Research Misconduct: Limitation Clauses Effective for Fraud

A recent case has important implications for universities undertaking research under contract. The High Court held that parties are able to rely on contractual exclusions or limitations of liability even where an employee breaches that contract through fraud. Further, the High Court found that the publication of an academic journal article fell under the contracted services with the consequence that failure to take all reasonable care to ensure its accuracy resulted in a breach of contract.

In Innovate Pharmaceuticals Ltd v University of Portsmouth Higher Education Corporation [2024] EWHC 35 (TCC), the University of Portsmouth were found liable to Innovate for £1 million in damages for breach of contract.

The Background

The parties entered into a research contract with a third party charity who were not a party to the subsequent case. Innovate would provide part-funding and a study drug for which they held a patent while the University would undertake the research project. Innovate’s interest was to demonstrate that the patented drug, a novel form of liquid aspirin, had applications for treatment of brain tumours.

Several issues plagued the research project delivery, including issues with the University’s subcontractors. The University continued experiments and eventually published an academic journal article in a prestigious journal, Cancer Letters. Errors were discovered with the paper which was initially the subject of a corrigendum (which noted a correction but stated that this did not change the underlying findings of the article). The paper was later retracted by the journal having been notified that the University had made a finding of research misconduct in relation to the research project.

Innovate claimed that the University had breached an explicit duty in the contract to ‘use all reasonable skill and care to ensure the accuracy of the work performed’ and claimed damages to re-run the research project and for diminution of value in their patent due to the time lost.

Scope of Work and Breach of Contract

The Supply of Goods and Services Act 1982 implies into contracts for the supply of services a term that the services will be performed with reasonable care and skill. In this case, a similar term formed part of the written contract, albeit to the standard of ‘all reasonable care and skill to ensure the accuracy of the work performed’. Given the findings of research misconduct, the judge found that the University had fallen below the standard required in relation to the journal article.

That the publication of the journal article formed part of the contracted work was a contested point, with the University claiming that publishing journal articles stood outside of the contractual scope of the University’s work. If this had been the case the action for breach of contract would have fallen away, however the judge found that the paper was part of the discharge by the University of its contractual obligations.

Exclusion and Limitation Clauses and Dishonesty

The total amount of damages claimed by Innovate exceeded £100 million, however the contract contained both an exclusion clause (excluding claims for loss of profits, a category the judge found the diminution of patent value to fall under) and a limitation clause (limiting liability of a party to £1 million).

Innovate’s case was that research misconduct equated to dishonesty or fraud, and the university was unable as a matter of law to rely on clauses which excluded or limited liability for fraud.

The judge found that while parties are not able to exclude or limit liability for fraud that induces another party into a contract, parties are able to bargain and allocate the risk of fraud committed by an employee or agent in the delivery of contractual obligations. On the wording of the contract, the University’s liability was capped at £1 million and the damages for loss of profits were excluded.

Recommendations

At contract negotiation ensure attention is given to the scope of work to be delivered so that it accurately reflects the parties’ understanding of what is considered the contracted work.

Organisations should check their template liability clauses to ensure any carve outs from exclusion or liability clauses do not go further than required by law, for example by stating that they do not affect any liability for fraud.

If you have any questions or if we can help with these exercises, please don’t hesitate to contact us.