd v University of Portsmouth Higher Education Corporation [2024] EWHC 35 (TCC), the English High Court has determined that a limitation of liability clause in a research agreement was effective to limit a party's liability for breach of contract, even if the breach was committed fraudulently.

FACTS

Innovate Pharmaceuticals Ltd (Innovate) holds the patent to a form of liquid aspirin (the drug) and contracted with the University of Portsmouth (the University) to conduct a research testing programme as part of a plan to develop and ultimately commercialise the drug.

The University prepared and published a promising research paper in a well-known scientific journal. However, it transpired that the reporting of certain data in that paper contained multiple errors, and it was subsequently retracted.

Innovate claimed that: the University had breached the parties' agreement by failing to use reasonable skill and care to ensure the accuracy of its work; the lead scientist on the research programme had manipulated research data dishonestly; Innovate would have to repeat the research programme at significant cost and delay; the value of its patent would be materially diminished by that delay; and the University had caused loss in excess of '100 million as a consequence.

As part of its defence, the University relied on exclusion and limitation clauses in the parties' agreement that, among other things:

1. Excluded liability for any loss of profits, unless such losses arose from a fraudulent...