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||Neutral Citation Number:  EWCA Civ 593
||Case No: A3/2011/1158
IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
Mr Justice Arnold
||Royal Courts of Justice
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE LAWS
LORD JUSTICE ETHERTON
LORD JUSTICE KITCHIN
||(1) LES LABORATOIRES SERVIER
||(2) SERVIER LABORATORIES LIMITED
||(1) APOTEX INC
||(2) APOTEX PHARMACHEM INC
||(3) APOTEX EUROPE LIMITED
||(4) APOTEX UK LIMITED
Anthony Watson QC, Daniel Toledano QC and Harris Bor (instructed by Taylor Wessing LLP) for the Appellants
Iain Purvis QC and Andrew Lykiardopoulos (instructed by Bristows) for the Respondents
Hearing dates : 7th March 2012
HTML VERSION OF JUDGMENT
Crown Copyright ©
LORD JUSTICE ETHERTON :
- The issue on this appeal concerns the availability of the defence of illegality to a claim on a cross-undertaking in damages where (1) the holder of a patent enforceable in this jurisdiction has obtained an interim injunction against the defendant from selling infringing products here, (2) the patent is subsequently held to be invalid and the injunction is discharged, but (3) the goods which the defendant would have sold here, but for the interim injunction, would have been manufactured in a foreign country in breach of a valid patent granted and enforceable there.
- This appeal is against the order of Arnold J dated 7 April 2011 by which, among other things, he dismissed the claim by the appellants (the defendants in the proceedings) on the inquiry as to damages following the discharge of the interim injunction granted to the respondents (the claimants in the proceedings) to restrain infringement of the respondents' European patent. That patent was subsequently held invalid, but Arnold J considered that the respondents are entitled to defeat the claim on the cross-undertaking because the appellants' claim for compensation under the cross-undertaking is based on manufacture in Canada, which would have been in breach of a Canadian patent held by a company within the same group of companies as the respondents.
- In this judgment I shall refer to the appellants and other companies within the same group as "Apotex". I shall refer to the respondents and other companies within the same group as "Servier".
- The following account is largely based on the Judge's acount of the background, for which I am grateful.
The parties and their businesses
- Servier carries on a pharmaceutical business. One of Servier's products is perindopril erbumine (also known as perindopril tert-butylamine). Perindopril erbumine is a long-acting ACE (Angiotensin-Converting Enzyme) inhibitor used for treating hypertension and cardiac insufficiency. It is marketed by Servier under the trade mark COVERSYL. Servier discovered perindopril and its tert-butylamine salt, and obtained patent protection for them in many countries. It has been both therapeutically and commercially a very successful product.
- Apotex also carries on a pharmaceutical business, including the manufacture in Canada and marketing of generic pharmaceutical products.
The European Patent and the English infringement proceedings
- Servier was granted European Patent No. 1 296 947 ("the European Patent") on 4 February 2004. It covered a particular crystalline form of perindopril erbumine. The European Patent was opposed. The Opposition Division of the European Patent Office decided to maintain the European Patent for reasons which it gave on 21 September 2006. Some of the opponents appealed, but the appeal was not determined until 2009.
- On 28 July 2006 Apotex started selling in the United Kingdom perindopril erbumine tablets imported from Canada. Apotex was the first supplier to market a generic version of perindopril erbumine in the United Kingdom. Between 28 July 2006 and 3 August 2006 Apotex made sales worth over £4.1 million.
- On 1 August 2006 Servier commenced proceedings against Apotex for infringement of the European Patent by importing, keeping, offering to dispose of and disposing of perindopril erbumine, alternatively threatening to do such acts.
- Servier applied for an interim injunction to restrain Apotex from marketing perindopril erbumine. In paragraph 32 of his first witness statement Dr Eric Falcand, on behalf of Servier, stated that, if Apotex was prevented from continuing to supply the market but was ultimately successful at trial, he believed that the damage suffered by Apotex could be adequately compensated by damages. In paragraph 33 of his witness statement he said that Servier offered an undertaking to pay any damages which the court ordered to compensate Apotex for losses due to the grant of an injunction which the Court later determined should not have been granted.
- On 3 August 2006 Mann J granted a short-term injunction. On 8 August 2006 he continued the interim injunction until trial. In paragraphs  to  of his judgment on 8 August 2006 ( EWHC 2137 (Pat)) he considered the adequacy of damages for each side. He recorded (at paragraph ) Servier's submission that "Apotex would be adequately compensated on the cross-undertaking in damage[s]."
- The injunction granted by Mann J prohibited Apotex from disposing of, offering to dispose of, or importing into the United Kingdom, its generic perindopril erbumine product. The orders of Mann J on 3 and 8 August 2006 contained a cross-undertaking in damages by Servier as follows:
"If the Court later finds that this Order has caused loss to the Defendants, which shall include Apotex UK Limited, and decides that the Defendants should be compensated for that loss, the Claimants will comply with any Order the Court may make."
- On 11 July 2007 Pumfrey J held ( EWHC 1538 (Pat)) that Apotex had infringed the European Patent, but that the European Patent was invalid since it lacked novelty, alternatively it was obvious over European Patent No 0 380 341 ("341"). He therefore discharged the injunction granted by Mann J and directed an inquiry as to damages pursuant to the cross-undertakings given by Servier (together "the undertaking").
- On 28 April 2008 the Court of Appeal dismissed Servier's appeal from Pumfrey J's decision for reasons which it gave on 9 May 2008 ( EWCA Civ 445). In his judgment Jacob LJ, with whom Lord Phillips of Worth Matravers CJ and Lloyd LJ agreed, said:
"9. The upshot of all of this is that were the patent valid, Servier's monopoly in practice would last until 2020, But, as the Judge held and we confirm, [the European Patent] is invalid. And very plainly so. It is the sort of patent which can give the patent system a bad name. I am not sure that much could have been done about this at the examination stage. There are other sorts of case where the Patent Office examination is seen to be too lenient. But this is not one of them. For simply comparing the cited prior art ('341') with the patent would not reveal lack of novelty and probably not obviousness. You need the technical input of experts both in the kind of chemistry involved and in powder X-ray diffraction and some experimental evidence in order to see just how specious the application for the patent was. The only solution to this type of undesirable patent is a rapid and efficient method for obtaining its revocation. Then it can be got rid of before it does too much harm to the public interest.
10. It is right to observe that nothing Servier did was unlawful. It is the court's job to see that try-ons such as the present patent get nowhere…"
- In a subsequent judgment ( EWCA Civ 2790]) Jacob LJ said (at ):
"The [European Patent] was one that should never have been granted, not through the fault of the Patent Office, but because the patentees must have known that it was invalid."
- The appeal from the Opposition Division's decision to maintain the European Patent was ultimately successful. The Technical Board of Appeal revoked the European Patent by its decision dated 6 May 2009 T1753/06.
Servier's Canadian patent and the Canadian infringement proceedings
- Servier is the proprietor of Canadian Patent No. 1,134,196 ("the Canadian Patent"). The Canadian Patent is a basic patent covering perindopril erbumine. It was granted on 6 March 2001 and will not expire until 6 March 2018.
- On 25 August 2006 Servier commenced proceedings against Apotex for infringement of the Canadian Patent in the Federal Court of Canada. On 8 November 2006 Servier applied for an interlocutory injunction in those proceedings restraining Apotex from using, making, selling, distributing, exporting, supplying and in any other way dealing with compound perindopril and any pharmaceutically acceptable salts thereof in the United Kingdom, Canada and Australia. On 24 November 2006 Noël J granted an interim injunction until 13 December 2006 in relation to perindopril products destined for the Australian market, but on that date Snider J refused to grant any interlocutory injunction at all pending trial.
- In a judgment dated 2 July 2008 ( FC 825, (2008) 67 CPR (4th) 241) Snider J held that the Canadian Patent was valid and had been directly infringed by Apotex by supplying perindopril erbumine raw material, manufacturing and selling tablets and exporting them. In paragraph  of her judgment she said that "Apotex chose to make perindopril in Canada fully knowing that making perindopril would constitute infringement and that it might be required to disgorge its profits." She ordered an injunction, to take effect after the expiry of 30 days, prohibiting Apotex from manufacturing, selling, offering for sale or otherwise dealing in products containing perindopril in Canada. Apotex was permitted during that 30 day period to sell or dispose of such products as it already had in its possession as at the date of the judgment.
- On 30 June 2009 the Canadian Federal Court of Appeal dismissed Apotex's appeal against Snider J's decision ( FCA 222). On 25 March 2010 the Supreme Court of Canada dismissed Apotex's application for leave to appeal from the judgment of the Federal Court of Appeal.
- The inquiry as to damages pursuant to the cross-undertaking was heard by Norris J in June 2008. Apotex's claim was on the basis that, but for the interlocutory injunction, Apotex would have made profits by importing into the United Kingdom and selling an additional 3.6 million packs of perindopril erbumine tablets during the period from 3 August 2006 to 8 July 2007, and by selling in the United Kingdom more than it actually did during the period between the 9 July 2007 and 31 March 2008. Apotex claimed either £26 million, on the assumption that it was the only generic supplier of perindopril erbumine to the United Kingdom market during the period 3 August 2006 to 8 July 2007, or alternatively £17.6 million, on the assumption that it was in competition with other generic suppliers and achieved a 60 per cent. market share. The lost profits represented the difference between Apotex's assumed Canadian manufacturing costs (together with its other costs, such as distribution and marketing costs) and its assumed sales revenue in the United Kingdom.
- There were various twists and turns in the conduct of the inquiry, but it is not necessary for the purpose of this appeal to describe them in full. It is sufficient to say that on 9 October 2008 ( EWHC 2347 (Ch),  FSR 3) Norris J gave judgment in favour of Apotex for £17.5 million on the cross-undertaking. Ninety per cent. of that sum was apportioned to the Canadian defendant Apotex Inc and ten per cent. was apportioned to Apotex UK Limited. The Court of Appeal subsequently held ( EWCA Civ 279) that sum should stand as an interim payment pending the determination of new defences to be advanced by Servier. Servier re-amended its Points of Defence to advance those new defences, which arise out of the judgment of Snider J in the Canadian proceedings. They are, firstly, that as a matter of public policy Apotex cannot claim damages for being prevented from selling a material whose manufacture would have been unlawful under the law of Canada (the "public policy" point); and secondly, that the damages awarded on the inquiry should be reduced to reflect the damages or profits that would have been payable by Apotex to Servier in Canada in respect of perindopril erbumine manufactured there (the "cost of manufacture" point). The relevant parts of Servier's re-re-amended Points of Defence are as follows:
"23. In this Inquiry, the Defendants contend that all of the perindopril which they intended to market and sell in the UK during the period of the injunction … would have been manufactured by the First and Second Defendants in Canada. In light of the judgment of the Federal Court, any such manufacture would have infringed the Canadian Patent and would have entitled ADIR [the Canadian Servier company holding the Canadian patent] and Servier Canada Inc. to damages or an account of profits, which they would have enforced.
24. An order permitting the Defendants to recover damages under the cross-undertaking for lost sales of product, the manufacture of which would have been unlawful under the laws of the state of manufacture and which would have infringed the rights of ADIR, would be inequitable.
25. In the alternative, in an inquiry as to damages which involves an investigation of what the parties would have done if the event giving rise to the damages had not occurred, the Court cannot proceed on the basis that either party would (in that event) have acted unlawfully. In the premises, the Defendants' claim based on its assertion of unlawful manufacture in Canada must fail.
26. In the further alternative, the manufacture by the First Defendant in Canada of each unit of perindopril which was intended for sale in the UK would have given rise under the laws of Federation of Canada to a liability by way of damages or by way of an account of the profits accruing to ADIR and Servier Canada Inc. by reason of the said manufacture. This liability should be deducted as an additional cost of manufacture there by reducing any lost profit suffered by the Defendants as alleged in the Confidential Points of Claim. The precise amount of the said liability is a matter which needs to be assessed by reference to Canadian law, further particulars of which will be provided in due course."
- On 21 September 2010 Lewison J made an order staying the determination of the "cost of manufacture" point. For that reason, the only issue before Arnold J was the "public policy" point.
The Judge's judgment
- In his very careful and detailed judgment, the Judge summarised Servier's argument as being that: (1) as a matter of public policy, Apotex cannot recover damages for being prevented from selling a material whose manufacture would have been unlawful because it infringed a valid foreign patent; and (2) this is an application of the rule of law identified by the Latin maxim ex turpi causa non oritur actio (no action can arise from an illegal or immoral act), which the Judge called "the ex turpi causa rule".
- The Judge summarised Apotex's argument as being that: (1) the ex turpi causa rule only applies where the act in question is either a criminal offence or involves moral turpitude amounting to dishonesty, and patent infringement is neither a criminal offence under Canadian law nor an act involving dishonesty; (2) the ex turpi causa rule only applies where the claimant's claim relies to a substantial extent on the illegal or immoral act, and Apotex's claim in the inquiry did not do so; and (3) Servier cannot invoke the ex turpi causa rule having given an unqualified cross-undertaking in damages because that amounts to approbating and reprobating.
- After a lengthy analysis of many cases, the Judge concluded (at paragraph ) that none of the authorities establishes that, in the case of acts which are tortious rather than criminal, the ex turpi causa rule only applies if the acts involve dishonesty; what degree of seriousness is sufficient to engage the rule will depend on the circumstances of the case; and the key factor in most cases is likely to be the claimant's state of knowledge at the time of committing the act in question. The Judge considered that, if the claimant knew the material facts, and particularly if he committed the act in question intentionally, then the rule is likely to apply.
- The Judge then said (at paragraph ) that he was concerned with the court's equitable jurisdiction to enforce a cross-undertaking in damages, and that, although an inquiry had already been ordered and undertaken and Servier did not contend that an order for payment of the compensation ordered by Norris J should be refused on purely discretionary grounds, the fact that the court has a discretion to refuse to order an inquiry nevertheless casts light on the nature of the jurisdiction. He said that the court is concerned to do what is just having regard not only to the fact that the injunction was wrongly granted, but also to wider considerations.
- The Judge then said (at paragraph ) that Apotex's claim involves sufficiently serious unlawfulness to engage the ex turpi causa rule for the following reasons (expressing those reasons in terms of what Apotex actually knew and did during the relevant period, although strictly speaking the question was what Apotex would have known and would have done in the hypothetical scenario postulated by Apotex in support of its claim):
"97. First, this is not a case where Apotex's illegal act (infringement of the Canadian Patent) was induced by Servier. Nor was Apotex misled by Servier in any way.
98. Secondly, Apotex was aware of all the material facts. In particular, Apotex was fully aware of both (i) the existence of the Canadian Patent and (ii) the nature of the infringing acts. Indeed, Snider J found as a fact that Apotex knew that making perindopril erbumine would infringe the Canadian Patent if valid.
99. Thirdly, it is clear that Apotex committed the infringing acts intentionally, which is not to say that it intended to infringe. Apotex adduced unchallenged evidence before me that it had been advised that it had a good chance of successfully defending the claim for infringement of the Canadian Patent on the basis that it had respectable arguments that the Canadian Patent was invalid. It follows that Apotex decided to take a commercial risk that its manufacture of perindopril erbumine in Canada would be held to infringe a valid patent.
100. Fourthly and most importantly, there is a precise symmetry between Apotex's claim for compensation under the cross-undertakings and the illegality upon which Servier relies. Apotex's claim for compensation under the cross-undertakings is predicated on the basis that it was wrongly restrained by Mann J from infringing the European Patent and that, but for those injunctions, it would have continued to import into the United Kingdom and sell perindopril erbumine manufactured by it in Canada so as to make a profit. But the decisions of the Canadian courts establish that such manufacture of perindopril erbumine would have infringed the Canadian Patent. Why should Apotex be permitted to claim compensation for being wrongly prevented from infringing one patent on the basis that, but for the injunctions, it would have infringed another patent belonging to the group of companies? In such circumstances, the rationale for the ex turpi causa rule given by McLachlin CJ in Hall v Hebert indicates that the rule should apply."
- The Judge then turned to Apotex's next argument, that is to say that the ex turpi causa rule could not apply because it had not relied to any substantial extent on an unlawful act for the purpose of the inquiry. The Judge rejected that contention, as follows:
"103. Servier does not contend that Apotex's UK business in importing and selling perindopril erbumine was unlawful, but it does contend that Apotex has to rely upon its own illegality under Canadian law to establish its loss. Apotex disputes this.
104. … Apotex's claim is predicated upon manufacture of perindopril erbumine in Canada at low cost, export of the tablets to the United Kingdom and sale of those tablets in the United Kingdom at a profit. It is true that the importation and sale of the tablets in the United Kingdom was perfectly lawful, but those acts were not sufficient to produce the profits which Apotex claims to have lost. The profits depend on Apotex manufacturing the product in, and exporting it from, Canada, which would have been unlawful. It follows that Apotex does have to rely upon its own illegality to a substantial extent to establish the loss claimed. To use the language used in a number of the cases, Apotex's claim is founded upon its own unlawful acts.
105. If, as Lord Hoffmann suggested in Gray v Thames, one treats the question as one of causation … this is a case where (on the hypothesis on which the claim is predicated) the loss was caused by Apotex's performance of unlawful acts, even though it would not have been sustained if the injunctions had not been granted … (subject to the "cost of manufacture" point)."
- The Judge then turned to Apotex's final argument, that is say that, since Servier knew at the time of the hearings before Mann J that Apotex was manufacturing the infringing product in Canada and nevertheless gave an unqualified cross-undertaking in damages, Servier's reliance on the ex turpi causa rule amounted to approbating and reprobating, which was not permissible. The Judge rejected that argument (at paragraphs  to ) on the grounds that (1) at the date of the hearings before Mann J Servier did not know for certain that Apotex was manufacturing the product in Canada; and (2) Servier's cross-undertaking was to compensate Apotex only if and in so far as the court decided that Apotex should be compensated and did not amount to a self-denying ordinance by Servier that it would not rely on any proper objections to a claim by Apotex in the event of an inquiry under the cross-undertaking.
- The Judge concluded (at paragraph ) that, for all those reasons, Apotex's claim is barred by the ex turpi causa rule, and that Apotex must therefore repay Servier the money which Norris J ordered Servier to pay to Apotex.
- Apotex accepts that the products it would have sold in the United Kingdom, but for the interlocutory injunctions granted by Mann J, would have been manufactured in Canada. It nevertheless submits that the Judge made errors of principle.
- Apotex has added one important argument to those which it advanced before the Judge for rejecting what the Judge called Servier's public policy point, but which I would prefer to call its illegality defence, which is based on what the Judge called the ex turpi causa rule but which I prefer to call the illegality principle. The day before the appeal was due to be heard Apotex's solicitors wrote to Servier's solicitors accepting in principle the point made in paragraph 26 of Servier's re-re-amended Points of Defence, that is to say that there should be deducted from the damages awarded by Norris J an amount equal to what the Canadian court would have ordered Apotex to pay Servier in Canada for infringement of the Canadian Patent in manufacturing and exporting products for sale in the United Kingdom market had there been no interlocutory injunctions preventing sales here ("the paragraph 26 concession").
- Apart from that new point, the arguments advanced on the appeal on behalf of Apotex were the same as those before the Judge. Mr Antony Watson QC dealt, on Apotex's behalf, with three of those arguments: the absence of discretion, approbation and reprobation, and the contention that, if infringement of the Canadian Patent was an unlawful act capable in principle of engaging an illegality defence, Apotex was nevertheless not substantially relying on that unlawful act in its claim for compensation under the cross-undertaking. Mr Daniel Toledano QC dealt, on Apotex's behalf, with the illegality principle and the ingredients for the illegality defence.
- Mr Watson first made some general submissions on the paragraph 26 concession. He emphasised the refusal of the Canadian court to grant an interlocutory injunction in the Canadian proceedings. The consequence was that Apotex did manufacture for the Canadian and Australian markets prior to the Canadian court's final order, and so Apotex will have to account to Servier in the Canadian courts for Apotex's profits in respect of that manufacture and subsequent exports. The paragraph 26 concession means that Apotex has to account to Servier in exactly the same way for Apotex's assumed profits resulting from manufacture and export in Canada for the sales in the United Kingdom that, but for the interlocutory injunctions, Apotex would have made. That account of Apotex's assumed profits would be carried out in accordance with Canadian law because sales in the United Kingdom would not be actionable in Canada or in the United Kingdom in view of the territoriality jurisdiction rule governing foreign patents. All that would be notionally actionable, and actionable only in Canada, would be Apotex's manufacture and export in Canada in breach of the Canadian Patent.
- Mr Watson submitted that would remove any objectionable windfall enjoyed by Apotex. Such a deduction might or might not leave Apotex recovering something under the cross-undertaking in damages but, if anything was left with Apotex, that would simply reflect the limited jurisdiction of the Canadian and the United Kingdom courts under their respective laws and the fact that there are different Apotex defendants in the English and the Canadian proceedings. In short, it would simply reflect the lawfulness under both English and Canadian law of sales in the United Kingdom, even though such sales would only have been made possible by the unlawful manufacture and export in Canada in breach of the Canadian Patent.
- Indeed, Mr Watson submitted, unless Apotex is entitled to recover the balance of Norris J's award after implementation of the paragraph 26 concession, Servier rather than Apotex would enjoy an unwarranted windfall in consequence of the unjustified monopoly it enjoyed as a result of the interlocutory injunctions based on the invalid European Patent.
- Turning to the question of discretion, Mr Watson submitted that the Judge appeared to assume that, quite apart from the illegality defence, he had a discretion. Mr Watson submitted that, once the inquiry had been ordered, no element of discretion was left in the exercise being conducted by the court. Either Servier had an illegality defence to the claim under the cross-undertaking or it did not. In any event, he said, Servier had abandoned its original pleaded case that there was a discretion.
- So far as concerns the principle that a party cannot at the same time approbate and reprobate, Apotex relies on the description of that principle by Sir Nicholas Browne-Wilkinson V.C. in Express Newspapers plc v News (UK) Ltd  1 WLR 1320 at 1329:
"There is a principle of law of general application that … a man cannot adopted two inconsistent attitudes towards another: he must elect between them and, having elected to adopt one stance, cannot thereafter be permitted to go back and adopt an inconsistent stance."
Apotex relies on the application of that principle to a cross-undertaking in damages by Arnold J in Lilly Icos LLC v 8PM Chemists Ltd  EWHC 1905 (Ch),  FSR 4 at .
- Mr Watson's starting point on this issue was that, as a matter of public policy, the court, when granting an interlocutory injunction, should not be misled by the claimant, wittingly or unwittingly, as to the true position on the claimant's cross-undertaking as to damages. The core of his argument was that Servier was at all relevant times aware of the Canadian Patent and it was also aware, at the time the interlocutory injunctions were granted, that any sales lost by Apotex in consequence of the grant of those injunctions would have depended on manufacture and export in Canada. Mr Watson submitted that, in the light of that knowledge, Servier could not rely on the very same matters to resile from its representation to Mann J that Apotex would be recompensed for such lost sales pursuant to the cross-undertaking. He submitted that it was clear, at the time the injunctions were granted by Mann J, that Servier knew that Apotex's manufacture would be in Canada and nowhere else, and the Judge was wrong to say otherwise. Mr Watson said that, if Servier had wished to keep alive the possibility of running an illegality defence based on infringement of the Canadian Patent, Mann J should have been told expressly by Servier that such a defence would or might be run if in due course there was a claim under the cross-undertaking. Apotex's argument is that, in the absence of such an express disclosure to Mann J, Servier could not now "reprobate" the cross-undertaking by raising the illegality defence.
- Turning to the illegality defence itself, Mr Watson described the infringement of a patent as a tort of strict liability. He emphasised that a dishonest frame of mind is irrelevant to infringement, and that there are many cases relating to the validity of a patent where honest people can disagree on relevant factual and legal matters, and indeed the courts at different levels may (and often do) disagree with one another about validity. He also emphasised that, so long as a patent remains unrevoked, the patentee holds a monopoly, but the invalidity of that monopoly may not be exposed in court proceedings for years. He submitted that, if marketing has been carried out in the honest belief that there is no infringement of an existing patent or that the patent is invalid, it is difficult to imagine a tort of less turpitude. Indeed, he submitted that public policy should encourage people to disrespect monopolies that they honestly and reasonably believe are invalid.
- In his submissions on the illegality principle Mr Toledano conducted a review of a large number of cases, including Burrows v Rhodes  1 QB 816, Strongman v Sincock (1945)LD  2 QB 525, Brown Jenkinson & Co Ltd v Percy Dalton (London) Ltd  2 QB 621, Columbia Picture Industries Inc. v Robinson  Ch 38, United Project Consultants Pte Ltd v Leong Kwok Onn  4 SLR 214, Stone & Rolls Ltd v. Moore Stephens  UKHL 39,  1 AC 1391, Nayyar v Denton Wilde Sapte  EWHC 3218 (QB),  Lloyd's Rep PN 139, Safeway Stores Ltd v Twigger  EWHC 11 (Comm),  3 All ER 577,  EWCA Civ 1472; Marles v Philip Trant & Sons Ltd  1 QB 29; Hentig v Staniforth (1816) 5 M&S 122, and Enfield Technical Services Ltd v BF Components Ltd  EWCA Civ 393. His principal line of argument can be summarised as follows. A claimant will only be denied relief by applying the illegality principle if it can be shown that there was culpability on the claimant's part. That element of culpability is not satisfied unless either the wrongdoing is manifest (such as in murder) or the claimant had knowledge of all the ingredients of wrongdoing at the time it committed the acts in question. In the context of a tort of strict liability, such as patent infringement, it is not enough that the claimant intended to carry out the act which gave rise to liability on its part: it must have intended to infringe what it knew to be a valid patent. Accordingly, if the infringer honestly believed on reasonable grounds that the infringed patent was invalid then the infringer cannot be said to have acted with sufficient culpability to engage the illegality principle. The infringer would not have been guilty of any moral turpitude because it would not have known all the facts constituting the wrongdoing.
- Mr Toledano submitted that, in the present case, the Judge was wrong to consider that it was sufficient if Apotex had intended to manufacture the perindopril with knowledge of the existence of the Canadian Patent. The Judge should have held that the illegality principle is not engaged, and the illegality defence cannot run, because the unchallenged evidence was that Apotex believed in good faith and on reasonable grounds throughout the relevant period covered by the English interlocutory injunctions, namely August 2006 to July 2007, that the Canadian Patent was invalid. Snider J did not decide that the Canadian Patent was valid until July 2008.
- Turning to Apotex's third principal line of argument, Mr Watson submitted that, in any event, the assumed manufacture and export of goods in Canada in breach of the Canadian Patent cannot give rise to the illegality defence unless they would have been the cause, as distinct from merely the occasion, for the lost profits claimed by Apotex pursuant to the cross-undertaking in damages. Mr Watson relied in that respect on what Lord Hoffmann said in Gray v Thames Trains Limited  UKHL at  to , which was applied by Ward LJ in Delaney v Pickett  EWCA Civ 1532 at . Mr Watson referred to those and several other cases on the point, including Hewison v Meridian Shipping Pte  EWCA Civ 1821, 8PM Chemists Ltd, Tinsley v Milligan  AC 340, Holman v Johnson (1775) 1 Cowp 341, Clunis v Camden and Islington Health Authority  QB 978, and Hunter v Butler  RTR 396, seeking to distinguish some and to draw a comparison with others. He submitted that the Judge was wrong to rely on a different test, namely one of substantial reliance.
- Mr Watson emphasised that Apotex's claim for lost profits was based on the lawful sales that would have taken place in the United Kingdom following lawful importation of the goods, and that the cost of manufacture in Canada is only relevant to showing the cost of materials. Applying Lord Hoffmann's test, he said that the cause of Apotex's loss in consequence of the interlocutory injunctions was the inability to make lawful sales in the United Kingdom, and that the unlawful manufacture in Canada was merely the occasion. Putting it a different way, Apotex does not have to plead an illegal act in order to engage the cross-undertaking: such illegality only becomes relevant when Apotex has to prove every ingredient of its recoverable loss.
- In any event, Mr Watson submitted, the effect of the paragraph 26 concession is that Apotex's claim is shorn of all reliance on illegality.
- I turn to Servier's answer to those arguments.
- Mr Iain Purvis QC, for Servier, submitted that there is no rule or authority that supports Apotex's case that the illegality principle never applies in the case of infringement of a patent if the infringer honestly believes that the patent is invalid. He said that the illegality principle certainly applies where, as on the assumed facts in the present case, the infringer with knowledge of the patent, and prior to obtaining an order for its revocation, intentionally takes a commercial risk of infringing the patent.
- Mr Purvis submitted that the illegality principle is a broad one, to be applied in accordance with the policy behind the principle. In that connection, he cited the following statement of Lord Hoffmann in Gray v Thames Trains at :
"The maxim ex turpi causa expresses not so much a principle as a policy. Furthermore, that policy is not based upon a single justification but on a group of reasons, which vary in different situations."
- Mr Purvis' starting point was that the basic policy remains as stated by Lord Mansfield in Holman v. Johnson at page 343:
"No Court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. If, from the plaintiff's own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of this country, there the Court says he has no right to be assisted. "
- Mr Purvis emphasised that, in considering the application of the illegality principle, what is under scrutiny is not Servier's conduct, which was always perfectly legal, but the unlawful notional conduct of Apotex in manufacturing and exporting products in Canada without which Apotex's assumed sales in the United Kingdom could not have taken place.
- Mr Purvis submitted that the fundamental policy underlying the principle is that of consistency, so that the law does not characterise the same conduct as being both unlawful and lawful. In that connection, he referred to Hall v Hebert (1993) 101 DLR (4th) 129, 165.
- The policy, Mr Purvis submitted, is not one of moral repugnance or moral turpitude. He said that line of argument was decisively rejected by the House of Lords in Tinsley for the reasons stated by Ward LJ in Hewison at  to . He also cited the following passage from the judgment of Tuckey LJ in Hewison at :
"Illegality may affect a tort claim in many ways ranging from an essential part of the story giving rise to liability to some remote aspect of quantum. For this reason I favour a broad test of the kind proposed by Clarke L.J. viz: is the claim or the relevant part of it based substantially (and not therefore collaterally or insignificantly) on an unlawful act? Such a broad test has the merit of simplicity. It does not involve the judge having to make very specific and difficult value judgments about precisely how serious the misconduct is or whether it would result in imprisonment or whether the claimant's loss is disproportionate to his misconduct. I agree with what McLachlin J. said in [Hall v Hebert] -
"…..the law must aspire to be a unified institution, the parts of which – contract, tort, the criminal law – must be in essential harmony. For the courts to punish conduct with the one hand while rewarding it with the other would be to create an intolerable fissure in the laws conceptually seamless web".
A broad test enables this objective to be achieved; a more structured one might not."
- Mr Purvis also relied on the analysis in Pitts v Hunt  1 QB 24 of Dillon LJ, who referred to the judgment of Bingham LJ in Saunders v Edwards  1 WLR 116 at 1134, and said as follows at page 56F-G:
"Bingham L.J.'s dichotomy in Saunders v Edwards … between cases where the plaintiff's action in truth arises directly ex turpi causa and cases where the plaintiff has suffered a genuine wrong to which allegedly unlawful conduct is incidental avoids this difficulty [of formulating a criterion which would separate cases of serious illegality from those which are not serious], in that it does not involve grading illegalities according to moral turpitude."
- Mr Purvis analysed the cases relied upon by Mr Toledano (and other cases) in which the Court has held that, notwithstanding illegality, the claimant was not barred from recovery by the illegality principle. He submitted that they all fall within one or other of the following four categories: (1) where the claimant cannot really be regarded as personally responsible for the illegality at all (eg. James v. British General Insurance  2 KP 311, esp at 323 and 324 - inadvertent and not wilful or intentional commission of the unlawful act); (2) where the illegality was in fact caused by the actions of the defendant himself, who then invokes the illegality principle to deny the claim (Burrows v Rhodes, Strongman v Sincock, Marles v Philip Trant, United Project Consultants, Safeway Stores v Twigger); (3) where the culpable behaviour was entirely trivial but technically illegal (Enfield Technical Services); (4) where the unlawful acts are entirely collateral or coincidental to, or are of trivial importance in relation to, the claim (Hewison at  (Clarke LJ) and  (Tuckey LJ), Delaney). He submitted that there is no authority for the suggestion that there is a test based on knowledge of all the relevant facts, let alone of the legal consequences of the facts. On the contrary, he emphasised, the authorities, such as Burrows v Rhodes (at page 829) and Enfield Technical Services (at ), are clear that ignorance of the law or of the legal conclusions from facts of which the claimant is aware is irrelevant.
- Mr Purvis further submitted that, if and insofar as the Court can take into account rank injustice that would result from the illegality defence, no such rank injustice would occur in the present case. That is, he said, because Apotex knew of the Canadian Patent at and prior to the grant of the interlocutory injunctions by Mann J and took a calculated commercial risk in importing and selling the product here without first securing its revocation.
- Mr Purvis submitted that the Judge was entirely right to make the point about symmetry in paragraph  of his judgment. He submitted that the reason given by Snider J in the Canadian proceedings for the refusal of an interim injunction in respect of manufacture and export to the United Kingdom market was the existence of the interlocutory injunction granted by Mann J in the English proceedings, and that it is simply not possible to make any assumption that Snider J would have refused an interlocutory injunction in respect of manufacture and export for the United Kingdom market even in the absence of the English injunction. He emphasised that, in any event, what is clear is that Servier was at all times entitled to a final injunction in Canada to restrain infringement of the Canadian Patent, and Apotex cannot be in a better position merely because of the inevitable delay between the commencement of the Canadian proceedings and the final determination of them.
- Bearing in mind all those points, Mr Purvis' submission is that this is a paradigm and straightforward case. Apotex's claim is based upon its lost profit from the single transaction of manufacture in Canada and subsequent sale in the United Kingdom; Apotex therefore has to rely on unlawful manufacture and export in Canada in order to establish any lost profit; to allow Apotex to recover would be to legitimise the unlawful infringement of the Canadian Patent by Apotex's assumed manufacture and export in Canada; moreover, insofar as Apotex's state of mind is relevant at all (which Servier denies), it is sufficient that Apotex was aware of the existence of the Canadian Patent and that there was a risk that its manufacture and export in Canada would infringe that Patent since Apotex is assumed to know the law. There is no injustice in applying the illegality principle in those circumstances. Even allowing for the paragraph 26 concession, if there is any lost profit left after deduction of Apotex's assumed profits notionally recoverable by Servier under Canadian law, that would amount to a windfall for Apotex from an illegal activity.
- This case was very well argued on both sides.
- Mr Purvis' arguments were skilfully advanced, but I am satisfied, particularly in the light of the paragraph 26 concession in this court, that the illegality defence does not defeat Apotex's claim on the cross-undertaking.
- I do not accept Mr Watson's starting position that the court is precluded from even considering the illegality defence because that would be contrary to the principle that a party cannot both approbate and reprobate. I agree with him that, contrary to the view expressed by the Judge, it was apparent to Servier at the time Mann J granted the interlocutory injunction on 8 August 2006 that the goods that Apotex was to be injuncted from importing or selling would have been manufactured in Canada and nowhere else. I do not accept, however, that Servier is, for that reason, precluded from running the illegality defence. There is no evidence that Servier had at that date actually formed any intention to run any such defence in the future to a claim on the cross-undertaking. No authority was cited by Mr Watson for the proposition that the principle that a party may not both approbate and reprobate applies in such circumstances. In substance the submission amounts to an argument that, whenever an interim injunction is granted against a defendant, and the claimant subsequently fails in the action, the claimant will never be entitled to defend a claim on the cross-undertaking by relying on facts of which the claimant had knowledge at the time the injunction was granted, whether or not at the time the claimant had in mind a future defence based on those facts. I can see no obvious justification for such a draconian policy or principle, and, in the absence of any authority to support its existence, I reject it.
- I turn to the illegality principle. It is common ground that the principle is capable of applying to a claim under a cross-undertaking as to damages: see 8PM Chemists at - (Arnold J).
- Counsel on both sides conducted an extensive review of many authorities on the illegality principle. They all argued, however, in their respective ways for an analysis and statement of the law which is too dogmatic and inflexible. It is not necessary in order to resolve this appeal to undertake a comprehensive analysis of the decided cases. Such an exercise would in any event be complex, very lengthy, and in large part unrewarding. The decisions inevitably turn on their own particular facts. The statements of law or principle they contain are not all consistent or easily reconciled. The jurisprudence in this area has been an evolving one, but its evolution has not followed a consistent pattern. I shall therefore confine myself to the following general observations.
- The basic statement of the illegality principle remains that of Lord Mansfield CJ in Holman v. Johnson at page 343 (in the context of the law of contract):
"The objection, that a contract is immoral or illegal as between plaintiff and defendant, sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded in general principles of policy, which the defendant has the advantage of, contrary to the real justice, as between him and the plaintiff, by accident, if I may so say. The principle of public policy is this; ex dolo malo non oritur actio. No court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. If, from the plaintiff's own stating or otherwise, the cause of action appears to arise ex turpi causa, or the transgression of a positive law of this country, there the court says he has no right to be assisted. It is upon that ground the court goes; not for the sake of the defendant, but because they will not lend their aid to such a plaintiff. So if the plaintiff and defendant were to change sides, and the defendant was to bring his action against the plaintiff, the latter would then have the advantage of it; for where both are equally in fault, potior est conditio defendentis."
- That statement does not, however, explain the rationale for the principle. It does not provide an explanation for the different outcomes of different cases involving unlawful conduct. It does not explain why the court will not lend its aid to a claim founded on an illegal act. In order to make sense of the cases, and to provide a legal framework for the decision in the present case, it is necessary to identify the policy considerations that underlie the principle.
- Following its Consultation Paper No. 160 on "The Illegality Defence in Tort", the Law Commission in its 2009 Consultation Paper No. 189 and its 2010 final Report (Law Com 320) on "The Illegality Defence" recommended that the illegality defence should be allowed where its application can be firmly justified by one or more of the following policies underlying its existence: furthering the purpose of the rule which the illegal conduct has infringed; consistency; the claimant should not profit from his or her own wrong; deterrence; and maintaining the integrity of the legal system. As the cases plainly show, this does not mean that the illegality defence will always apply where one or more of those policy rationales is relevant. It means that, if the illegality defence applies at all, it must find its justification firmly in one or more of them.
- It is common ground that the policy of consistency in the law is of considerable importance, both generally and on the particular facts of the present case. The policy was explained by McLachlin J in the Canadian Supreme Court in Hall v Hebert at page 165 as follows:
"A more satisfactory explanation for those cases, I would venture, is that to allow recovery in these cases would be to allow recovery for what is illegal. It would put the courts in the position of saying that the same conduct is both legal, in the sense of being capable of rectification by the court, and illegal. It would, in short, introduce an inconsistency in the law. It is particularly important in this context that we bear in mind that the law must aspire to be a unified institution, the parts of which – contract, tort, the criminal law – must be in essential harmony. For the courts to punish conduct with the one hand while rewarding it with the other would be to "create an intolerable fissure in the law's conceptually seamless web" (Weinrib: 'Illegality as a Tort Defence' (1976) 26 UTLJ 28 at p42). We thus see that the concern, put at its most fundamental, is with the integrity of the legal system"
- That passage and the principle contained in it have received general recognition in this jurisdiction: see, for example, Hewison at  (Ward LJ), Gray v Thames Trains at  (Lord Hoffmann) and - (Lord Roger), Stone & Rolls at  (Lord Mance); Safeway Stores Ltd v Twigger at  (Longmore LJ); Law Commission Consultation Paper No. 189 paras 2.14 and 7.10.
- In addition to those policy rationales there is another that applies to the present case. It was common ground before us that the illegality defence can apply where the relevant illegality is under foreign law and not the law of England and Wales. In such a case, an important policy consideration, and possibly the principal one, is comity, that is to say respect for the law and courts of other countries: Regazzoni v K.C. Sethia (1944) Ltd  AC 301 at 318-319 (Viscount Simonds) and at 327 (Lord Keith); 8PM Chemists Ltd  at  and  (Arnold J) where the relevant cases are collected together.
- In considering the application of those policy rationales to the facts of a case, the Court is not exercising a general discretion based on notions of public conscience. That idea was decisively rejected in Tinsley. In that case a public conscience test was endorsed by Nicholls LJ in the Court of Appeal as follows (at  Ch 310, 319):
"the underlying principle is the so-called public conscience test. The court must weigh, or balance, the adverse consequences of granting relief against the adverse consequences of refusing relief. The ultimate decision calls for a value judgment."
- In rejecting that approach, Lord Goff (with whom the other members of the Appellate Committee agreed on this point), said as follows (at p. 358E-F):
"It is against the background of these established principles that I turn to consider the judgments of the majority of the Court of Appeal. As I have recorded, Nicholls L.J. in particular invoked a line of recent cases, largely developed in the Court of Appeal, from which he deduced the proposition that, in cases of illegality, the underlying principle is the so-called public conscience test, under which the court must weigh, or balance, the adverse consequences of respectively granting or refusing relief. This is little different, if at all, from stating that the court has a discretion whether to grant or refuse relief. It is very difficult to reconcile such a test with the principle of policy stated by Lord Mansfield C.J. in Holman v. Johnson, 1 Cowp 341, 343, or with the established principles to which I have referred. It is necessary therefore to examine with some care the authorities relied upon by Nicholls L.J. in support of his statement of the applicable law."
- Having reviewed those authorities, Lord Goff concluded (at p. 361G) that it had not been open to the Court of Appeal to dismiss the appellant's claim on the basis of the public conscience test invoked by Nicholls LJ.
- It is clear, then, that the illegality defence is not aimed at achieving a just result between the parties. On the other hand, the court is able to take into account a wide range of considerations in order to ensure that the defence only applies where it is a just and proportionate response to the illegality involved in the light of the policy considerations underlying it. As Lord Hoffmann said in Gray at :
"The maxim ex turpi causa expresses not so much a principle as a policy. Furthermore, that policy is not based upon a single justification but on a group of reasons, which vary in different situations."
- There are, for example, many cases, both before and after Tinsley, in which it has been recognised that, depending upon the precise facts, the illegality defence does not or may not arise where the unlawful act is merely trivial or where the illegality is the result of an inadvertent breach of some law or regulation: e.g. Gray at  (Lord Roger); Stone & Rolls at  (Lord Phillips),  (Lord Walker) and  (Lord Mance), all of whom referred with approval to the decision of the Court of Appeal of Singapore in United Project Consultants Pte Ltd v Leong Kwok Onn (in which see esp.  and ). In Stone & Rolls, for example, Lord Phillips said as follows at :
"In Tinsley v Milligan the ex turpi causa defence failed because the respondent did not need to plead the illegal agreement in order to establish her equitable title. Mr Sumption [counsel for the defendant auditors] relies on the decision as establishing a general principle that is the converse of that applied by the majority of the House. This is that if the claimant has to rely on his own illegality to establish his claim the courts will never entertain the claim ("the reliance test"). I have already noted that Mr Sumption advanced one qualification to this rule - it only applies where the illegality is personal to the claimant, not vicarious. In the course of argument when dealing with United Project Consultants Pte Ltd. v Leong Kwok Onn  SGCA 38;  4 SLR 214 he accepted another qualification. The illegality must involve turpitude. The defence may not apply where the claimant's illegality consists of an offence of strict liability of which he is unaware. Those, as I shall shortly show, are valid qualifications to the defence of ex turpi causa in the context in which it is raised on this appeal."
- I do not accept, therefore, Mr Purvis' strictly exclusive four part categorisation of the circumstances in which, notwithstanding illegality, the claimant is not barred from recovery by the illegality principle. I readily acknowledge that his categorisation is a useful way of analysing the cases and has the merit of simplicity and clarity. My objection is that it imposes an unwarranted inflexibility in a difficult area, whereas what is required in each case is an intense analysis of the particular facts and of the proper application of the various policy considerations underlying the illegality principle so as to produce a just and proportionate response to the illegality. That is not the same as an unbridled discretion.
- On the other hand, I also reject the bald proposition advanced by Mr Watson and Mr Toledano that, where the illegality is the infringement of a patent, the illegality defence can never apply unless the claimant was aware of the patent, knew it was valid, and intended to infringe it. It all depends on the precise circumstances. The facts of the present case are certainly not the same as the example postulated by Lord Phillips in Stone & Rolls at , that is to say where the claimant's illegality consists of an offence of strict liability of which he or she is unaware. Mr Watson and Mr Toledano described the infringement of a patent as a tort of strict liability. There is an obvious difference, however, between inadvertently committing an offence or a civil wrong of strict liability, that is to say without knowledge of the relevant facts and of the law, and the situation here, in which Apotex, with full knowledge of the Canadian Patent, was willing to take a conscious commercial risk that it was invalid.
- Nor do I accept Mr Watson's submission that, in claiming compensation under the cross-undertaking, Apotex's reliance on unlawful manufacture and export in Canada, which would have infringed the Canadian Patent, is too remote to engage the illegality principle. On that issue the test is that specified by Lord Hoffmann in Gray, namely whether the unlawful conduct caused the damage or was merely the occasion for it. In that case the claimant had killed, and been convicted of the manslaughter of, another person while suffering from post-traumatic stress disorder as a result of the defendants' negligence. The House of Lords held that the claimant's claim for loss of earnings was precluded on the narrow basis that a person cannot recover for damage which is the consequence of a sentence imposed on him for a criminal act. They also held that, not only the claim for loss of earnings, but also claims for general damages and for an indemnity against claims by the deceased's dependents were precluded by a wider rule that a person cannot recover for damage which is the consequence of his own criminal act. In the context of that wider test Lord Hoffmann said as follows at :
"This distinction, between causing something and merely providing the occasion for someone else to cause something, is one with which we are very familiar in the law of torts. It is the same principle by which the law normally holds that even though damage would not have occurred but for a tortious act, the defendant is not liable if the immediate cause was the deliberate act of another individual. Examples of cases falling on one side of the line or the other are given in the judgment of Judge LJ in Cross v Kirkby  EWCA Civ 426. It was Judge LJ, at para 103, who formulated the test of "inextricably linked" which was afterwards adopted by Sir Murray Stuart-Smith LJ in Vellino v Chief Constable of the Greater Manchester Police  1 WLR 218. Other expressions which he approved, at paras 100 and 104, were "an integral part or a necessarily direct consequence" of the unlawful act (Rougier J: see Revill v Newbery  QB 567, 571) and "arises directly ex turpi causa" (Bingham LJ in Saunders v Edwards  1 WLR 1116, 1134.) It might be better to avoid metaphors like "inextricably linked" or "integral part" and to treat the question as simply one of causation. Can one say that, although the damage would not have happened but for the tortious conduct of the defendant, it was caused by the criminal act of the claimant? (Vellino v Chief Constable of the Greater Manchester Police  1 WLR 218). Or is the position that although the damage would not have happened without the criminal act of the claimant, it was caused by the tortious act of the defendant? (Revill v Newbery  QB 567).
- In the present case, Apotex is relying on an unlawful act which is sufficiently causative of its claim to engage in principle the illegality defence. The claim for compensation on the cross-undertaking rests on an assumption that, but for the interlocutory injunctions granted by Mann J, Apotex would have manufactured in Canada and exported to the United Kingdom products which it would have sold here and which would have generated profit for Apotex. The manufacture and export of those products in Canada would have infringed the Canadian Patent. Apotex's manufacturing costs are an essential element of its calculation of lost profit. Apotex has to rely directly, therefore, on the manufacturing that would have taken place unlawfully in Canada.
- Nor do I accept Mr Watson's submission that the illegality principle cannot be invoked by Servier in the present case because there were different Apotex and Servier parties to the English proceedings, on the one hand, and the Canadian proceedings, on the other hand. In particular, the holder of the Canadian Patent is not a defendant to these proceedings, and the Servier respondents to this appeal were struck out as claimants in the Canadian proceedings as having no standing in those proceedings. This submission, however, seems to me to be far too technical an approach to the application of the illegality principle of English law and the broad and important policy considerations underlying it.
- Despite my rejection of all those arguments advanced on behalf of Apotex, I consider that the following factors point clearly in favour of allowing Apotex's appeal.
- Firstly, infringement of the Canadian Patent constitutes a statutory wrong under Canadian law irrespective of the infringer's state of mind: Canadian Patent Act s. 42, Monsanto Canada Inc v Schmeiser  1 SCR 902, 2004 SCC 34, at 34. There is unchallenged evidence that Apotex honestly and reasonably believed that the Canadian Patent was invalid. Mr Purvis accepted in oral submissions that in the present case Apotex had reasonable arguments for invalidity of the Canadian Patent and thought that there was a good chance that it would be found invalid. Although Mr Purvis appeared to quibble on the point, I am satisfied that the unchallenged evidence was that Apotex's belief was honestly and genuinely held.
- Secondly, the grant of a patent confers a monopoly. The grant therefore confers enormous economic advantages on the patentee. It not infrequently transpires, however, that patents are open to challenge and invalid, but it takes time to secure revocation of an invalid patent. The combination of those features can not only confer on the holder of an invalid patent huge but unjustified benefits but also be greatly to the disadvantage of society. It can stifle innovation and competition. Those features are graphically displayed in the present case, in which these proceedings commenced by Servier, and the interlocutory injunctions granted by Mann J, were based on what Jacob LJ said was very plainly an invalid patent, of the kind which can give the patent system a bad name. The financial consequence of those injunctions was to perpetuate a monopoly for Servier for a further year, generating for it, on Apotex's calculations, some £60 million profit, mostly to the detriment of the National Health Service which paid the higher prices that Servier, as a monopolist, was able to charge. Mr Watson told us that, within about a week of the order of the High Court holding the European Patent to be invalid, the price of the perindopril products dropped from something in the region of £12 per unit pack down to about £1.50. That assertion was not contradicted by Mr Purvis. This type of scenario, combined with the strict liability nature of patent infringement, that is to say the imposition of tortious liability without any requirement of knowledge or intention, shows why the taking of a commercial risk by a competitor to the patentee by marketing a product in breach of the patent but reasonably believing and in good faith that the patent is invalid is low on the scale of culpability in terms of the illegality defence.
- Thirdly, it was common ground before us that sales made in the United Kingdom from goods manufactured in breach of the Canadian Patent were not and (but for the injunction) would not have been unlawful under either Canadian or United Kingdom law. That is because patents are territorial. In the words of Lord Justice Kitchin in the course of submissions, the tort comes to an end at the border: comp. the Patents Act 1977 s. 60. That is reflected in the final injunction granted by the Canadian court in the Canadian proceedings, which prohibited Apotex from manufacturing, selling, offering for sale or otherwise dealing in prindopril products in Canada [emphasis added]. Whether or not damages flowing from infringement, or an account of profits for infringement, would involve any investigation of matters that occurred outside the jurisdiction is a quite separate issue. As the Judge noted (in  of his judgment) Servier does not contend that Apotex's United Kingdom business in importing and selling perindopril erbumine was unlawful.
- For those reasons I do not accept Mr Purvis' submission that Columbia Picture Industries is the closest on its facts to the present case. In that case the plaintiffs had seriously failed to comply with their duty of full and frank disclosure when obtaining a combined Anton Piller order and Mareva injunction, and they had executed the Anton Piller order in an oppressive manner. Scott J dismissed the defendant's application for an inquiry as to damages under the cross-undertaking in respect of the business conducted at one of the defendant's premises, which comprised the sale of pirate tapes, the copyright of which belonged to persons (including the plaintiffs) other than the defendant. Under section 18 of the Copyright ct 1956 the pirate tapes belonged to the owners of the copyright. Scott J said (at p.88B):
"The prospect of an inquiry as to the damage caused by the Anton Piller order to such a business brings to my mind the application by the highwayman against his partner for an account. The court would not countenance that application and I do not think I should countenance an inquiry into the damage caused by the order to the business of the Mill Street shop. "
- By contrast, in the present case, the importation and sales that would have been carried out in the United Kingdom by Apotex, but for the injunctions granted by Mann J, would have been entirely legal.
- Fourthly, the Canadian court was not willing, during the period covered by the interlocutory injunctions granted by Mann J, to grant an interlocutory injunction restraining the manufacture and export in Canada of products in breach of the Canadian Patent. The reason given in respect of export to the United Kingdom was that there was already an injunction in force here. I consider that it is quite clear, however, that even if there had been no such injunction in the United Kingdom the Canadian court would have refused an interim injunction on the ground that damages would be an adequate remedy. That was the reason for refusing an injunction in respect of manufacturing in Canada and export to Australia, and no good reason has been shown why the position would have been any different in respect of the United Kingdom in the absence of the interlocutory injunction here. Although Mr Purvis argued the contrary, I consider that conclusion is plainly supported by the failure of Servier to apply for an interlocutory injunction in Canada in respect of manufacture and export for sale in the United Kingdom between the time that the English injunction was set aside in July 2007 and the grant of the final injunction in the Canadian proceedings in July 2008.
- Mr Purvis has sought to take the sting out of that point by emphasising that, if there had been no delay between the commencement of the proceedings in Canada and their determination, Apotex could not have advanced any claim under the cross-undertaking. That is because Apotex could not have manufactured or exported any items to the United Kingdom since a final injunction would have been in place in Canada during the period covered by the cross-undertaking. Mr Purvis was, therefore, right to say that the only reason Apotex is able to advance any claim under the cross-undertaking is because of the inevitable delay in bringing the Canadian proceedings to trial. That point loses much of its attractiveness, however, when it is borne in mind that the only reason that the interlocutory injunctions were obtained by Servier in England, wrongly keeping Apotex out of the market on the basis of the invalid Euorpean Patent, was because of the same inevitable delay in bringing the English proceedings to trial. In the circumstances, it seems to me entirely in accordance with principle and policy to determine whether or not the illegality defence applies having regard to what would actually have happened during the relevant period in the absence of the injunctions granted by Mann J and not what would have happened on an unrealistic hypothetical set of facts (namely the grant of an interlocutory or final injunction in Canada).
- Accordingly, fifthly, the effect of the paragraph 26 concession is to place Apotex in precisely the position in which it would have been had there been no interlocutory injunctions in the United Kingdom and without offending comity with Canada. The unlawfulness of the breach of the Canadian Patent by the assumed manufacture and export of goods in Canada for lawful importation and sale in the United Kingdom would be marked by deducting from Norris J's award an amount equal to Apotex's profits recoverable by Servier under Canadian law for such unlawful manufacture and export. That would reflect the remedy actually imposed in Canada for the manufacture and export by Apotex infringing the Canadian Patent in the period prior to the grant of the final injunction by Snider J and in the thirty day period allowed under Snider J's final order for the sale of infringing items. There would be consistency in the law by recognising, in the inquiry as to damages, the illegality in Canada in the same way and to the same extent as the Canadian courts would in fact have done in respect of any unlawful manufacture and export in Canada during the relevant period. Expressed in a different way, if Apotex was left with some of the compensation ordered by Norris J even after deduction of an amount reflecting the paragraph 26 concession, what would be left is not something that the Canadian courts themselves would regard as properly recoverable under Canadian law for breach of the Canadian Patent. The result, therefore, would neither be offensive to comity with Canada nor any reason for interference on the ground of English public policy.
- For those reasons, which include the important paragraph 26 concession that was made only in this court and not before the Judge, I would allow this appeal.
LORD JUSTICE KITCHIN
- I agree with both Judgments.
LORD JUSTICE LAWS
- I have had the advantage of reading Etherton LJ's judgment in draft. I gratefully adopt his comprehensive review of the facts of the case and the relevant legal materials. I agree with his conclusion that this appeal should be allowed. I would qualify his reasoning, with respect, only to the extent of these following observations as regards the maxim Ex turpi causa non oritur actio.
- The learning indicates that there are three principal strands in the maxim's rationale. First is the requirement of turpitude: Holman v Johnson (1775) 1 Cowp 341, 343. Second is the desideratum of consistency in the law: Hall v Hebert (1993) 101 DLR (4th) 129, 165. Third is the negative proposition that the maxim does not give rise to a general discretion exercisable by reference to the public conscience: Tinsley v Milligan  AC 340, 358E-F. What is the relationship between these elements?
- In my judgment the three elements are in no sense competing justifications. Self-evidently the law ascertains what is unlawful and condemns it. In the paradigm case it does so by the grant of a remedy (or penalty) against the wrongdoer. Likewise it withholds relief where the wrongdoer is the claimant; this is the Ex turpi rule. Were it otherwise, the law's condemnation of what is unlawful would be partial and inconsistent. Nor can the rule be founded on a discretionary power to give effect to the public conscience. If it was, it would be no more than a plea to how the merits struck the judge, and that would be too fragile and amorphous a basis on which to secure the law's integrity.
- I should add this. It is well recognised that the Ex turpi rule does not require that every breach of the law, relied on by a claimant, should deprive him of his remedy: Stone & Rolls Ltd  1 AC 1391, paragraph 24, Gray v Thames Trains Ltd  1 AC 1339 paragraph 30, Hewison  EWCA Civ 1821 paragraph 51. I agree with Etherton LJ's observation that "the court is able to take into account a wide range of considerations in order to ensure that the defence only applies where it is a just and proportionate response to the illegality" (paragraph 73) and that "the illegality defence does not or may not arise where the unlawful act is merely trivial or where the illegality is the result of an inadvertent breach of some law or regulation" (paragraph 74).
- On the facts, I would arrive at the same conclusion as has Etherton LJ.
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