Les Laboratoires Servier & Anor v Apotex Inc & Ors

The issue I have to decide in this case is whether a patentee who has obtained an interim injunction from this court to restrain infringement of a European patent (UK) which is subsequently held invalid should compensate the defendant for losses sustained as a result of being prevented by the injunction from selling goods manufactured by the defendant in infringement of a valid foreign patent owned by the same group of companies.

This is the second occasion on which I have had to consider the impact of illegality on a claim under a cross-undertaking in damages, the first being my judgment in Lilly Icos LLC v 8PM Chemists Ltd [2009] EWHC 1905 (Ch), [2010] FSR 4.

Les Laboratories Servier is a French pharmaceutical company which was the proprietor of European Patent No. 1 296 947 (“the European Patent”). Servier Laboratories Ltd is an English company which was the exclusive licensee under the UK designation of the European Patent. Both companies are part of same group of companies. I shall refer to the group and its individual companies as “Servier” save where it is necessary to distinguish between them.

Apotex Inc and Apotex Pharmachem Inc are Canadian pharmaceutical companies which specialise in manufacturing and marketing generic pharmaceutical products. Apotex Europe Ltd and Apotex UK Ltd are English companies in the same group of companies. I shall refer to the group and its individual companies as “Apotex” save where it is necessary to distinguish between them.

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.

In Europe, Servier’s first and basic patent covering perindopril erbumine was European Patent No. 0 049 658 (“658”), which had a priority date of 2 October 1980. 658 expired on 29 September 2001. The protection conferred by 658 was extended by a supplementary protection certificate which expired on 21 June 2003.

Servier also obtained a number of further patents relating to perindopril erbumine. European Patent No 0 380 341 (“341”), which was filed on 16 September 1988 and expired on 16 September 2008, covered a process for making perindopril erbumine. On 6 July 2000 Servier filed priority applications for three patents each of which covered one of the three crystalline forms of perindopril erbumine (α, β and γ) which had been discovered. The European Patent was subsequently granted in respect of the α form, European Patent No. 1 294 689 in respect of the β form and European Patent No. 1 296 948 in respect of the γ form.

The European Patent was granted on 4 February 2004. It was opposed by ten opponents, but not by Apotex. At the hearing of the opposition on 27 July 2006 the Opposition Division decided to maintain the European Patent for reasons which it gave on 21 September 2006. Most of the opponents appealed. By a decision dated 6 May 2009 T1753/06 the Technical Board of Appeal revoked the European Patent. That was over 5 years after the European Patent had been granted. As will appear, the events with which I am concerned occurred during that interval.

On 1 March 2006 Apotex’s solicitors wrote to Servier’s patent attorneys notifying them that Apotex intended to start marketing generic perindopril erbumine in June 2006. This led to correspondence between the parties’ solicitors. During the course of that correspondence, on 26 April 2006 Apotex’s solicitors sent Servier’s solicitors a confidential description of Apotex’s process for manufacturing perindopril erbumine. This stated that the finished product was manufactured by Apotex Pharmachem Inc. On 9 May 2006 Apotex’s solicitors sent Servier’s solicitors samples of tablets containing 2 mg, 4 mg and 8 mg of perindopril erbumine and of the active pharmaceutical ingredient (“API”).

On 13 June 2006 Servier’s solicitors wrote to Apotex’s solicitors asking for further information on a number of points. This letter included the following paragraph:

“Your client’s samples also appear to have originated in Canada, and the chemistry described by Section D of your client’s Confidential Process Description dated 26 April 2006 (the ‘Process Description’) is stated to be carried out at Apotex Pharmachem Inc. As your client will be aware, our client has a product patent on perindopril erbumine in Canada that does not expire until 2018. For this reason also we doubt that the sample you have provided is a product of your client’s industrial manufacturing line. Please would you clarify the situation.”

Apotex’s solicitors replied on 20 July 2006 saying:

“We do not see the relevance of the points raised in relation to where the product is manufactured or our client’s regulatory position. As stated above, we can confirm that the samples are a product of our client's industrial manufacturing line.”

On 24 July 2006 Apotex received marketing authorisations enabling it to market tablets containing 2mg, 4 mg and 8 mg perindopril erbumine in the United Kingdom. These authorisations specified that the API was manufactured by Apotex Pharmachem Inc in Canada and then formulated into tablets by Apotex Inc also in Canada, but that information was not publicly available. On 28 July 2006 Apotex UK Ltd 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 Inc, Apotex Pharmachem Inc and Apotex Europe Ltd for infringement of the European Patent by importing, keeping, offering to dispose of and disposing of perindopril erbumine, alternatively threatening to do such acts. In its Particulars of Infringement Servier pleaded, on the basis of the statements made in the Process Description and in Apotex’s solicitors’ letter dated 20 July 2006, that the product was made by Apotex Pharmachem Inc on behalf of and under the control of Apotex Inc.

On 2 August 2006 Servier applied without notice to Mann J for an interim injunction to restrain Apotex from marketing perindopril erbumine. This application was prompted by Servier’s discovery that day that Apotex was already selling generic perindopril erbumine. Mann J declined to grant relief without notice to Apotex. On 3 August 2006 Servier renewed its application on notice to Apotex, and Mann J granted a short-term injunction until a hearing on 7 August 2006. He also granted Servier permission to join Apotex UK Ltd as an additional defendant.

By the hearing on 7 August 2006 the parties had exchanged evidence. In paragraph 16 of his first witness statement, Dr Eric Falcand, the Chief Executive Officer of Servier Laboratories Ltd, drew attention to the fact that the patient information leaflet (“PIL”) accompanying the Apotex product stated that the marketing authorisation holder was Apotex Europe Ltd, the manufacturer was Katwijk Farma BV (with an address in the Netherlands) and the distributor was Apotex UK Ltd. In paragraph 32 of the same statement Dr Falcand stated that “if Apotex are prevented from continuing to supply the market but are ultimately successful at trial, I believe that the damage suffered by Apotex could be adequately compensated by damages” and in paragraph 33 he said that “Servier offers an undertaking to pay any damages which the Court orders to compensate Apotex for losses due to the granting of an injunction to restrain generic entry which the Court later determines should not have been granted”. Apotex served a first witness statement from Colin Darroch, the managing director of Apotex UK Ltd, replying to Dr Falcand’s evidence, but he did not comment on the accuracy or otherwise of the statements to which Dr Falcand had drawn attention in paragraph 16 of his statement.

It does not appear to have been drawn to Mann J’s attention during the course of argument that Apotex was (contrary to the statement in the PIL) manufacturing perindopril erbumine in Canada or that Servier had asserted that the manufacture of perindopril erbumine in Canada would infringe a Canadian patent owned by it.

Following the hearing on 7 August 2006, Mann J granted an interim injunction until trial for the reasons given in his judgment dated 8 August 2006 ([2006] EWHC 2137 (Pat)). In his judgment he considering the adequacy of damages for each side at [20]-[23]. He summarised Apotex’s case on this question at [20] and that of Servier at [21]-[22]. As part of the latter, he recorded at [22] Servier’s submission that “Apotex would be adequately compensated on the cross-undertaking in damage[s].” For the reasons he gave at [23], he preferred Servier’s case. He went on to conclude that neither Apotex’s ineffectual attempt to “clear the path” in accordance with the decision of the Court of Appeal in SmithKline Beecham plc v Apotex Europe Ltd [2003] EWCA Civ 137, [2003] FSR 30, nor Servier’s piecemeal response, altered his view that an interim injunction was appropriate.

After Mann J had given judgment, during the course of submissions as to the form of the order, counsel for Apotex stated that Apotex Pharmachem Inc “are the manufacturers”.

The injunction granted by Mann J on 3 August 2006 was expressed in the order as follows:

“… the Defendants must not, dispose of, offer to dispose of, or import into the United Kingdom it’s [sic] generic perindopril erbumine product …”

More grammatically, the injunction granted by Mann J on 8 August 2006 was expressed in the order as follows:

“… the Defendants must not dispose of, offer to dispose of, or import in the United Kingdom their generic perindopril erbumine product …”

Mann J’s orders dated 3 and 8 August 2006 both contained a cross-undertaking in damages by Servier in the following form:

“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.”

Apotex was not the only company to be restrained from infringing the European Patent. On 3 October 2006 Kitchin J granted Servier an interim injunction restraining Krka, another generic pharmaceutical company, from marketing perindopril erbumine ([2006] EWHC 2453 (Pat)). A third generic pharmaceutical company, Ratiopharm, undertook to refrain from marketing perindopril erbumine pending the conclusion of those proceedings.

Subsequently, Pumfrey J (as he then was) held in a judgment dated 11 July 2007 ([2007] EWHC 1538 (Pat)) that Apotex had infringed the European Patent, but that the European Patent was invalid since it lacked novelty, alternatively was obvious, over 341. Accordingly, he discharged the injunction granted by Mann J and directed an inquiry as to damages pursuant to the cross-undertakings given by Servier.

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 ([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…”

Servier is the proprietor of Canadian Patent No. 1,134,196 (“the Canadian Patent”). The Canadian Patent is a basic patent covering perindopril erbumine i.e. it is equivalent to 698. The Canadian Patent was granted pursuant to Canadian Patent Application No. 387093 which was filed on 1 October 1981. The Canadian Patent was not granted until 6 March 2001, however, and will not expire until 6 March 2018. The reasons for this are as follows.

At the time the application for the Canadian Patent was filed, Canadian patent law was based on a “first to invent” system, rather than a “first to file” system (as United States patent law still is). The term of a granted patent was 17 years from the date of issue of the patent. If there was a dispute as to who invented the subject matter of a patent application, this was resolved by means of “conflict” proceedings (similar to US “interference” proceedings). Such conflict proceedings could last for a long time. Where there were conflict proceedings, the patent was not issued until the conflict proceedings had been finally determined. The effect of this was to delay the issue of the patent, and hence delay both the commencement and the expiration of the period of monopoly. Although the Canadian Patent Act was amended to replace this system with a first to file system in which the term of granted patents is 20 years from the filing date of the application, applications filed prior to 1 October 1989 continued to be subject to the old law. The application which led to the Canadian Patent was subject to conflict proceedings which took a long time finally to resolve. Thus it was that the Canadian Patent was only issued after most of Servier’s corresponding basic patents for perindopril had expired (subject in Europe to the grant of supplementary protection certificates).

Counsel for Apotex drew to my attention the decision of the World Trade Organisation Appellate Body dated 18 September 2000 in Canada – Term of Patent Protection WT/DS170/AB/R. In that decision the Appellate Body upheld a complaint by the United States of America that the term of protection provided by section 45 of the Canadian Patent Act in respect of patents granted pursuant to applications filed before 1 October 1989 was inconsistent with Canada’s obligations under Articles 33 and 70(2) of the Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPs”). Article 70(2) applies the obligations of TRIPs to all subject matter existing and protected on the date of application of TRIPs for a Member State. Article 33 provides that the term of patent protection “shall not end before the expiration of a period of twenty years counted from the filing date”. The Appellate Body held that section 45 did not comply with Article 33 since a term of 17 years measured from the date of issue could be, and in the case of tens of thousands of Canadian patents was in fact, shorter than a term of 20 years measured from the filing date.

Counsel for Apotex submitted that this decision established that the term of protection provided by section 45 of the Canadian Patent Act was contrary to international law. Even leaving aside the fact that this point was neither pleaded by Apotex, nor mentioned in the expert evidence as to Canadian patent law it served for this hearing nor mentioned in counsel’s skeleton argument, I do not accept this submission. All that the decision of the Appellate Body establishes is that section 45 was contrary to international law in so far as it provided for a patent term that could be shorter than 20 years counted from the filing date. The decision has no bearing on the present case, since the Canadian Patent expired well over 20 years after the filing date.

On 10 August 2006 a Canadian firm of barristers, solicitors, patent agents and trade mark agents acting for ADIR, Les Laboratoires Servier and Servier Canada Inc sent a cease and desist letter to Apotex Inc and Apotex Pharmachem Inc saying inter alia:

“It has come to our clients’ attention from sources including its distributors in the UK, that Apotex has, through its UK subsidiary, recently begun offering for sale and selling a generic version of perindopril in the UK. As a result, our client Les Laboratories Servier and its UK subsidiary Servier Laboratories Limited moved for and obtained an interim injunction on August 3, 2006 and an interlocutory injunction on August 8, 2006 against, inter alia, Apotex Inc and Apotex Pharmachem Inc. Said injunction orders Apotex Inc and Apotex Pharmachem Inc to not ‘dispose of, offer to dispose of, or import in the United Kingdom’ generic perindopril, save for the fulfilment of existing contractual orders.

During the hearing of the UK injunctions, it has come to light that the source of the generic perindopril sold in the UK was Apotex Inc and/or Apotex Pharmachem Inc’s Canadian manufacturing facilities, and not a Dutch company as indicated on the product. Further, our clients have now become aware that Apotex Inc, through its various local subsidiaries, is planning on launching generic perindopril in other European countries. It is our clients’ understanding that the source of that generic perindopril will also be either Apotex Inc and/or Apotex Pharmachem Inc’s Canadian manufacturing facilities.

As you are well aware, the manufacture, use, formulation, offer for sale, sale and export from Canada of perindopril constitutes an infringement and/or inducement to infringe of the claims of the ‘196 patent. No doubt Apotex Inc and Apotex Pharmachem Inc are aware of the existence of the ‘196 patent. Your actions therefore constitute a blatant and unacceptable infringement of our client’s rights.”

It appears that the basis for the first sentence of the second paragraph quoted above was the statement made by counsel for Apotex at the hearing before Mann J on 8 August 2006 quoted in paragraph 18 above.

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. One 24 November 2006 Noël J granted an interim injunction until 13 December 2006, but on that date Snider J refused to grant an interlocutory injunction pending trial.

Subsequently, in a judgment dated 2 July 2008 ([2008] FC 825, (2008) 67 CPR (4^th) 241) Snider J held that the Canadian Patent was valid and had been infringed. In her judgment Snider J held at [135] that both Apotex Pharmchem Inc and Apotex Inc had directly infringed the Canadian Patent, in the case of Apotex Pharmachem Inc by manufacturing and supplying to Apotex Inc perindopril erbumine raw material and in the case of Apotex Inc by manufacturing and selling 2 mg, 4 mg and 8 mg tablets. She also found at [2] that Apotex exported such tablets to affiliated companies abroad, and held at [143] that the possession of infringing articles with a view to export constituted infringement. In the context of deciding whether to exercise her discretion to allow Servier to elect to claim an account of profits, she held at [509] (emphasis added):

“… Apotex, fully aware of the [Canadian] Patent, chose Canada as the manufacturing site for perindopril products. Apotex could have avoided all of the manufacturing infringement by making perindopril-containing products outside of Canada. This is not just speculation. As acknowledged by a number of witnesses for Apotex, Apotex also has manufacturing facilities in India and is in the process of obtaining authorization to produce perindopril from that site. Indeed, as stated by Dr. Sherman, during his testimony, Apotex had ‘determined that it would make sense to have the facilities outside of Canada qualified in case it turned out we would lose at trial’. I have no problem with Apotex and other related companies arranging their business affairs in any way they see fit. However, they must also bear the consequences of their choices where they are perfectly aware that a patent will be infringed. In this case, 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.”

On 30 June 2009 the Canadian Federal Court of Appeal (Linden JA, Evans JA and Layden-Stevenson LJ) dismissed Apotex’s appeal against Snider J’s decision ([2009] FCA 222). On 25 March 2010 the Supreme Court of Canada (McLachlin CJ, Abella J and Rothstein J) dismissed Apotex’s application for leave to appeal from the judgment of the Federal Court of Appeal.

It is common ground that the findings of the Canadian courts are binding on the parties for the purposes of the present proceedings. Neither side suggests that it makes any difference that the parties to the present proceedings are not precisely the same as the parties to the Canadian proceedings.

The inquiry as to damages pursuant to the cross-undertakings contained in Mann J’s orders was heard by Norris J in June 2008. In support of its claim Apotex relied upon evidence given by Mark Bezant, an independent expert forensic account. He prepared a report concluding that Apotex’s lost profits by reason of the injunction amounted to £26 million assuming one scenario or £17.6 million assuming a second scenario. Apotex also relied upon evidence given by Mr Darroch and by Gordon Fahner, Apotex Inc’s Vice President of Finance.

It is clear from this evidence that Apotex’s claim for damages was put on the following basis:

I was informed by counsel for Servier, without contradiction from counsel for Apotex, that during the inquiry Servier had given unchallenged evidence that it had believed the European Patent to be valid.

After Norris J had reserved judgment, Servier applied to re-amend its Points of Defence to advance two defences arising out of the judgment of Snider J in Canada: first, that as a matter of public policy Apotex could not 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).

In his judgment dated 9 October 2008 ([2008] EWHC 2347 (Ch), [2009] FSR 3) Norris J declined to grant Servier permission to re-amend its Points of Defence on the ground that the application was made too late. He went on to give judgment for Apotex on the cross-undertaking in the sum of £17.5 million. It is not necessary for present purposes to explain how he arrived at that figure.

Servier appealed to the Court of Appeal against Norris J’s refusal of its amendment application. On 12 February 2010 the Court of Appeal allowed the appeal ([2010] EWCA Civ 279). In his judgment Jacob LJ, with whom Sullivan LJ and Sir David Keene agreed, held at [7] that Norris J had not exercised his discretion correctly since he had not taken into account the risk of Apotex obtaining a “total windfall” of £17.5 million to which they were not entitled. Furthermore, by that stage the Canadian Court of Appeal had upheld the judgment at first instance in Canada, which Jacob LJ said at [8] “makes it even more likely than it was before the judge that the Canadian proceedings would mean in the end that Apotex got an unjustified benefit here”. Accordingly, the Court of Appeal granted Servier permission to make the amendments on terms that it paid the costs of the inquiry to date to be assessed on the indemnity basis and ordered that the £17.5 million paid by Servier pursuant to Norris J’s judgment should stand as an interim payment.

On 21 September 2010 Lewison J made an order staying the determination of the “cost of manufacture” point. Accordingly, the only issue before me is the public policy point.

Servier contends that, 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. 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), also known as the illegality defence. I shall refer to this as “the ex turpi causa rule”.

Apotex disputes this contention on three grounds. First, Apotex contends that 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 that patent infringement is neither a criminal offence under Canadian law nor an act involving dishonesty. Secondly, Apotex contends that 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 did not do so on the inquiry. Thirdly, Apotex contends that Servier cannot invoke the ex turpi causa rule having given an unqualified cross-undertaking in damages because that amounts to approbating and reprobating.

The public policy underlying the ex turpi causa rule was explained by Lord Mansfield CJ in Holman v Johnson (1775) 1 Cowp 341, 343 as follows:

“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 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 causâ, 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.”

More recently, McLachlin CJ giving the judgment of majority of the Supreme Court of Canada in Hall v Hebert (1993) 101 DLR (4^th) 129 at 165 explained it in this way:

“The narrow principle illustrated by the foregoing examples of accepted application of the maxim of ex turpi causa non oritur actio in tort, is that a plaintiff will not be allowed to profit from his or her wrongdoing. This explanation, while accurate as far as it goes, may not, however, explain fully why courts have rejected claims in these cases. Indeed, it may have the undesirable effect of tempting judges to focus on the issue of whether the plaintiff is ‘getting something’ out of the tort, thus carrying the maxim into the area of compensatory damages where its use has proved so controversial, and has defeated just claims for compensation. A more satisfactory explanation for these 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, 42. We thus see that the concern, put at its most fundamental, is with the integrity of the legal system.”

In Lilly v 8PM I began my consideration of the law by stating at [250]:

“The Latin maxim ex turpi causa non oritur actio (no action can arise from an illegal or immoral act) encapsulates a public policy which English law gives effect to in different ways in different situations. Since there is no over-arching principle of universal validity in all contexts, it is necessary to identify the principle or principles applicable to the situation at hand.”

In saying this, I was echoing what Lord Hoffmann had said in Gray v Thames Trains Ltd [2009] UKHL 33, [2009] 1 AC 1339 at [30]:

“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.”

I went on in Lilly v 8PM to consider the rule as it had been applied in the fields of contract (at [261]-[266]) and tort (at [267]-[272]). At [273]-[281] I rejected a submission made by counsel for the claimants in that case that the contract and tort cases were merely instances of a broader principle, namely that the court will not order a defendant to compensate a claimant for loss, or a head of loss, which arises out of the claimant’s own involvement in an illegal activity whether under English law or foreign law. At [282]-[286] I considered the impact of illegality on a claim under a cross-undertaking. I expressed my conclusion on the law at [287] as follows:

“… the court will not award compensation under a cross-undertaking for the loss sustained by an unlawful business or where the beneficiary of the cross-undertaking has to rely to a substantial extent upon his own illegality in order to establish the loss. As a matter of international comity, it does not matter for this purpose whether the acts in question are unlawful under English law or under foreign law.”

In Lilly v 8PM counsel for the defendants did not argue that the illegality had to be of any particular degree of seriousness before the ex turpi causa rule applied. By contrast, in the present case counsel for Apotex argued that the rule is only engaged by (a) crimes unless committed in extenuating circumstances and (b) civil wrongs and other acts involving moral turpitude. He defined moral turpitude for this purpose as dishonesty. I was referred to a number of cases bearing on this point. It is convenient to consider them in chronological order.

In Burrows v Rhodes [1899] 1 QB 816the claimant alleged that in September 1895 Cecil Rhodes and Leander Jameson persuaded the claimant to renew his employment in the armed forces of the British South Africa Company, of which Rhodes was a director and Jameson an officer, by fraudulently representing to him that the service in which he was to be employed was authorised by the British Government, when in fact they had secretly decided to undertake what subsequently became known as the Jameson Raid on the South African Republic. The claimant was wounded in the fighting, losing a leg, and imprisoned by the Republic. He claimed damages of £3,000. The defendants applied to strike out the statement of claim as disclosing no cause of action on the basis that the claimant had committed an offence under section 11 of the Foreign Enlistment Act 1870, although he had not in fact been tried, much less convicted, of that offence. Grantham and Kennedy JJ dismissed the application.

Grantham J summarised his reasons for so deciding at the end of his judgment at 827 as follows:

“… I am glad to be able to say that our law has been purged from the suggestion that fraud and false representation injurious to an innocent person can be committed with impunity if the injured person has by such fraud and false representation been unwittingly and innocently made to commit what the law has said shall be called a crime.”

Kennedy J held at 828-830:

“It has, I think, long been settled law that if an act is manifestly unlawful, or the doer of it knows it to be unlawful, as constituting either a civil wrong or a criminal offence, he cannot maintain an action for contribution or for indemnity against the liability which results to him therefrom.

…

Nor, in my judgment, can there be any valid claim to indemnity where the doer of the act which constitutes the offence has done it with knowledge of all the circumstances necessary to constitute the act an offence, but in ignorance that the act done under those circumstances constituted an offence. A man is presumed to know the law.

…

But I am unable to accept the defendants’ proposition, where the act, though a criminal offence - malum prohibitum - is, upon the state of facts which the doer by the fraudulent misrepresentation of the person against whom he claims indemnity has been induced to believe to be the true state of facts, neither criminal nor immoral.”

As counsel for Servier pointed out, Burrows v Rhodes was a case in which (a) the claimant’s illegal act was induced by the conduct of the defendant, and (b) if the situation had been as the claimant believed it to be as result of the defendant’s representations, the claimant would not have committed an illegal act. I agree with counsel for Servier it does not follow from this decision that, in a case where the claimant’s illegal act was neither a crime nor induced by the defendant’s conduct, the ex turpi causa rule would only be engaged if the act involved moral turpitude.

In Weld-Blundell v Stephens [1920] AC 956 the claimant employed the defendant, a chartered accountant, to investigate the affairs of a company in which he was interested. In a letter of instructions to the defendant the claimant made libellous statements concerning two officials of the company. The defendant handed the letter to his partner, who negligently left it at the company’s office. A manager found it, read it, and communicated its contents to the two persons defamed, each of whom sued the claimant for libel and obtained judgment against him for damages and costs. In each case it was ruled that the letter was written on an occasion of qualified privilege, but the jury found that the claimant had written the words complained of maliciously. The claimant then sought to recover from the defendant the amount which he had paid for damages and costs in the libel actions as damages for breach of an implied duty to keep secret the letter of instructions. The House of Lords held, by a majority of 3 to 2, that the claimant could not recover the damages and costs of the libel actions.

As I understand the speeches of the majority, the principal basis for their decision was that the damages claimed by the claimant did not result from the defendant’s breach of duty. Instead, they were the result either of the claimant’s own act in writing the defamatory letter or of the independent act of the manager in communicating the contents of the letter to the two persons defamed. Although their Lordships also considered the ex turpi causa rule, and although Viscount Finlay at 966, Lord Dunedin at 976, Lord Parmoor at 995 and Lord Wrenbury at 998 all either cited with approval or referred without disapproval to what Kennedy J had said in Burrows v Rhodes in the first paragraph quoted in paragraph 51 above, it is difficult to extract any useful guidance from the decision with regard to the present issue.

In Strongman (1945) Ltd v Sincock [1955] 2 KB 525 the claimants were builders who were engaged by an architect and property owner to supply materials and carry out work at his premises. The architect promised orally that he would obtain all the licences necessary under regulations then in force. Work considerably in excess of the amount permitted under the licences granted was carried out. The builders brought proceedings claiming the balance of the price over the licensed amount as damages for breach of a collateral contract by failing to obtain sufficient licences. The architect argued that the claim was barred by the ex turpi causa rule. The Court of Appeal rejected that argument.

The leading judgment was given by Denning LJ (as he was then), who said at 535:

“It is, of course, a settled principle that a man cannot recover for the consequences of his own unlawful act, but this has always been confined to cases where the doer of the act knows it to be unlawful or is himself in some way morally culpable. It does not apply when he is an entirely innocent party.”

He went on to consider a number of earlier cases, including Burrows v Rhodes, and concluded at 536:

“On these authorities, I think the law is that, although a man may have been guilty of an offence which is absolutely prohibited so that he is answerable in a criminal court, nevertheless if he has been led to commit that offence by the representation or by the promise of another, then in those circumstances he can recover damages for fraud if there is fraud, or for breach of promise or warranty if he prove such to have been given, provided always that he himself has not been guilty of culpable negligence on his part disabling him from that remedy.”

Strongman v Sincock shares the features of Burrows v Rhodes which I have mentioned in paragraph 52 above. It therefore takes matters little further forward. It does, however, serve to emphasise the importance of the claimant’s state of knowledge at the relevant time.

In Brown Jenkinson & Co Ltd v Percy Dalton (London) Ltd [1957] 2 QB 621 the claimants were the owners of a vessel on which the defendants shipped a cargo of orange juice, packed in barrels which were old, frail and leaky. The claimants said they would issue a claused bill of lading stating the defects in the barrels. The defendants could only sell the juice with a clean bill of lading stating that the cargo was shipped in apparent good order and condition. The defendants offered an indemnity to the claimants for any losses that might result from the issue of a clean bill. It was found at trial that the claimants believed that the issue of clean bills in such circumstances was an acceptable practice permitting the question of the condition of the cargo to be litigated later. Upon receiving the indemnity, the claimants issued a clean bill. The claimants had to pay damages to the buyers of the orange juice for the loss occasioned by the poor barrels, and they claimed on their indemnity from the defendants. The defendants argued that the court should not enforce the contract of indemnity because it was a contract whose object was to commit the tort of deceit. The Court of Appeal by a majority upheld that contention.

Morris LJ’s reasons for so holding are encapsulated in the following passage in his judgment at 632:

“On the facts as found, and indeed on the facts which are not in dispute, the position was therefore that, at the request of the defendants, the plaintiffs made a representation which they knew to be false and which they intended should be relied upon by persons who received the bill of lading, including any banker who might be concerned. In these circumstances, all the elements of the tort of deceit were present. Someone who could prove that he suffered damage by relying on the representation could sue for damages. I feel impelled to the conclusion that a promise to indemnify the plaintiffs against any loss resulting to them from making the representation is unenforceable. The claim cannot be put forward without basing it upon an unlawful transaction. The promise upon which the plaintiffs rely is in effect this: if you will make a false representation, which will deceive indorsees or bankers, we will indemnify you against any loss that may result to you. I cannot think that a court should lend its aid to enforce such a bargain.”

Pearce LJ said at 639-640:

“The general principle is not in doubt. In Alexander v. Rayson [1914] 1 KB 169, 182 this court said: ‘It is settled law that an agreement to do an act that is illegal or immoral or contrary to public policy, or to do any act for a consideration that is illegal or immoral or contrary to public policy, is unlawful and therefore void. But it often happens that an agreement which in itself is not unlawful is made with the intention of one or both parties to make use of the subject-matter for an unlawful purpose, that is to say, a purpose that is illegal, immoral or contrary to public policy. ... In such a case any party to the agreement who had the unlawful intention is precluded from suing upon it. Ex turpi causa non oritur actio. The action does not lie because the court will not lend its help to such a plaintiff.’

I do not propose to consider the cases to which Morris L.J. has already referred. In none of the cases cited before us has a plaintiff failed where he was not fraudulently minded, but was merely reckless and unthinking in committing a tort of deceit instigated by the defendant. Nor, per contra, has any case been cited where a plaintiff has succeeded in such circumstances. But recklessness is sufficient to make a man liable in damages for fraud. Here the plaintiffs intended their misrepresentation to deceive, although they did not intend that the party deceived should ultimately go without any just compensation. In an action based on deceit that state of mind would render them liable, no less than if they had been fraudulent, and I cannot avoid the conclusion that the purpose for which the clean bill of lading was given in this case was unlawful within the general principle set out above. The plaintiffs' rather haphazard belief that no one would be ultimately defrauded, though it affects their merits, does not in my view improve their legal position in this case.”

Lord Evershed MR dissented, saying at 649-650 (emphasis added):

“… even if we should conclude that the representation was made with such recklessness as to amount, in law, to the same thing as a representation made with the deliberate intention of deceiving, still I am not satisfied that it would be right to hold, or that any authority compels us to hold, that the proved circumstances were such that it would be contrary to public policy, contra bonos mores, to allow the plaintiffs to recover upon the contract of indemnity from the defendants. I have, I hope, sufficiently perused all the authorities, including those cited by my brother Morris. I have failed to find any case (apart from those involving immorality or public illegality) in which, upon the principle ex turpi causa non oritur actio, a plaintiff has been cast from the seat of judgment who has not been found personally dishonest. If there was a false statement deliberately made, it was made in accordance with a practice that was common and well known in the trade and with an intention that any consequences should be covered by their or their principals' liability to make compensation - in other words, in circumstances in which the plaintiffs, by reason of the current laxity in that respect, honestly believed would not damage anybody.”

Counsel for Apotex particularly relied on the sentence I have italicised. He submitted that what had divided the Court of Appeal was whether the claimants had acted with sufficient moral turpitude for the ex turpi causa rule to apply, that the effect of the majority decision was that it was sufficient that they had committed the tort of deceit and that nothing less in terms of moral culpability would do.

I am not persuaded by that argument. As counsel for Servier pointed out, Brown v Daltonwas another case in which the claimant’s illegal act was induced by the conduct of the defendant, although it differs fromBurrows v Rhodes and Strongman v Sincock in that the claimants were aware of true facts. Again, it does not follow from this decision that, in a case where the claimant’s illegal act was not induced by the defendant’s conduct, the ex turpi causa rule would only be engaged if the claimant’s act was a crime or involved moral turpitude. Furthermore, it is not clear to me what Lord Evershed MR meant by “public illegality”.

I considered Columbia Picture Industries Inc v Robinson [1987] Ch 38 in some detail in Lilly v 8PM at [282]-[286]. To recap, the key passage in the judgment of Scott J (as he then was) in that case for present purposes is the following passage at 87-88:

“The stock of video tapes at the Mill Street shop was, as I have concluded from the evidence in this case, composed largely of pirate tapes. It is true that a substantial number of the tapes were not copies of films in which any of the plaintiffs is entitled to copyright or an exclusive licence. Nonetheless, to the extent that the tapes were pirate tapes, they belonged, under section 18 of the Copyright Act 1956, to the owners of the copyright. Further, every sale of every video tape from the Mill Street shop of which evidence has been given in this case seems to have been the sale of a pirate tape. 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. Mr. Robinson will not of course suffer the fate of the highwayman, nor will Mr. Beveridge suffer the fate of his counsel.”

My analysis of this in Lilly v 8PM was as follows:

“285.

In my judgment counsel for the defendants is correct that Scott J was exercising his discretion not to enforce the cross-undertaking by ordering an inquiry as to damages, but instead by making a summary award essentially to compensate the defendants for the wrongful obtaining and execution of the Anton Piller order. This can be seen particularly clearly from his reasons in relation to the 8 Frederick Street business, which included the false evidence given by Mr Robinson.

286.

Nevertheless, it remains necessary to analyse the basis on which Scott J exercised his discretion, particularly so far as the Mill Street business was concerned. In my view, the basis of the decision was that virtually the entire business at Mill Street was unlawful in that it consisted of the sale or rental of video tapes which were pirate tapes, that is, infringing copies of films the copyrights in which were owned either by the plaintiffs or by other copyright owners. As counsel for the defendants pointed out, Scott J clearly regarded it as significant that, by virtue of section 18 of the 1956 Act, the pirate tapes belonged to the copyright owner and hence the defendants were guilty of conversion. It is difficult to believe that Scott J would have taken a different view of this had the Anton Piller order been set aside for material non-disclosure prior to trial and he had been hearing an inquiry under the cross-undertaking. This reading is supported by Scott J’s reference to the notorious case of Everet v Williams ….”

Counsel for Apotex accepted that Scott J had not rested his decision on the defendants’ dishonesty. He also accepted that no cases on the ex turpi causa rule had been cited to Scott J, and that it is by no means clear that the scope of that rule was the subject of argument before Scott J. He nevertheless submitted that Scott J’s decision was consistent with Apotex’s case on the basis that the Mill Street business was not merely unlawful, but dishonest. He made two points in support of this submission. First, he relied on the fact that, by virtue of section 18 of the Copyright Act 1956, the defendants were guilty of conversion. Secondly, he argued that video piracy amounted to theft of the copyright owner’s intellectual property.

I am unimpressed by the first point. Section 18 of the 1956 Act created a statutory fiction that infringing copies of copyright works were deemed to belong to the copyright owner. This gave rise to the remedy of conversion damages i.e. damages based on the whole value of the infringing article. It was a provision that often caused surprise even to lawyers and judges other than those who specialised in intellectual property law, let alone to lay people. By the time of Columbia v Robinson it had been widely criticised, and was generally recognised as being anomalous and ripe for repeal. It was duly repealed not long afterwards by the Copyright, Designs and Patents Act 1988. There is nothing in Scott J’s judgment to suggest that the defendants were aware that by virtue of section 18 pirate videotapes belonged to the copyright owners. The defendants did not need to be aware of that in order to commit the tort of conversion.

The second point is rather closer to the mark. It certainly reflects the approach which the Court of Appeal Criminal Division adopted with regard to the sentencing of persons convicted of criminal offences of video piracy under section 107 of the 1988 Act in its decision in R v Carter [1993] FSR 303, where Jowitt J delivering the judgment of the Court said at 304:

“… it is to be borne in mind that counterfeiting of video films is a serious offence. In effect to make and distribute pirate copies of films is to steal from the true owner of the copyright, the property for which he has to expend money in order to possess it. It is an offence really of dishonesty.”

I accept that Scott J’s decision is consistent with Apotex’s case if video piracy is regarded in the manner in which it was treated in R v Carter, but nevertheless I am not persuaded that Scott J’s reasoning supports Apotex’s case. I remain of the view that the basis of his decision was simply that virtually the entire business at Mill Street was unlawful.

I considered Tinsley v Milligan [1994] 1 AC 341 in some detail in Lilly v 8PM at [276]-[281]. For present purposes, what is significant is that Lord Goff of Chieveley (with whom Lord Keith of Kinkel agreed) at 361 and Lord Browne-Wilkinson (with whom Lord Jauncy of Tullichettle agreed) at 369 were agreed in holding that, as Lord Brown-Wilkinson put it,

“… the consequences of being a party to an illegal transaction cannot depend, as the majority of the Court of Appeal held, on such an imponderable factor as the extent to which the public conscience would be affronted by recognising rights created by illegal transaction.”

It seems to me that the contention the ex turpi causa rule is only engaged by acts involving moral turpitude faces a similar difficulty. I accept that the test of moral turpitude proposed by Apotex, namely dishonesty, is sufficiently certain to avoid that problem; but if dishonesty is not shown to be the test, what other criterion can the court apply? Focussing on the factors such as the claimant’s state of knowledge at the time of committing the act and the involvement of the defendant in the commission of the act appears to be me to provide a surer guide.

In United Project Consultants Pte Ltd v Leong Kwok Onn [2005] SGCA 38, [2005] 4 SLR 214 the defendant was the claimant’s auditor and tax agent and attended to the filing of the claimant’s income tax returns. He was also the managing director’s personal tax agent and filed his income tax returns. The claimant was required to pay the revenue a substantial penalty for failing to make proper returns in respect of fees paid to its directors. In essence, the claimant had declared fees as being due to the directors each year, only part of which it had paid and the remainder of which it had retained in a deposit account. In the tax forms issued to the directors the claimant had only declared the paid fees, but it had treated the whole of the fees as a deductible expense in its own tax returns. The effect of this was that neither the claimant nor the directors paid income on the retained fees. The claimant sued the defendant for breach of contract and/or negligence. The trial judge dismissed the claim. One ground upon which he did so was that the claim was barred by the ex turpi causa rule. The Singapore Court of Appeal allowed the appellant’s appeal. It held that the claim was not barred by the ex turpi causa rule for two reasons. First, because the nature of the claimant’s illegal act was not such as to engage the rule. Secondly, because the loss suffered by the claimant was exactly the kind of loss that the defendant was under a duty to prevent.

In relation to the first reason, Yong Pung How CJ delivering the judgment of the Court of Appeal said at [54]:

“What appears from the above discourse is that the illegality defence is commonly invoked where there is some form of culpability on the part of the plaintiff. In instances where the act of the plaintiff had been criminal, the illegality defence was readily invoked. The same was done where the conduct of the plaintiff was, at the time, considered morally reprehensible.”

He went on to hold at [57]:

“The conduct of the appellant, in committing a statutory offence, was not criminal in nature. Nor was it an act that could be classified as reprehensible or grossly immoral. In short, we were of the view that the appellant had not engaged in an act that was so culpable as to attract the application of the illegality defence.”

It appears from the judgment that, in saying that it was a “statutory” offence, he meant that it was an offence of strict liability, which did not involve either negligence or deliberate tax evasion on the part of the claimant.

This reasoning does provide some support for Apotex’s case in that it suggests that merely committing an offence of strict liability is not enough to engage the ex turpi causa rule. It does not, however, go so far as to suggest that dishonesty is required. As in Burrows v Rhodes and Strongman v Sincock, the key to the court’s reasoning is its assessment of the claimant’s knowledge at the relevant time and the involvement of the defendant in the commission of the illegal act. Furthermore, Yong Pung How CJ went on to say at [58] that, even assuming that the Court of Appeal was wrong in its conclusion that the illegality defence was of no application, it considered that the defence must fail for the second reason identified above. It follows that what the Court said about the first reason was obiter.

I considered Gray v Thames (cited above) in Lilly v 8PM at [267]-[268]. In that case Lord Phillips of Worth Matravers said at [5] that it was strongly arguable that the ex turpi causa rule would not apply in a case of an offender who had been detained under the Mental Health Act 1983 because of his mental condition rather than his offending behaviour. Lord Rodger of Earlsferry also reserved his position on this point at [83]. While inconclusive, these observations do lend some support to Apotex’s case in so far as they suggest that the seriousness of the illegality, or at least the culpability of the claimant, is a relevant factor in determining when the rule should apply.

In Stone & Rolls Ltd v Moore Stephens [2009] UKHL 39, [2009] 1 AC 1391 the claimant, which was owned, controlled and managed by a Mr Stojevic, employed the defendant firm of chartered accountants as its auditors. The company brought proceedings for damages for almost US$174m alleging that the auditors had been negligent in carrying out the audits in those years in failing to detect and prevent Mr Stojevic’s dishonest activities in procuring the company to engage in frauds on banks, in particular a Czech bank. The Czech bank had obtained judgment for substantial damages in its action for deceit against the company and Mr Stojevic. The company was unable to pay the damages and went into liquidation. The claimant’s claim was brought by its liquidators. The auditors applied to strike the claim out on the ground that it was barred by the ex turpi causa rule. The House of Lords held by a majority of 3 to 2 that the claim should be struck out. Even the majority (Lord Phillips of Worth Matravers, Lord Walker of Gestingthorpe and Lord Brown of Eaton-under-Heywood) were not unanimous in their reasoning.

Three members of the House touched on the present issue in the course of their opinions. Lord Phillips said:

“24.

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 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 [2005] 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. They are not, however, of general application to the defence of ex turpi causa.

25.

Although Tinsley v Milligan does not establish a general rule that if a claimant founds his claim on his own illegal conduct the defence of ex turpi causa will apply, earlier cases support this principle: Marles v Philip Trant & Sons Ltd [1954] 1 QB 29 and Archbolds (Freightage) Ltd v S Spanglett Ltd [1961] 1 QB 374. I do not believe, however, that it is right to proceed on the basis that the reliance test can automatically be applied as a rule of thumb. It is necessary to give consideration to the policy underlying ex turpi causa in order to decide whether this defence is bound to defeat S & R's claim. As Lord Hoffmann recently remarked in Gray v Thames Trains Ltd [2009] 1 AC 1339, para 30:

‘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.’

26.

The policy underlying ex turpi causa was explained by Lord Mansfield CJ in 1775 in Holman v Johnson 1 Cowp 341, 343 …The policy can be subdivided into two principles in relation to contractual obligations. (i) The court will not enforce a contract which is expressly or impliedly forbidden by statute or that is entered into with the intention of committing an illegal act. (ii) The court will not assist a claimant to recover a benefit from his own wrongdoing. This extends to claims for compensation or an indemnity in respect of the adverse consequences of the wrongdoing: see Beresford v Royal Insurance Co Ltd [1938] AC 586. It is the second principle that is in play on this appeal.

27.

The two qualifications recognised by Mr Sumption apply in respect of the second but not the first principle. Thus they apply to the type of claim with which your Lordships are concerned. S & R are not seeking to enforce an illegal agreement. They are seeking compensation for the adverse consequences of having engaged in unlawful conduct. A number of authorities to which we have been referred support Mr Sumption's acceptance that in these circumstances the defence of ex turpi causa will only apply where the claimant was personally at fault and thus where his responsibility for wrongdoing was primary rather than vicarious: Burrows v Rhodes [1899] 1 QB 816; Hardy v Motor Insurers' Bureau [1964] 2 QB 745, 760; Lancashire County Council v Municipal Mutual Insurance Ltd [1997] QB 897, 908 and United Project Consultants Pte Ltd v Leong Kwok Onn [2005] 4 SLR 214. …”

Lord Walker said:

“179.

Checking for fraud is part of an auditor's task, but it is not his sole or primary task (for a reputable auditor to discover that the client company's business is wholly fraudulent and criminal must be quite unusual). But suppose for the sake of argument that a trader engages an accountant for the primary and express purpose of preparing financial statements that comply with all the requirements of company law and tax law, so that the lawfulness of the financial statements is the very thing that the accountant undertakes to do; and suppose that the accountant negligently fails to perform this task, and the trader is in consequence liable to some penalty or criminal sanction. Could the accountant meet a claim for professional negligence by pleading the ex turpi causa defence? It is obviously impossible to answer that question without knowing more about the facts. If the trader had honestly supplied information which he believed to be correct and complete, and the accountant had negligently failed to notice that the information could not be correct and complete, it seems unlikely that such a regulatory breach, not involving dishonesty, would bring the ex turpi causa principle into play.

180.

That seems to have been the principle of the decision of the Court of Appeal of Singapore in United Project Consultants Pte Ltd v Leong Kwok Onn [2005] 4 SLR 214, paras 55–57, where the claimant trading company had been fined for incorrect tax returns prepared by the defendant. … ”

Lord Mance said at [219]:

“... Mr Sumption accepts that whether there is iniquity sufficient to trigger the maxim may sometimes require careful examination of the facts (see eg Burrows v Rhodes [1899] 1 QB 816 and United Project Consultants Pte Ltd v Leong Kwok Onn [2005] 4 SLR 214), but Mr Stojevic's iniquity is not here in doubt. ... ”

As counsel for Servier pointed out, all of these statements are obiter since in that case there was no dispute that Mr Stojevic had been dishonest and had caused the claimant to commit fraud. Nevertheless these statements are entitled to great respect given that they represent the considered opinion of three members of the House of Lords. In my view they again provide some support for Apotex’s case in that they suggest that merely committing an offence of strict liability is not enough to engage the ex turpi causa rule. Again, however, they do not go so far as to suggest that dishonesty is required, notwithstanding Lord Walker’s passing reference to dishonesty at [179]. Again, they support the view that what matters is the claimant’s state of knowledge at the relevant time.

In Nayyar v Denton Wilde Sapte [2009] EWHC 3218 (QB), [2010] Lloyd’s Rep PN 139the claimants were involved in the travel business in England. The second defendant was an Indian-qualified solicitor employed by the first defendant firm. In 2002 the second defendant told the claimants of an opportunity to be appointed the UK and Ireland general sales agent for Air India, and for this purpose introduced them to Y, a well-connected Indian official. At the instigation of the second defendant, the claimants paid the rupee equivalent of £13,000 in cash to Y’s assistant and transferred £370,000 to a Virgin Islands company, both payments towards a supposed “deposit” of £400,000. Although the agency should have been issued to the claimants within 72 hours of payment of the deposit, it was never issued and the claimants’ money was lost. The claimants sued the first defendant for the lost £383,000. They alleged that the second defendant’s activities had fallen within the scope of her employment, and that in the course of that employment she had made negligent misrepresentations or otherwise acted negligently, and had breached her fiduciary obligations. In addition, they claimed against the second defendant personally on the same basis. Both defendants contended that the claim against them should be rejected on public policy grounds, since the £383,000 payment the subject of the claim had been in effect a bribe to Y to secure the Air India agency.

Hamblen J held that the claimants’ claim was barred by the ex turpi causa rule. His reasons for so deciding can be seen from the following passages in his judgment:

“91.

An issue of potential importance in the present case is whether an attempted civil law bribe is sufficient to engage the principle of ex turpi causa, or whether it is necessary to prove an actual bribe.

92.

In principle it would seem that an attempt should be sufficient to do so, and the contrary was not strongly argued. It involves an act which is more than preparatory which is done with the intent to bribe. As appears from Lord Mansfield’s statement of policy in Holman v Johnson, the principle of ex turpi causacan extend to immoral as well as illegal acts and may apply to improper conduct evincing serious moral turpitude. Bribery involves serious moral turpitude. The moral turpitude involved on the part of the briber is much the same in the case of an attempted bribe as it is in the case of an actual bribe. That that involves sufficient turpitude to bring in to play the principle of ex turpi causa is borne out by the approach of the criminal law.

…

118.

… for reasons set out above I consider that proof of a payment which is intended to be a civil law bribe is sufficient to engage the ex turpi causa principle. It is not necessary to establish that the intended illegal purpose has been effectively carried out.

119.

In the above circumstances it is not necessary to decide whether, on my findings, there has been a breach of the criminal law. …”

This is another case in which the actual decision is broadly consistent with Apotex’s case; but in my view Hamblen J’s reasoning does not support the proposition that moral turpitude amounting to dishonesty is required in order for the ex turpi causa rule to be engaged unless the claimant’s act was criminal.

In Safeway Stores Ltd v Twigger [2010] EWCA Civ 1472 the Office of Fair Trading had alleged that a number of major supermarkets, including the claimant, had breached the prohibition on anti-competitive practices contained in section 2(1) of the Competition Act 1998 by exchanging commercially sensitive retail pricing information. The claimant had admitted the breach of the section 2(1) prohibition and had become liable to pay a substantial penalty. The claimant brought a claim against some of its former directors and employees for taking part in the anti-competitive activities, seeking an indemnity for the penalty and the costs of the OFT investigation. The directors and employees applied for an order that the claim be struck out or, alternatively, that summary judgment be given against the claimant, on the basis that the claim was barred as a matter of public policy because the claimant was seeking an indemnity for a liability resulting from an unlawful act.

At first instance Flaux J [2010] EWHC 11 (Comm), [2010] Bus LR 974 dismissed the applications, holding that the claimant had a real prospect of success of defeating any defence based on the ex turpi causa at trial. As he recorded at [18], the defendants accepted that, in order for the ex turpi causa rule to apply, the claimant must have committed an illegal or unlawful act of sufficient seriousness.

When considering whether a breach of section 2(1) of the 1998 Act was sufficiently serious for this purpose, Flaux J said:

“24.

Whilst the public policy which lies behind the rule will be engaged where the relevant wrongful act of the claimant on which the claimant relies in bringing the claim is a crime, the rule is not limited to criminal acts. This principle was clearly stated by Kennedy J in Burrows v Rhodes [1899] 1 QB 816 at 828 (in a passage approved by Lord Wrenbury in Weld-Blundell v Stephens [1920] AC 956 at 997):

‘It has, I think, long been settled law that if an act is manifestly unlawful, or the doer of it knows it to be unlawful, as constituting either a civil wrong or a criminal offence, he cannot maintain an action for contribution or for an indemnity against the liability which results to him therefrom.’

25.

The difficulty is in deciding what acts which are not criminal are unlawful in that sense so as to engage the rule. Obviously, in the context of civil wrongs and the law of tort generally, the mere fact that the claimant has been found to be negligent cannot preclude a claim over against a third party said to be liable for the same damage.Were it otherwise, the whole scheme of contribution or indemnity now contained in the Civil Liability (Contribution) Act 1978 would be subverted. Something more serious is required.

26.

The claimants submitted that before the rule is engaged in the non-criminal context, the conduct of the claimant must be considered ‘morally reprehensible’ or involve what might be called moral turpitude. The phrase ‘morally reprehensible’ derives from the decision of the Singapore Court of Appeal in United Project Consultants Pte Ltd v Leong Kwok Onn [2005] 4 SLR 214, upon which the claimants relied in support of their submissions. To the extent that that case proceeds on the basis that there are only two strands of case in English law where the illegality defence has been invoked in a non-criminal context (claims by dependents of those who committed suicide in police custody and claims where the conduct is immoral) that is almost certainly too narrow an approach. However, I accept the underlying principle enunciated in United Project Consultants, that before the ex turpi causa rule can apply, there must be an element of moral turpitude or moral reprehensibility involved in the relevant conduct.”

He went on to hold that the breach of section 2(1) was sufficiently serious to engage the rule for three reasons, one of which was that section 36(3) of the 1998 Act provided that a penalty could only be imposed where the OFT was satisfied that the infringement had been committed intentionally or negligently. He nevertheless held that it was arguable that the rule did not apply because the unlawful act was not one for which the company was primarily liable, but merely one for which it was vicariously liable.

The Court of Appeal allowed the defendants’ appeal. The leading judgment was given by Longmore LJ, with whom Lloyd LJ agreed and Pill LJ concurred. In his judgment Longmore LJ said:

“16.

Although the maxim goes back at least as far as the judgment of Lord Mansfield CJ in Holman v Johnson (1775) 1 Cowp. 341, its modern application dates from Tinsley v Milligan [1994] AC 340, which held, overruling Euro-Diam v Bathurst [1990] 1 QB1, that the courts had no discretion in relation to the maxim. The modern law has now culminated in Gray v Thames Trains Ltd [2009] 1 AC 1339 when Lord Hoffmann said (para 30) that it expressed not so much a principle as a policy and that it was a rule which may be stated in a narrower form and a wider form (para 32). In its narrower form it is that a claimant cannot recover for damage which is the consequence of a sentence imposed upon him for a criminal act; in its wider version it is that a claimant may not recover for damage which is the consequence of his own criminal act. Both versions of the rule are often in play as they are in the present case because it is said that recovery of the penalty likely to be imposed by the OFT is recovery for the consequence of a sentence for the criminal (or quasi – criminal) act of entering into an illegal agreement, whereas recovery of the costs of the OFT investigation is recovery for the consequences of making the illegal agreement. The main difference between the application of the two forms of the rule appears to be that there is no question of any causation problem in the application of the narrower version whereas difficult problems of causation may (in theory) arise if it is only the broader version of the rule on which reliance can be placed (para 51). The rationale of the maxim is the need for the criminal courts and the civil courts to speak with a consistent voice. It would be inconsistent for a claimant to be criminally and personally liable (or liable to pay penalties to a regulator such as the OFT) but for the same claimant to say to a civil court that he is not personally answerable for that conduct.

17.

Most of the cases, in which the maxim has been applied to criminal or illegal acts and their consequences, have been cases in which the crime or other illegal act has involved a mental element. …

18.

It has not been expressly decided whether the maxim (in either its narrower or wider version) applies where the criminal act is one of strict liability and the claimant may not have been at fault at all. The closest case is Askey v Golden Wine Co Ltd [1948] 2 All ER 35 in which Mr Askey had been convicted of offences under the then applicable Food and Drugs legislation and was held to be unable to recover an indemnity for the consequences of his punishment but it was clear that Mr Askey had in fact acted intentionally or in a criminally negligent way. The problem of strict liability offences need not, however, concern the court in this case because section 31(3) of the Act makes it clear that the OFT may only impose a penalty if is satisfied that the infringement

‘has been committed intentionally or negligently by the undertaking.’

We must therefore proceed on the basis that Safeway is attempting to recover damages for the consequences of an infringement committed intentionally or negligently.”

It is clear from this that the Court of Appeal agreed with Flaux J that a breach of section 2(1) of the 1998 Act engaged the ex turpi causa rule; but it is also clear that the Court did not decide whether or not the rule was engaged where there had been a criminal offence of strict liability which did not involve fault on the part of the claimant. The Court of Appeal went on to differ from Flaux J in holding that the claimant itself had committed the breach and therefore the rule applied.

In my judgment Safeway v Trigger is authority for the proposition that a quasi-criminal act committed intentionally or negligently is sufficiently serious to engage the ex turpi causa rule; but it leaves open the question of whether the rule may be engaged by acts which do not involve moral turpitude, and in particular offences or torts of strict liability. It certainly does not support the proposition that dishonesty is required.

The main conclusion which I draw from this survey of the cases cited to me is that they confirm that the application of the ex turpi causa rule depends on the circumstances of the case. Significant factors include the knowledge of the claimant at the relevant time, whether the illegality involved intentional or negligent conduct on the part of the claimant and whether the commission of the illegal act was induced by the defendant. It appears from dicta in a number of these cases that it may not be sufficient that the act was criminal if the offence was one of strict liability and the claimant was unaware of the relevant facts. Equally, mere negligence is unlikely to be enough in the circumstances of a claim for contribution or indemnity against another tortfeasor.

In my judgment none of these authorities establishes that, in the case of acts which are tortious rather than criminal, the rule only applies if the acts involve dishonesty. Furthermore, I consider that such a limitation would not properly reflect the policy considerations which underlie the rule. I accept that there will be situations in which the tort is not sufficiently serious to engage the rule, but what degree of seriousness is sufficient will depend on the circumstances of the case. In my view 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. If the claimant knew the material facts, and particularly if he committed the act in question intentionally, then the rule is likely to apply.

In the present case it is important to bear in mind that I am concerned with the court’s equitable jurisdiction to enforce a cross-undertaking in damages. I considered the general principles applicable to this jurisdiction in Lilly v 8PM at [8]-[21]. As explained there, the purpose of a cross-undertaking is to ensure that the parties affected by the grant of an interim injunction are compensated if it later turns out that the injunction was wrongly granted. Nevertheless, it is well established that the court has a discretion to refuse to order an inquiry under a cross-undertaking even if the injunction is discharged. In the present case an inquiry has already been ordered and undertaken, and Servier does not contend that an order for payment of the compensation Norris J found due should be refused on purely discretionary grounds. Nevertheless, the fact that the court has a discretion to refuse to order an inquiry casts lights on the nature of the jurisdiction. 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.

In the light of the foregoing discussion, I conclude that the principle which I stated in Lilly v 8PM at [287] and which is quoted in paragraph 47 above requires qualification in at least one, and possibly two, ways. The first qualification is that the unlawfulness must be sufficiently serious to engage the ex turpi causa rule. What is sufficiently serious depends on the circumstances of the case, and in particular the state of knowledge of the claimant under the cross-undertaking at the relevant time; but the claimant’s conduct must be assessed having regard to the fact that the claim is for compensation under a cross-undertaking. The second possible qualification is that the unlawfulness must be personal to the claimant, not vicarious; but it is not necessary to decide this for present purposes.

In my judgment, Apotex’s claim in the present case involves sufficiently serious unlawfulness to engage the ex turpi causa rule for the following reasons. For convenience, I shall express these reasons in terms of what Apotex actually knew and did during the relevant period, although strictly speaking the question is what Apotex would have known and would have done in the hypothetical scenario postulated by Apotex in support of its claim.

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.

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.

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.

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.

In Lilly v 8PM I held that the ex turpi causa rule applied where the beneficiary of the cross-undertaking has to rely to a substantial extent upon his own illegality in order to establish the loss claimed. I derived this test from Tinsley v Milligan, Hewison v Meridian Shipping Services PTE Ltd [2002] EWCA 1821, [2003] ICR 766 and Columbia v Robinson. Both Lord Hoffmann in Gray v Thames and Lord Phillips in Stone & Rolls have warned against a mechanical application of the reliance test when considering the application of the ex turpi causa rule. As the foregoing discussion shows, there may be circumstances in which reliance upon an unlawful act is not sufficient for the rule to apply. Nevertheless, in the context of claims under cross-undertakings in damages, I adhere to the view that it is necessary for the rule to apply that there be substantial reliance upon an unlawful act.

In Lilly v 8PM I held that the claim was not barred by public policy for the following reasons:

“289.

First, I do not regard the defendants’ business as an unlawful one. It is beyond dispute that it was lawful so far as English law is concerned. As to US law, as already stated the claimants do not now contend that US law has extra-territorial effect so as to make the defendants’ acts in this country illegal. In my view, the fact that the defendants’ business resulted in illegal acts being committed by others in the USA is not sufficient to make that business itself unlawful.

290.

Secondly, in my judgment the defendants do not have to rely upon their own illegality in order to establish their loss, and certainly not in a substantial way. They simply rely upon (i) the purchase of pharmaceuticals in Turkey, (ii) importation of those products into the United Kingdom, transhipment and export under IPR and (iii) sale of the drugs to CanadaDrugs upon terms that title and risk passed at the point where Royal Mail collected the goods from 8PM. None of these acts were illegal. It is the claimants who seek to rely upon the illegal acts of importation into the USA by others as an answer to the claim.

291.

Thirdly, even if the defendants’ business is regarded as having depended upon the commission of illegal acts by others in the USA, by the date of the injunction it was an established business with a valuable goodwill. That business, and in particular the goodwill, was property which could have been sold to a third party. (Indeed, as already noted, Ms Gutteridge’s approach to valuing the lost business was essentially to consider what would be paid for it by a purchaser.) The defendants’ claim is for the loss of that business, and thus may be viewed as a claim for the loss of that property. It is difficult to see why, following Tinsley v Milligan, that loss should be irrecoverable.”

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.

In my judgment Servier is right to say that the present case is to be distinguished from Lilly v 8PM on this point. As set out above, 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 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. That was not true of the defendants’ claim in Lilly v 8PM.

If, as Lord Hoffmann suggested in Gray v Thames, one treats the question as one of causation, Lilly v 8PM was a case where the illegal acts of third parties provided the occasion for the loss, but the loss was caused by the injunctions. By contrast, 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).

Finally, I would add that the third reason I gave in Lilly v 8PM does not apply on the facts of the present case. At the date of Mann’s J’s first injunction, Apotex’s UK business of importing and selling perindopril erbumine was not an established one. On the contrary, it was only a few days old. It would be difficult to say that it had generated a valuable goodwill. Furthermore, Apotex does not claim for loss of that business and has not attempted to quantify its claim in that way.

Apotex’s final argument relies upon a further reason which I gave in Lilly v 8PM for rejecting the claimants’ illegality defence:

“296.

Thirdly, the Defendants contend that the Claimants are estopped from raising illegality as a bar to the recovery of loss under the cross-undertaking. This is said to be an estoppel by convention, but I am not persuaded that there was any relevant common assumption at the hearing before Mann J. On the other hand, the Defendants’ case under this head can be analysed as one of estoppel by representation.

297.

In short, the Defendants say that:

i)

Lilly expressly contended through the evidence of its witness Mr Longbottom and through the submissions of counsel that the importation of pharmaceuticals into the USA was illegal;

ii)

nevertheless, Lilly also expressly represented through the evidence of its witness Mr Longbottom and through the submissions of counsel that the Defendants could be adequately compensated by an award of damages under the cross-undertaking if the injunction sought by Lilly was wrongly granted;

iii)

Lilly did not suggest that recovery under the cross-undertaking would be barred as a consequence of the illegality, and accordingly impliedly represented that it would not be barred;

iv)

the defendants relied upon that implied representation by not arguing that a bar on recovery under cross-undertaking showed that the balance of convenience favoured refusal of the injunction;

v)

Mann J relied upon that implied representation by holding, in particular at [77], that, to the extent that the defendants’ business was lost, “that is something that sounds in damages”; and

vi)

by seeking similar injunctions following Mann J’s judgment, having been present at the hearing, the other claimants adopted the same position.

298.

In my view, this argument has force. If necessary, I would accede to it. Nevertheless, it seems to me that the argument fits more comfortably under the next heading rather than attempting to shoehorn it into a case of estoppel by representation.

299.

Fourthly, the defendants rely upon the principle articulated by Sir Nicholas Browne-Wilkinson V-C (as he then was) in Express Newspapers plc v News (UK) Ltd [1990] 1 WLR 1320 at 1329:

‘There is a principle of law of general application that it is not possible to approbate and reprobate. That means you are not allowed to blow hot and cold in the attitude that you adopt. A man cannot adopt 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 and inconsistent stance.’

In that case he applied this principle by holding that it was not open to the plaintiff to advance inconsistent cases on the claim and counterclaim which to all intents and purposes were mirror images of each other.

300.

In my judgment this principle is applicable to the present situation. Lilly persuaded Mann J to grant an interim injunction on the basis that the damage to the defendants’ business could be adequately compensated by an award under the cross-undertaking even though Lilly was contending that importation into the USA was illegal. The other claimants subsequently adopted the same stance in obtaining piggy-back injunctions. It is quite inconsistent with that stance for the claimants to turn around after the injunctions have been discharged and say such compensation is irrecoverable as a matter of law by virtue of that illegality.

301.

The claimants rely upon the fact that the extent of the illegality was in dispute before Mann J, as shown by his judgment at [44], and will only finally be resolved by this judgment. In my view that is immaterial, since it does not affect the inconsistency in the stances adopted by the claimants.

302.

The claimants also say that Mann J would have been bound to follow the same course even if he had known that the claimants were going to rely on illegality as a bar to recovery. In my view this cannot be assumed. In those circumstances Mann J would have been faced with quite a different balance to weigh, and might well have reached a different conclusion. I do not go so far as to say that he would inevitably have refused the injunction. Conceivably, he might still have granted it. But it would certainly have affected his reasoning. Moreover, the possibility that Mann J might still have granted the injunction does not excuse the inconsistency in the stances adopted by the claimants.”

As counsel for Servier pointed out, these statements were obiter. Furthermore, the reasoning was founded on the very particular facts of that case. He submitted that the present case is to be distinguished from that case. I accept that submission for the following reasons.

Unlike in Lilly v 8PM, Servier made no representation to Mann J either in its evidence or in the submissions of counsel to the effect that manufacture of perindopril erbumine by Apotex in Canada was illegal. It did not even draw to his attention the fact that it owned the Canadian Patent, let alone assert that Apotex was infringing that patent, let alone point out that Apotex would infringe that patent even if the European Patent was invalid.

Counsel for Apotex sought to meet this point by arguing that (i) Servier knew at the time of the hearings before Mann J that Apotex was manufacturing the product alleged to infringe the European Patent in Canada, and (ii) given that it had that knowledge and nevertheless gave unqualified cross-undertakings in damages, Servier’s present reliance on the ex turpi causa rule amounted to approbating and reprobating.

So far as the first limb of this argument is concerned, there is no direct evidence before me as to Servier’s state of knowledge. It must be inferred from the facts I have set out above. On that basis, I find that:

Turning to the second limb, counsel for Apotex pointed out that Servier’s cross-undertakings were not subject to a qualification or proviso that it would not apply to losses sustained by Apotex as a result of acts which were subsequently held by the Canadian courts to infringe the Canadian Patent. He therefore argued that it was inconsistent with that for Servier now to argue that Apotex’s claim to recover such losses was barred by the ex turpi causa rule. I do not accept that argument for the following reasons.

First, I do not accept that Servier’s cross-undertakings were unqualified. On the contrary, they were undertakings to compensate Apotex only if and in so far as the court decided that Apotex should be compensated. Those undertakings cannot be interpreted as amounting to, or including, a self-denying ordinance on the part of Servier that it would not rely on any proper objections to any claim by Apotex in the event of an inquiry under the cross-undertakings. Thus there would have been nothing to stop Servier arguing, for example, that particular heads of loss claimed by Apotex were too remote or that Apotex had failed to mitigate its loss. (For the avoidance of doubt, in saying this I am not purporting to decide the questions raised, and not answered, in Lilly v 8PM at [42]-[43].) I see no reason why Servier should not equally rely on the ex turpi causa rule.

The position was different in Lilly v 8PM because in that case the claimants positively asserted to Mann J when applying for the injunctions both that the importation of the drugs into the USA was illegal and that the defendants could be adequately compensated by an award of damages under the cross-undertaking if the injunctions were wrongly granted.

Secondly, let it be supposed that Servier had offered Mann J cross-undertakings qualified in the manner set out in paragraph 112 above. In my judgment that would have had no effect on the exercise of his discretion to grant the injunctions. The qualification would only have prevented the cross-undertaking applying to losses sustained as a result of acts by the party sought to be restrained which were held by a court of competent jurisdiction to infringe a valid foreign patent, and thus were unlawful under the law applicable to those acts. The same policy considerations which underlie the ex turpi causa rule would lead to the conclusion that such losses should not weigh in the balance when deciding whether or not to grant an interim injunction.

This point can be illustrated by imagining that on 3 August 2006 Servier had obtained an interim injunction in Canada restraining Apotex from manufacturing and exporting perindopril erbumine and that that injunction had been subsequently been continued until judgment in the Canadian proceedings. One can be confident that Apotex, as a law-abiding group of companies, would have abided by that injunction. But in those circumstances Apotex would not have been able to manufacture perindopril erbumine in Canada for sale in the United Kingdom, and would not have suffered any loss as a result of the injunctions granted by Mann J. Furthermore, given that the Canadian courts held that Apotex had infringed the Canadian Patent, Apotex would have no claim under the Canadian cross-undertaking in damages in those circumstances. Why should the facts that Servier did not apply for interlocutory injunction in Canada until 8 November 2006 and Snider J refused to grant Servier an interlocutory injunction mean that Apotex is entitled to recover damages under the cross-undertaking in this country?

The position in Lilly v 8PM was different because (i) the claimants were relying upon the illegality of third parties and (ii) the defendants would have argued that any claim by them under the cross-undertaking would not rely to a substantial extent upon such illegality. Had the matter been raised before Mann J on the application by Lilly for an injunction, I think he would have found it difficult to come to a clear view one way or the other given the limited state of the evidence before him and the limited scope for argument at such a hearing. Therefore he would have been faced with a situation where it was arguable both that illegality would be a bar to recovery and that it would not. That is why I said at [302] that it could not be assumed that he would still have granted the injunction, although he might have. By contrast, the scenario postulated in paragraph 115 above would have presented him in this case with a short and clear-cut issue of principle suitable for decision even on an application for an interim injunction.

For these reasons I conclude that Apotex’s claim is barred by the ex turpi causa rule. It follows that Apotex must repay Servier the money which Norris J ordered Servier to pay Apotex. I will hear counsel as to the appropriate form of order.