Lilly Icos Llc & Ors v 8pm Chemists Ltd & Anor

A cross-undertaking in damages provides equitable compensation for loss caused by an interim injunction which was wrongly granted. The beneficiary must establish, on a common-sense basis, that the loss would not have occurred but for the injunction. Loss caused solely by the litigation is outside the undertaking.

Assessment ordinarily proceeds with the benefit of hindsight. The court may compensate for loss caused by several injunctions, including loss suffered after steps taken in anticipation of an injunction. Compensation is unavailable for an unlawful business, or where the beneficiary must rely substantially on its own illegality to establish the loss. That principle did not apply where the business was lawful in England and the alleged foreign illegality was committed by others.

Four pharmaceutical companies obtained interim injunctions against 8PM Chemists Ltd and RDA Kollektif Sirketi in trade mark proceedings concerning pharmaceutical products sourced in Turkey, processed through the United Kingdom under inward processing relief, and posted to patients in the United States.

The Court of Appeal later discharged the principal Lilly injunction after holding that there was no arguable trade mark infringement. The other injunctions were subsequently discharged or expired. The defendants sought compensation under the cross-undertakings for lost profits, unsold stock and redundancy costs. The inquiries concerned causation, assessment, public policy and the liability of the respective claimants.

1. Nature of the remedy. A cross-undertaking is enforced according to its terms. The remedy is equitable compensation, directed to compensating the beneficiary rather than punishing the party who obtained the injunction. The court accepted that a rigid contractual approach was inappropriate.
2. Causation. The applicable test was whether the claimed loss would have occurred but for the injunction. The injunction need not be the sole cause, but loss caused by the litigation itself, rather than by the injunction, is not recoverable. The defendants proved that the injunctions caused the Canadian internet pharmacies to move their business elsewhere.
3. Several injunctions. An injunction may cause loss before it is formally granted where the defendant takes steps in anticipation of it and the injunction subsequently takes effect. All four injunctions contributed to the loss because, when the business was lost, the additional injunctions had been applied for and were expected to follow.
4. Assessment. Compensation was to be assessed with the benefit of hindsight. The court adopted a base period ending on 23 September 2007, a 4 per cent growth rate until 2012, a 1.9 per cent rate thereafter, a 15 per cent discount rate, and risk factors of 10 per cent for the period from 23 November 2007 to judgment and 20 per cent thereafter.
5. Public policy. The court would not compensate an unlawful business or a loss which required substantial reliance on the beneficiary’s own illegality. The defendants’ business was lawful in England, and the alleged illegal importation into the United States was performed by others. The public policy defence therefore failed. The claimants were also precluded from taking that point after obtaining the injunctions on the footing that loss could be compensated under the cross-undertakings.
6. Outcome. The claimants were jointly liable for lost profits calculated as directed, the sterling equivalent of US$455,159.97 for unsold stock, £4,000 redundancy costs and interest.

• Court of Appeal: The appeal from the interim injunction in the Lilly proceedings was allowed and the injunction discharged: [2008] EWCA Civ 24. The Court of Appeal directed an inquiry under the cross-undertaking.
• High Court (Chancery Division): The present court determined the first part of the consolidated inquiries and ordered compensation.