High Court judgment on misrepresentations made in preclinical research programme: a cautionary tale for UK universities

Innovate Pharmaceuticals Limited v University of Portsmouth Higher Education Corporation [2023] EWHC 2394 (TCC) involved a dispute between the University of Portsmouth (UOP) and Innovate Pharmaceuticals (IPL).

It centred around alleged misrepresentations made by the UOP's principal investigator (PI) concerning the results of a preclinical research programme for a lead compound conducted by UOP under a research agreement between the parties. IPL sought to recover damages for two heads of loss:

• The costs of re-running the research programme using a contract development and manufacturing organisation (CDMO) (assessed at c. £1.4 million).
• The diminution in the value of its patent for the lead compound since the reputation of the lead compound was tarnished through its association with the misrepresentations (range of £0.5-94 million, based on the evidence of respective experts (estimated at c. £95 million)).

The evidence showed that UOP had charged IPL only £50,000 to carry out the research programme, the balance of the costs of the programme being covered by funding provided by a medical research charity.

The trial took place on 2 October 2023, and the judgment was handed down on 12 January 2024, finding that UOP was in breach of its obligation to carry out the research under the agreement with reasonable care and skill. The court found UOP liable in principle for both heads of damage claimed by IPL, but went on to hold that the effect of the liability clause in the research agreement was to limit UOP's liability to £1 million.

Background

IPL is a research-based development-stage pharmaceutical company whose work includes the discovery and development of drugs for the treatment of brain cancer. UOP is a medical research institution and a centre of excellence for research into brain cancer - in particular a model for assessing transmission across the blood-brain barrier.

The research agreement

On 7 July 2016 the parties entered into a written agreement, under which IPL hired OUP to conduct a research programme into the properties of IP1877B, also known as Glioprin™ (the drug), for the treatment of brain tumours (the contract). The research programme was to be undertaken under the direction of Dr Richard Hill, the principal investigator and an employee of UOP at the time.

UOP expressly agreed to exercise reasonable skill and care to ensure the accuracy of the work performed and the information given (clause 11.1 of the contract), and to adhere to the general principles of honesty, fairness and integrity in all its dealings (clause 18.1 of the contract).

There was also a conventional limitation and exclusion of liability clause in the contract, which stated:

"11.4. Except as provided in clause 11.5 the University is not liable… for: any loss of profits, business, contracts, opportunity, goodwill, revenues, anticipated savings, expenses, costs or other similar loss; and/or any indirect, special or consequential damages or losses (whether for loss of profits or otherwise)".

"11.5. The liability of a party to another howsoever arising (including negligence) in respect of or attributable to any breach, non-observance or non-performance of this Agreement or any error or omission (except in the case of death or personal injury or fraudulent misrepresentation) shall be limited to £1 million" [emphasis added].

IPL claimed that the purpose of the contract was to put itself in a position to demonstrate to pharmaceutical companies the properties and potential uses of the drug. And IPL's ultimate intention was to enter into a development and licence agreement in respect of the drug with such a company.

Representations made by Dr Hill

In August 2018 Dr Hill allegedly made numerous false representations of the research programme results to UOP through both oral and electronic communications.

On 26 May 2019 Dr Hill published a scientific paper in the scientific journal 'Cancer Letters' (the paper). The paper made representations to the effect that the data obtained from the research programme showed that the drug suppressed resistance to epidermal growth factor receptor (EGFR) inhibitors. This is significant since a drug that reduces a tumour cell's ability to develop resistance to EGFR inhibitors would potentially be in high demand as an oncology mono- or combination therapy.

Findings of inaccuracy and research misconduct

By August 2019, significant criticisms of the paper had emerged. In particular, a scientific research review website, 'PubPeer', launched a fierce attack on the paper and its data. In October 2019 a corrigendum was issued by 'Cancer Letters', making two corrections to figures and images in the paper.

In light of these criticisms, UOP launched internal disciplinary proceedings against Dr Hill to enquire into 'research misconduct'.  UoP has a Procedure for the Investigation of Allegations in Research which defines 'research misconduct' as 'any breach of the UK Research Integrity Office’s Code of Practice' or of 'accepted procedures that seriously deviate from those commonly expected within the academic and scientific communities for proposing, conducting or reporting research'.

In early 2020 the disciplinary panel appointed by OUP found Dr Hill guilty of 'research misconduct'. OUP notified 'Cancer Letters' of this outcome on 11 March 2020.

On 25 March 2021, 'Cancer Letters' retracted the paper, stating in the retraction notice that this was "due to concerns regarding the legitimacy of images and data presented in the paper". The corrigendum issued in October 2019 was also found to contain errors.

Issues considered by the court

IPL claimed that, in breach of UOP's obligations under clauses 11.1 and 18.1 of the contract; and the tortious duty of care owed by UOP to IPL, Dr Hill (for whose conduct UOP is vicariously liable) knowingly and/or negligently misrepresented the outcome of the research programme.

The issues which the court had to consider were:

• whether Dr Hill's representations and data, including in the Paper, were correct, and if not, whether they constituted a breach of the contract
• whether Dr Hill's representations caused IPL to suffer the losses claimed
• whether the paper contained misrepresentations or fraudulent misrepresentations
• the quantum of losses suffered by IPL
• whether recovery of those losses was excluded or limited by the liability clause. In particular, whether Dr Hill's conduct amounted to 'fraudulent misrepresentation' (given the carve-out from the exclusion clause).

The judgment handed down on 12 January 2024

The judge found that Dr Hill's representations and data, including in the paper, contained significant inaccuracies. Note that this finding was consistent with the decision of the UOP disciplinary panel. The judge went on to conclude that "UOP did not use all reasonable skill and care to ensure the accuracy of the work performed (which included the work of preparing the paper) or in the giving of information (including the information given in the paper)", with the result that UOP was in breach of clause 11.1 of the contract.

In relation to causation, the court found UOP liable in principle for both heads of damage claimed by IPL, but went on to consider the effect of the liability clause. It found that:

• The exclusion in clause 11.4 of UOP's liability for 'any loss of profits, business, contracts, opportunity, goodwill, revenues, anticipated savings, expenses, costs or other similar loss' was wide enough to cover the second head of loss claimed by IPL (diminution in the value of IPL's patent for the drug), unless the carve-out in respect of 'fraudulent misrepresentation' in clause 11.5 applied.
• There is a difference in law between fraud in the formation of a contract and fraud in the performance of a contract. For reasons of public policy, the law is hostile to the former, and any attempt by a party to exclude or limit its liability in respect of this type of fraud will be void and ineffective. However, the same consideration does not apply to fraud in the performance of a contract. Correctly construed, and consistent with public policy, the carve-out from the liability cap in clause 11.5 for 'fraudulent misrepresentation' referred only to the tort of deceit (ie fraud in the formation of the contract, or where there was some other reliance by the innocent party on the fraud to its detriment). However, the carve-out does not cover fraud in the performance of the contract, to which the contractual liability cap applies.
• By the time of trial, IPL had abandoned any claim based on the tort of deceit (presumably because it could not show any reliance by IPL to its detriment on Dr Hill's misrepresentations) and was relying only on fraud in the performance of the contract. It followed that the carve-out from the liability cap was not engaged, and hence the liability cap of £1 million applied to IPL's claim.
• IPL's attack on the validity of the liability cap under the Unfair Contract Terms Act 1977 also failed. It was not inherently unreasonable (within the meaning of this Act) for a party to limit its liability in respect of a fraud in the performance of a contract (ie a dishonest breach of contract).
• After what the judge described as "anxious consideration", he declined to find that Dr Hill had been fraudulent (ie dishonest). The judge instead preferred to consider his various misrepresentations as "careless errors", consistent with a high degree of carelessness explicable by the personal and professional pressures on Dr Hill. In reaching this conclusion, the judge gave significant weight to the fact that the Disciplinary Panel created by UOP found only 'research misconduct' without making a finding of 'dishonesty' and that there was a lack of overall motive for Dr Hill to behave dishonestly.

It followed that the second head of loss was excluded in its entirety. The judge assessed the first head of loss (costs of reperforming the research programme using a commercial CRO) at £1.4 million. Since this exceeded the cap on liability, he awarded the amount of the cap (£1 million) to IPL. The full judgment can be accessed here.

So what?

• UOP had a narrow escape. If the carve-out from the liability cap in clause 11.5 had, as is often the case, referred to 'death or personal injury or fraudulent misrepresentation or fraud', and if the judge had, following his "anxious consideration", been willing to label Dr Hill as 'dishonest', the outcome would have been very different and UOP could have found itself exposed to much greater liability. (The judge referred to the total value of the claim exceeding £100 million).
• The judge was undoubtedly influenced by the fact the amount paid by IPL to UOP for the research programme was very low. When UOP agreed the contract price of £50,000, it understood that the full economic cost of the research was £80,000 (it's unclear from the judgment whether this calculation included a commercial margin too). However, when commercial CDMOs were asked to put forward proposals to re-run the research programme, the commercial cost was considerably higher – c. US$1.4 million. It is puzzling that UOP agreed a liability cap of £1 million in the circumstances, rather than capping liability for breach of contract at the contract price (which would have been more common).
• The evidence summarised in the judgment does not show whether UOP, at the time it instigated its internal disciplinary process into research misconduct, gave any thought to the potential implications for UOP's own liability to its industrial sponsor of a finding of research misconduct against Dr Hill. We may find that universities are considerably more wary in future about instigating an internal disciplinary process into research misconduct against one of their own academics. Particularly where the research programme in question had an industrial sponsor or, possibly, was funded by an external funding body.
• Successive governments have exhorted UK universities to increase their engagement in sponsored research with industry. Research agreements between UK universities and industrial sponsors are seldom the subject of litigation. However, this case is likely to act as a wake-up call for the university sector. It flags that sponsored research projects with industry are not risk-free for a university, and could result in time-consuming and costly litigation, and potentially significant financial exposure.
• Universities are likely to review their research contract templates and sponsored research policies, and to refresh their research contract teams' training to make sure the lessons learned from this litigation on how they can better mitigate the commercial risk in their operations are implemented. Particularly when the operation involves higher risk research projects that are funded by venture-backed companies.