Supreme Court confirms proper boundaries to tort of causing loss by unlawful means

The Supreme Court has upheld a decision striking out a claim against a pharmaceutical company for causing loss to the NHS by unlawful means. The alleged unlawful means consisted in obtaining and enforcing a patent for a blood pressure drug through fraudulent misrepresentations to the European Patent Office ("EPO") and the English court (allegations which were denied). This conduct, it was alleged, delayed the entry onto the market of generic versions of the drug, which meant that the NHS had to pay higher prices for the drug: Secretary of State for Health v Servier Laboratories Ltd [2021] UKSC 24.

The decision is of interest as a Supreme Court decision which considers the proper ambit of the tort of causing loss by unlawful means (the "unlawful means tort"). In particular, the decision confirms that it is an essential element of the tort that the unlawful means deployed by the defendant have interfered with a third party’s freedom to deal with the claimant. This, the court held, was part of the binding ratio of the House of Lords decision in OBG Ltd v Allan [2007] UKHL 21 (considered here), and no good or sufficient reason had been shown why the court should depart from that decision. So in this case, given that the relevant third parties – the EPO and English court – had no dealings with the NHS, there could be no liability.

In reaching this decision, the Supreme Court was clearly keen to ensure that the unlawful means tort is kept within reasonable bounds - a point which also concerned the House of Lords in OBG. This is understandable given the potential for the tort to give rise to indeterminate liability to a wide range of claimants, unless there is a requirement for a clear connection between the unlawful means deployed and the particular claimant's loss.

Background

The defendants ("Servier") obtained a patent in 2004 for a drug known as perindopril, which is used to treat high blood pressure (among other things). The EPO upheld the patent following opposition proceedings involving 10 opponents in 2006. Also in 2006, Servier obtained an interim injunction from the English court preventing the sale of generic perindopril, but in the subsequent trial the patent was held to be invalid for lack of novelty and lack of inventive step. That decision was upheld in the Court of Appeal in 2008, and a year later the EPO revoked the patent.

The NHS brought a claim against Servier for some £200 million for the unlawful means tort which, as defined by the House of Lords in OBG, “consists of acts intended to cause loss to the claimant by interfering with the freedom of a third party in a way which is unlawful as against that third party and which is intended to cause loss to the claimant”. The claim was struck out by the High Court (Roth J) and the majority of the Court of Appeal. The NHS appealed to the Supreme Court.

The basis for the NHS's claim was that, in obtaining, defending and enforcing its patent, Servier had practised deceit on the EPO and/or the courts in relation to the novelty and/or lack of obviousness of the drug, with the intention of profiting at the expense of the NHS. (Servier denied these allegations but they were assumed to be true for the purpose of the strike out application.) The NHS further alleged that, as a result of Servier's deceit,
manufacturers of generic perindopril did not enter the market as early as they otherwise would have done, and therefore the NHS had to pay higher prices for the drug.

The essential issue in the appeal was whether it was a necessary element of the unlawful means tort that the unlawful means should have affected the third party’s freedom to deal with the claimant (referred to in the judgment as “the dealing requirement”). It was common ground that the relevant third parties in this case (the EPO and/or the courts) had no dealings with the NHS and so if the dealing requirement was a necessary
element of the unlawful means tort then the claim had been properly struck out.

Decision

A seven member panel of the Supreme Court unanimously dismissed the appeal, agreeing with the courts below that the dealing requirement is a necessary element of the unlawful means tort. Lord Hamblen gave the leading judgment (with which with whom Lords Reed, Hodge, Lloyd-Jones, Briggs and Kitchin agreed) and Lord Sales delivered a short concurring judgment.

The NHS contended on appeal that:

1. the finding of the majority of the House of Lords in OBG that the dealing requirement was a necessary element of the unlawful means tort was not part of the binding ratio of that decision;
2. alternatively, the Supreme Court in the present case should depart from OBG, at least to that extent.

Is the dealing requirement part of the ratio of OBG?

The Supreme Court agreed with the courts below that the dealing requirement was part of the ratio of OBG. This was for a number of reasons including the following:

• It was consistent with Lord Hoffmann’s explanation in OBG of the rationale of the unlawful means tort, as relating to wrongful interference with a person’s liberty or right to deal with others.
• In explaining the essence of the tort in OBG, Lord Hoffmann expressly referred to the dealing requirement.
• The dealing requirement was consistent with the authorities in which liability for the unlawful means tort had been established, as analysed and explained by Lord Hoffmann in OBG.
• The dealing requirement was consistent with and reflected Lord Hoffmann’s concern that the tort be kept within reasonable bounds and that a narrow meaning be given to unlawful means.
• It was apparent that the other members of the majority in OBG understood Lord Hoffmann’s definition of the tort to include a dealing requirement and they endorsed that requirement.
• OBG had been understood to impose a dealing requirement by the courts both in this country and elsewhere in the Commonwealth, as well as by academic commentators.

The Supreme Court rejected the NHS's submission that, in so far as the majority in OBG had found there was a dealing requirement, it was only for the purpose of the appeals before them rather than establishing such a requirement as an essential element of the tort generally. The House of Lords in OBG had clearly seen its task as bringing clarity to the law in this area and defining the requisite elements of the unlawful means tort (and the tort of inducing breach of contract).

Should OBG be departed from?

The Supreme Court noted that a fundamental difficulty for the NHS was the need to show that this was an appropriate case for the Supreme Court to depart from OBG in accordance with the 1966 Practice Statement: Practice Statement (Judicial Precedent) [1966] 1 WLR 1234. It is well established that the Supreme Court will be very circumspect before departing from its own previous decisions (or those of the House of Lords), seeing it as important not to undermine the role of precedent and the certainty which it promotes. It may be appropriate to do so where previous decisions are thought to be impeding the proper development of the law or to have led to results which were unjust or contrary to public policy, but only where a departure from precedent is a safe and appropriate way of remedying the injustice and developing the law.

Here, while the NHS could point to some academic criticism of the decision in OBG, it had not provided any real life examples of that decision causing difficulties, creating uncertainty or impeding the development of the law. Nor could they show that their alternative proposed reformulations of the tort offered a safe and appropriate way of developing the law.

As Lord Hamblen stated:

"The dealing requirement performs the valuable function of delineating the degree of connection which is required between the unlawful means used and the damage suffered. This is particularly important in relation to a tort which permits recovery for pure economic loss and, moreover, by persons other than the immediate victim of the wrongful act."

The dealing requirement also minimised the danger of there being indeterminate liability to a wide range of claimants. In the present case, for example, if the NHS's case was accepted the potential claimants would include the various UK Health Authorities, generic competitors, private medical insurers, foreign health authorities and even individuals who had to pay more for perindopril.

The risk of the tort resulting in liability to a wide range of claimants arose in part because the House of Lords in OBG rejected a narrow and specific test of intention which requires the defendant to target the claimant. Intention for the purposes of the unlawful means tort includes intending harm to the claimant as a means to an end, such as enriching the defendant. Given that competition involves gain at the expense of others, this means the tort could operate very broadly without the delimiting factor of the dealing requirement.

This was not, however, an appropriate case for the Supreme Court to revisit the OBG test of intention, and it would not assist the NHS's case if it were to do so as the NHS had not pleaded a more specific intention on the part of Servier to target the NHS in this case. Its case was that harm had been caused to the NHS as a means to an end.

The court therefore rejected the NHS's submission that the dealing requirement was an undesirable and unnecessary addition to the essential elements of the unlawful means tort.

For more commentary on the decision, see this post on our Intellectual Property Notes blog.