Innovate Pharmaceuticals Limited v University of Portsmouth Higher Education Corporation

Contractual exclusion and limitation clauses are construed by ordinary principles of contractual interpretation. Clear words may limit liability for deliberate wrongdoing by an agent or employee in the performance of a valid contract. A carve-out for fraudulent misrepresentation applies to that cause of action and its reliance-based losses; it does not generally remove contractual limits for dishonest breaches which do not involve misrepresentation.

Under the Unfair Contract Terms Act 1977, a limitation clause is assessed as a whole. It cannot be struck down only for dishonest breaches while remaining effective for other breaches. On the facts, the clauses were reasonable. The defendant was liable for negligent errors in reporting research data, but dishonesty was not proved. Recovery was therefore confined to the contractual £1 million limit.

The claimant held a patent for a reformulated liquid aspirin product. It contracted with the defendant university to undertake research concerning the product and related brain-tumour treatments. The research included laboratory work, an external mouse study and preparation of a publication.

The resulting paper was later retracted after concerns about duplicated or incorrectly presented images and data. The claimant alleged breach of contract, negligence and dishonesty, and sought the cost of repeating the research together with loss of profits and diminution in patent value.

The principal issues were the scope of the university’s contractual obligations, the construction and statutory reasonableness of contractual liability provisions, whether the reporting errors were dishonest, and the recoverable consequences of the retraction.

1. Construction. Clause 11.4 excluded loss of profits and specified similar losses, including diminution in patent value, except where the claim was based on fraudulent misrepresentation. Clause 11.5 limited liability to £1 million, subject to death, personal injury and fraudulent misrepresentation. The word “fraudulent” in clause 11.4 qualified representation only. It did not extend to breach of contract, warranty, condition, duty or other contractual term. Thus dishonest contractual breaches remained subject to the contractual limits where they did not constitute fraudulent misrepresentation.
2. UCTA. The clauses were not blanket exclusions. Clause 11.4 restricted heads of loss and clause 11.5 limited the amount recoverable. Under section 11 and Schedule 2 of the Unfair Contract Terms Act 1977, the clauses were reasonable, having regard to the parties’ negotiations, the claimant’s legal representation, the available alternatives, the funding and risk allocation, and the substantial disparity between the potential claim and the contract price.
3. Contractual scope and breach. Preparation of the Cancer Letters paper formed part of the university’s contractual work. The university failed to use all reasonable skill and care in reporting the research. Certain duplicated, mismatched or incorrectly labelled images constituted breaches of clause 11.1. Other criticisms of the wording and the number of mice were not established as contractual breaches.
4. Dishonesty. Mere negligence, even gross negligence, was insufficient. Applying the approach in Ivey v Genting Casinos (UK) Ltd, the court first had to determine Dr Hill’s actual knowledge or belief and then apply the objective standards of ordinary decent people. The errors were individually explicable as accidental and were consistent with carelessness under professional and personal pressure. Motive was not a legal requirement but was an important evidential consideration. Dishonesty was not proved.
5. Causation and damages. The retraction destroyed the commercial value of the research unless it was validated by further testing. The claimant could recover reasonable costs of repeat testing, but not costs relating solely to Clomipramine, non-GBM tumours or pharmacokinetic studies falling within clinical testing. The assessed recoverable retesting cost exceeded £1 million and was therefore reduced to the contractual limit. The claim for loss of profits and diminution in patent value was excluded and, in any event, could not produce further recovery after the limit was exhausted.
6. Disposition. Judgment was entered for the claimant in the sum of £1 million.