Contracting for University research services - £100m claim leaves both sides dissatisfied
In a recent case, a University was handed a £1m bill to pay and a pharmaceutical company was left with a stunted development programme - and all for a £50k pre-clinical study.
In January, the High Court passed down a judgment in the case of Innovate Pharmaceuticals Limited v University of Portsmouth Higher Education Corporation ([2024] EWHC 35 (TCC)), which related to a dispute surrounding a research agreement. Abnormally, the dispute centred around research published in an academic journal, as required by the research agreement. Below we summarise the facts, the legal issues and the key takeaways from the case.
The facts
Innovate Pharmaceuticals Limited (Innovate) partly funded research by the University of Portsmouth (UoP) into brain tumours under the terms of a research agreement.
Innovate holds a patent for a form of liquid aspirin (the drug), which it was looking to commercialise. Initially, Innovate engaged with UoP to carry out a pilot study into the effectiveness of the drug in treating a certain type of brain tumour. Following the pilot study, UoP and Innovate entered into a research agreement to further explore if the drug could cross the blood-brain barrier and assist in treating the cancer.
An academic at UoP carried out the in vitro research and published a research paper in a well-known journal, "Cancer Letters". It transpired that the data that the article was based on was incorrect, and after criticism, the paper was retracted.
Innovate filed a claim asserting that UoP was in breach of the research agreement. Innovate claimed the purpose of the research agreement was to put Innovate in a position to demonstrate the potential use of the drug, and ultimately enter into a potentially lucrative development and licence agreement with a commercialisation partner.
Innovate claimed a loss in excess of £100 million, reflecting the reputational damage to the lead product, the cost of repeating the research and the diminution of the patent exclusivity period. However, Innovate only contributed £50,000 to the study (with the £30,000 balance being funded by a cancer charity).
The claims
Innovate made the following claims:
- Claim 1: UoP was in breach of contract for failing to use reasonable care and skill in performing its obligations under the contract, in particular by generating and reporting inaccurate results
- Claim 2: UoP was in breach of contract for fraudulent misrepresentation (vicariously, through the dishonest acts of the academic)
- Claim 3: UoP had caused Innovate loss, as a result of committing the tort of deceit
Under the agreement, there was a clause excluding UoP's liability, and a further clause capping UoP's liability at £1 million. A focus of the proceedings was, therefore, whether the exclusion and the cap could be relied upon, even in the case of dishonesty of the academic in the published paper.
Liability under the research agreement
The liability clause was relatively standard and is summarised under three points:
- While UoP would use all reasonable care and skill to ensure the accuracy of the work performed, it would not be liable for any inaccuracies or omissions unless such inaccuracies are the result of UoP's or its agents' negligence.
- Except as provided in the next point, UoP excluded its liability for losses arising due to representations, unless such liabilities were fraudulent.
- Liability of the parties, however arising, attributable to any breach of the agreement or any error or omission was capped at £1 million, except in the case of death, personal injury, or (most importantly) fraudulent misrepresentation.
The decision
The court concluded that UoP was in breach of its duty to use reasonable care and skill (Claim 1) but on careful consideration considered that the academic had not acted dishonestly (claim 2). The claim for deceit was dropped by Innovate.
The judge concluded that the academic had not acted dishonestly, but carelessly. However, as the academic had acted negligently in publishing the paper with the inaccuracies, UoP could not rely on the exclusion under the first point on liability. On analysis of the liability limits and exclusions, the judge found that the £1 million liability cap applied and limited Innovate's claim for compensation accordingly. Innovate's submission that the clause was unenforceable due to it being in breach of the Unfair Contract Terms Act also failed.
As a result, Innovate was awarded £1 million for UoP's breach of its obligation to act with reasonable care and skill.
Although not relevant in the current case, as the academic was found not to be dishonest, the judge differentiated between a fraudulent representation that induces a party into an agreement and fraudulent actions that occur during the performance of the contract. On the wording of the limitation of liability clause in this instance, liability for fraudulent actions during performance was successfully capped.
Comment
This case emphasises the care that needs to be taken when drafting limitation clauses - especially when work is being performed by agents, or, as in this case, academics for parties with a commercial interest in the results of the research. Parties are vicariously liable for the actions of their employees, and if this case is a timely reminder of how costly a breach could have been.
If the limitation on liability wording had been slightly different and included a carve-out for "fraud" generally as well as fraudulent misrepresentation, and the academic had been found to have acted dishonestly, UoP could have been handed a much bigger bill. Like other universities, there is a limit to what UoP could have done to ensure that its employee was carrying out their work diligently and to a reasonable standard. That exposed position demonstrates why liability clauses are normally the centre of contractual negotiations on legal points.
From the perspective of higher education institutions carrying out research for companies, it is worth considering what the value of the work would be if it were carried out by a commercial entity, such as a contract developing and manufacturing organisation. If the value greatly exceeds the amount of funding received, then this needs to be factored into the contract negotiation. It would indicate that strict liability limits are appropriate.
From the perspective of businesses looking to engage a university to conduct pre-clinical research, it is important to assess and express the intended purpose of the project and review the university's rights surrounding publication. Businesses should consider imposing elements of oversight or verification into the publication process and an obligation to comply with specific standards representing good academic data and publication practices. Without these sorts of obligations, there is a heightened risk that an errant publication will cause reputational damage and losses incurred due to delay in related development programmes.