Smithkline Beecham Plc Glaxosmithkline UK Ltd & Ors v Apotex Europe Ltd & Ors

Factual and Procedural Background

The case involves an appeal and cross-appeal from a judgment of Lewison J dated 26th July 2005 concerning patent infringement and validity related to a patented process for making paroxetine hydrochloride, sold by the Respondents under a well-known trademark. The Respondents were the owners and exclusive licensees of the patent. The Defendants, three English companies, intended to sell paroxetine hydrochloride in the UK, to be manufactured in Canada by related Canadian companies that were not parties to the original proceedings.

The Defendants initiated proceedings seeking revocation of the patent, to which the Respondents replied with an infringement action and an application for an interim injunction. The two actions were consolidated effectively into an infringement action with counterclaims. Interim injunctions were granted, accompanied by cross-undertakings in damages by the Respondents. The Canadian companies later sought to be joined as defendants retrospectively to claim under the cross-undertaking, which was resisted.

Subsequent procedural irregularities occurred, including service of draft pleadings naming the Canadian companies as claimants under the cross-undertaking without permission. The court refused preliminary determinations on certain points and ordered further pleadings and inquiries, which became stayed pending joinder applications. On appeal, the patent was held valid but not infringed, leaving the cross-undertaking enforceable.

Lewison J eventually ruled against the Defendants and Canadian companies on most points except estoppel, which was allowed to proceed to trial. The Canadian companies ceased to be parties after declining to appeal decisions on joinder and slip rule applications. The appeals before the court focused on the claims in restitution and third party loss, with the Respondents cross-appealing the estoppel point.

Legal Issues Presented

1. Whether the cross-undertakings in damages could or should be amended under the slip rule.
2. Whether the Canadian companies could claim losses under the cross-undertakings by estoppel.
3. Whether the Canadian companies had a viable claim in restitution for profits gained by the Respondents as a result of the "wrongful" interim injunction.
4. Whether the Defendants could claim losses suffered by the Canadian companies as third party losses under the cross-undertaking.
5. Whether the Canadian companies could be joined retrospectively as defendants to benefit from the cross-undertaking.

Arguments of the Parties

Appellants' Arguments

• The Canadian companies argued for a claim in restitution, asserting that the Respondents made profits they would not have otherwise made but for the injunction, and that these profits were unjustly gained at the Canadian companies' expense.
• They contended that the injunction deprived them of a business opportunity, which should be treated as quasi-property, entitling them to restitution.
• They relied on the Israeli Supreme Court decision in Palimport v Ciba-Geigy to support their restitution claim.
• They argued that the Defendants could recover losses suffered by the Canadian companies as third party losses under the cross-undertaking.
• They asserted estoppel by representation and estoppel by convention, claiming the Respondents had represented or assumed that the Canadian companies were parties to the cross-undertaking and proceedings.
• They suggested policy reasons favoring restitution claims over cross-undertakings, including certainty of liability and limiting exposure to the "pot" of profits gained.

Respondents' Arguments

• The Respondents argued that no claim in restitution could lie for non-parties to the proceedings, as English law requires a claim to be based on property or its fruits, which a mere business opportunity is not.
• They submitted that the cross-undertaking was given only to the Defendants and could not be extended to non-parties, especially not retrospectively.
• They contended that estoppel could not be used to extend or alter the scope of a court order or create legal relationships where none existed.
• They argued that the third party loss claim failed because there was no contract between the parties covering such losses, and the principles from cases on privity of contract did not support such claims.
• They maintained that the pleaded estoppel lacked the necessary unequivocal and unambiguous representation or common assumption and was therefore unsustainable.
• The Respondents also emphasized the procedural irregularities and absence of permission for pleadings involving the Canadian companies.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Hoffmann-La Roche v Secretary of State [1975] AC 295	Foundation of cross-undertakings in damages as a condition for granting interlocutory injunctions.	Confirmed that cross-undertakings protect defendants from losses due to "wrongful" injunctions; no claim for damages arises without breach.
American Cyanamid v Ethicon [1975] AC 296	Principles for granting interim injunctions and assessing balance of convenience.	Used to explain the discretionary nature of injunctions and the need for cross-undertakings.
Linden Gardens v Lenesta Sludge [1994] 1 AC 85	Exception to privity of contract allowing recovery of third party losses in certain circumstances.	Rejected as a basis for extending cross-undertaking liability to third party losses here.
Alfred McAlpine v Panatown [2001] 1 AC 518	Limits on claims for damages by third parties under contract principles.	Supported rejection of third party loss claims by Defendants for Canadian companies' losses.
Rodger v Comptoir d'Escompte de Paris (1871) LR 3 PC 465	Restitution principle requiring return of money and interest when judgment reversed.	Distinguished as not supporting a broad restitution claim for non-parties or business opportunities.
National Australia Bank v Bond Brewing Holdings [1991] 1 VR 386	Rejection of general restitution claims for losses caused by wrongful court orders without cross-undertakings.	Followed to reject restitution claims here.
Greenwood County v Duke Power (1939) 107 F(2d) 484	US authority rejecting restitution claims for profits gained due to wrongful injunctions.	Relied upon to demonstrate international consensus against broad restitution claims in such contexts.
Berkeley Administration v McClelland [1996] I.L.Pr 772	No group claim for benefit of cross-undertakings by non-subject members.	Confirmed limits on who can claim under cross-undertakings.
Lloyd's Rep cases on estoppel (The August Leonhardt [1985] 2 Lloyd's Rep. 28; The Vistafjord [1988] 2 Lloyd's Rep. 343)	Requirements for estoppel by representation and estoppel by convention.	Applied to assess the pleaded estoppel and found insufficient evidence of unequivocal representation or common assumption.
Republic of India v India Steamship (No.2) [1998] AC 878	Clarification of estoppel by convention requiring communication of assumption.	Used to support the conclusion that the pleaded estoppel was not established.

Court's Reasoning and Analysis

The court began by clarifying the nature and purpose of cross-undertakings in damages, emphasizing their role as a safeguard for defendants against losses caused by interlocutory injunctions granted before final judgment. It stressed that such undertakings are given to the court, not directly to parties, and cannot be imposed on a claimant unwillingly.

The court rejected the restitution claim advanced by the Canadian companies, holding that English law does not recognize a general restitutionary claim by non-parties for profits gained by a "wrongful" injunction. The court noted that restitution requires the transfer of property or its fruits, and a mere business opportunity does not qualify as property. The Israeli case cited by the appellants was distinguished on the basis of differing statutory context and legal principles.

The court further reasoned that allowing such claims would create practical and conceptual difficulties, such as multiple claims to a limited pot of profits and uncertain apportionment principles, effectively converting restitution claims into damages claims, which are not permitted in this context.

Regarding the third party loss claim, the court held that the cross-undertaking cannot be extended to cover losses suffered by third parties not named in the undertaking, as there is no contract between the parties to support such claims. The principles from Linden Gardens and Panatown were considered but found inapplicable to extend liability for third party losses here.

On the estoppel issue, the court analyzed the pleaded estoppel claims and concluded that the necessary unambiguous and unequivocal representations or common assumptions were not established. It emphasized that estoppel cannot be used to create or expand legal relationships or alter the scope of court orders. The court also rejected the notion that estoppel could operate as a "sword" to found a claim rather than a "shield" to defend one.

The court found that the documents relied upon by the appellants did not unequivocally support the estoppel claims and that the procedural irregularities and lack of formal joinder further weakened their position. It held that the judge was wrong to refuse strike out on the basis of a mini-trial, as the issue was purely legal and suitable for summary determination.

Overall, the court dismissed the appeals but allowed the cross-appeal by the Respondents, refusing the Canadian companies' claims on their own behalf.

Holding and Implications

The court's final decision was to DISMISS THE APPEALS brought by the Canadian companies and Defendants, and to ALLOW THE CROSS-APPEAL by the Respondents. The Canadian companies' claims in restitution and for third party losses under the cross-undertaking were struck out, and their application to advance claims on their own behalf was refused.

The estoppel claim was held to lack sufficient legal foundation and was not sustained.

The direct effect of this decision is that cross-undertakings in damages remain confined to the parties named in the injunction proceedings, and no general restitutionary or third party loss claims by non-parties will be recognized in this context under English law. No new precedent was established beyond reaffirming existing principles limiting the scope of cross-undertakings and restitutionary claims.