Causing Loss by Unlawful Means - the Dealing Requirement

In the recent case of Secretary of State for Health (“NHS”) v Servier Laboratories Ltd (“Servier”), the Supreme Court considered whether in cases involving loss caused by unlawful means, the unlawful means must have affected a third party's freedom to deal with the claimant. This is known as “the dealing requirement”.

The position was previously considered in the case of Douglas v Hello! Ltd which was heard by the (then) House of Lords as part of the combined appeal of OBG Ltd v Allan [2007] UKHL 21; [2008] AC 1 (“OBG”). Douglas v Hello! Ltd concerned photographs taken at the wedding of Michael Douglas and Catherine Zeta-Jones. OK! Magazine and Hello! magazine had competed for exclusivity and it was subsequently agreed that OK! would pay £1million for the exclusive rights to publish photographs of the wedding. The couple had made it clear that anyone admitted to the wedding was not to take or share any photographs. However, a freelance photographer infiltrated the wedding and sold photographs to Hello! magazine which published them. The couple brought proceedings against Hello! and recovered damages, but the point which went to appeal was the issue between Hello! and OK!. OK! sued Hello! for breach of confidence and for the tort of causing loss by unlawful means. The breach of confidence claim ultimately succeeded, but the claim for causing loss by unlawful means failed. Lord Hoffmann concluded that neither the freelance photographer nor Hello! did anything to interfere with the liberty of the couple to deal with OK! or perform their obligations under their contract. All they did was to make OK!’s contractual rights less profitable than they would otherwise have been.

Facts

In the present case, Servier developed and manufactured a product, perindopril erbumine ("Perindopril"), which is used in the treatment of cardiovascular diseases. It obtained a patent in 2004 in relation to the medication. In August 2006 Servier obtained an interim injunction against Apotex, a supplier of generic Perindopril, restraining Apotex from selling the generic version in the UK. The patent Servier obtained was revoked in 2009.

The NHS brought a claim for damages in excess of £220million against Servier. It alleged that Servier had made representations about the novelty of the patent which it knew were false, in order to obtain the patent from the European Patent Office (“EPO”). This was said to have delayed the introduction into the UK of a generic version of Perindopril, causing loss to the NHS as a result of it being unable to buy cheaper generic drugs.

Servier successfully applied to strike out the claim brought by the NHS by arguing that, even if the NHS's allegations were true, there was no interference with either the EPO's or the English court's freedom to deal with the NHS, and so the claim brought by the NHS did not satisfy the dealing requirement. The NHS appealed against the strike out decision arguing that the decision in OBG did not limit the unlawful means tort to cases in which the wrongful conduct of the defendant affects dealings between the claimant and a third party. In the alternative, it submitted that if the OBG case did limit the tort in this way, the Supreme Court should depart from that judgment and remove the dealing requirement.

Outcome

The Supreme Court confirmed that the dealing requirement is an essential element of the tort as set out in OBG for the following reasons:

1. It is consistent with Lord Hoffmann’s explanation of the rationale of the unlawful means tort, which is to preserve a person’s liberty to deal with others.
2. It is clear from the wording and structure of paragraphs 47 to 51 of Lord Hoffmann’s speech that he regarded the dealing requirement as an essential element of the tort.
3. Lord Hoffmann explained and justified the dealing requirement through his analysis of a number of key authorities, all of which he explained by reference to there being no dealings between the claimant and the third party.
4. The dealing requirement is consistent with the authorities in which liability for the unlawful means tort has been established, which all involved dealings.
5. The dealing requirement is consistent with the concern that the tort be kept within reasonable bounds.
6. It is apparent that the other members of the majority understood Lord Hoffmann’s definition of the tort to include a dealing requirement and endorsed it on that basis.
7. OBG has been understood to impose a dealing requirement by the courts both in this country and elsewhere in the Commonwealth, such as New Zealand, Singapore, Australia and Canada.

The Supreme Court declined to depart from the reasoning in OBG, noting that the NHS was not able to point to an injustice which called for a remedy requiring a departure from the precedent. The NHS was said to have failed to address the risk of creating indeterminate liability if the tort was extended to claimants who have no dealings with the third party. The alternative formulations put forward by the NHS were not considered to be safe and appropriate ways of developing the law.

Comment

It was noted in the Court of Appeal that the NHS could have applied for an undertaking from Servier to pay damages which the NHS might suffer as a result of the interim injunction granted to Servier against Apotex in 2006. In light of the fact that potential alternative remedies had been available to the NHS, and the alternative approaches suggested by it having the potential to extend the tort to unlimited categories of claimant, it is perhaps unsurprising that the Supreme Court chose not to depart from the decision in OBG.