Coflexip SA & Anor v Stolt Offshore MS Ltd. & Ors

In a patent damages inquiry, causation and the scope of liability ordinarily depend on the pleaded facts and the purpose of the liability. A court should not determine those issues at an interlocutory stage where the factual basis is undeveloped and the claim is legally arguable.

A claimant must plead material facts showing how the alleged infringement caused the claimed loss. The claim may be struck out if those facts could not establish liability, but the court should be extremely wary of doing so where causation, remoteness and the contractual setting require factual findings. It was at least arguable that unlawful competition may cause lost-profit loss even if the infringer could have competed by lawful means.

Coflexip, the patentee and exclusive licensee, had established validity and infringement of a patent concerning the vertical laying of flexible conduits. On the subsequent inquiry as to damages, it claimed lost profits on contracts obtained by Stolt and losses caused by reductions in its prices. It pleaded, in substance, that it would otherwise have obtained all or a proportion of the work.

Jacob J required Coflexip to replead and directed that the new case should reflect his view that Coflexip had to show a nexus between the patented process or apparatus and the award of each contract. Coflexip accepted that its pleading required replacement, but appealed the legal restriction imposed on its repleading. The central question was whether causation could properly be decided, or the claim confined, before the facts of the individual contracts had been established.

1. Appeal allowed in part. Aldous LJ gave the leading judgment, with which Kay LJ and Jonathan Parker LJ agreed. Coflexip was properly required to replead its inadequate case. However, it was wrong to require the repleaded case to conform to the judge's proposed rule of causation.

2. The inquiry into tortious responsibility has a factual causal stage and an evaluative stage concerning the loss for which the defendant should fairly be liable. The latter requires attention to the purpose and scope of the relevant liability. As Kuwait Airways illustrated, causation cannot be isolated from liability. Whether the patented technology mattered to a particular contract, and whether any resulting loss was too remote, depended on evidence about the separate contracts.

3. A claimant must plead facts supporting causation and the kind of loss for which compensation is sought. A claim may be struck out where the pleaded facts, even if proved, cannot establish liability. But a court should be extremely cautious before striking out a complex lost-profit claim on that ground where the causation issue is inseparable from facts still to be found. This claim was far from plainly incapable of success.

4. The court did not make a binding ruling on the ultimate patent-damages issue. It nevertheless held that Coflexip's proposed case was at least arguable. The reasoning in The United Horse-Shoe and Nail Co Ltd v John Stewart & Co, 13 AC 401, and the comparable reasoning in Gallagher Electronics Ltd v Donaghys Electrics Ltd, [1991] 4TCLR 344, supported the contention that actual unlawful competition could cause lost sales even if the infringer might have competed lawfully by another method. The judge's distinction of United Horse-Shoe on the footing that the patented process had produced a better nail rested on an unsupported reading of that case.

5. The appeal was therefore allowed to the extent necessary to remove the legal restriction on repleading. The costs order below was set aside, and there was no order for costs in this court or below.

1. Court of Appeal (Civil Division) Allowed the appeal in part. Coflexip remained obliged to replead, but was not required to frame the new pleading in accordance with Jacob J's proposed legal view of causation.

2. Chancery Division Jacob J required Coflexip to replead its claims for lost profits and price-reduction loss, having concluded that the existing pleading did not show the necessary nexus between the invention and the contracts.

3. Chancery Division Laddie J had held the patent valid and infringed. The judgment records that decision was upheld on appeal and that permission to appeal to the House of Lords was refused.