Scottish Court of Session Decisions

 

OUTER HOUSE, COURT OF SESSION   [2007] CSOH 211
A613/07	OPINION OF LORD EMSLIE   in the cause   ONYVAX LIMITED   Pursuers;   against   ENDPOINT RESEARCH (UK) LIMITED   Defenders:     ­­­­­­­­­­­­­­­­­________________

 

 

Pursuers: Sandison; Brodies LLP

Defenders: Hayhow; Thorntons Law LLP

 

28 December 2007

 

[1] In this motion for an interim order under section 47(2) of the Court of Session Act 1988, the pursuers seek delivery of a Trial Master File ("TMF") which is said to contain composite details of certain clinical trial work undertaken by the defenders on their behalf in connection with the development of a new cancer vaccine. The TMF is apparently the last outstanding document to be handed over by the defenders following the recent termination of their engagement and the transfer of all ongoing trial work to others. Having originally contemplated an amicable handover of this document, the defenders now decline to co-operate, and instead assert a common law lien on account of the pursuers' non-payment of work invoices to the tune of just over £147,000. On the basis of an arbitration clause in the parties' contract (the Master Service Agreement, or "MSA"), the defenders also maintain that this court has no jurisdiction to entertain the present application. The pursuers' position, on the other hand, is that the defenders have impliedly abandoned their right to arbitrate by raising a Sheriff Court action for payment of the outstanding invoices. More importantly, they point out that any arbitration would be subject to the UNCITRAL model law in terms of section 66 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990, which preserves the jurisdiction of the court relative to interim orders unless and until the same matter is determined by the arbiter.

[2] The parties are in agreement that the proper approach to an application for an interim order under section 47(2) is that affirmed by an Extra Division in Scottish Power Generation Ltd v British Energy Generation (UK) Ltd 2002 SC 517. Paragraph [26] of the opinion of the court is in the following terms:

"From these authorities we derive the following principles which are relevant to a case of the present kind. First, the Lord Ordinary has to identify the issues in the action, including the legal basis of the claims with which he is dealing. Secondly, he has to consider whether the party seeking the order has demonstrated a prima facie case that an obligation exists, and that there is a continuing or threatened breach of that obligation which the order will address. Thirdly, he has to avoid significantly innovating on the parties' contractual rights and obligations. Fourthly, he has to consider whether the balance of convenience is such as to justify the making of the interim order, bearing in mind the nature and degree of the harm likely to be suffered on either side by the grant or refusal of the interim order, and the relative strength of the cases put forward by each party."

The parties are, however, in dispute as to whether these requirements for an interim order have been made out in the present case.

[3] Before me the pursuers' claim was pointedly not founded on any express handover obligation in the MSA, since the defenders might then admittedly withhold performance of such obligation while their invoices remained unpaid. On the contrary, the pursuers relied on their undisputed right of ownership of the TMF, and on the concomitant right to recover its possession from the defenders on demand. According to counsel this was a sufficient prima facie case for the purposes of section 47(2), especially when coupled with the invalidity of the alleged lien on which the defenders principally sought to found. In particular, it was said, no valid lien could be asserted here because that would be inconsistent with the express terms of the parties' agreement and of certain documents incorporated therein. Moreover, since lien was an equitable remedy, the court could not sanction it where the equities were in the pursuers' favour.

[4] On similar grounds, the balance of convenience strongly favoured the pursuers. The TMF contained essential details, unavailable to the pursuers, of the precise performance of the trials relative to individual patients in many countries across the world. The pursuers admittedly knew how these trials should, by design, have been carried out, but in the absence of actual data regarding dosages, dates and the like they could not be sure that all necessary information would be available to deal safely and effectively with any "adverse event" which might arise. This posed a serious potential risk to patients where neither the pursuers nor the new trial operator would be able to assess any link to prior trial activity, or indeed to determine the appropriate remedial treatment to be adopted. The new trial operator had to date proceeded on certain assumptions, but this state of affairs was highly unsatisfactory and represented a breach of the principles enshrined in the Declaration of Helsinki (1964) and other documents incorporated into the MSA, whereby patient safety was a paramount consideration. As stated in paragraph A5 of the Declaration, "... considerations related to the well-being of the human subject should take precedence over the interests of science and society". As a result of the defenders' failure to deliver the TMF, the pursuers were also placed in continuing breach of their obligation to keep and maintain a TMF under Regulation 31A(1) and (2) of the Clinical Trials Regulations 2004.

[5] In these circumstances, the defenders' withholding of the TMF for purely commercial reasons was irresponsible and immoral as well as unlawful, and an interim order for delivery was thus amply justified. Although the defenders clearly regarded the contents of the TMF as sufficiently valuable to warrant retention, they were unable or unwilling to identify the nature of that value. This seriously undermined their claim to have disclosed all relevant patient information to the pursuers already, and tended to support the pursuers' position on the balance of convenience. The defenders' private commercial interests could not be allowed to override the health and safety of patients, especially where an interim order for delivery would in no way innovate on the parties' contractual rights and obligations. Paragraphs 8.1 and 12.3 of the MSA were in the following terms:

"8.1 All Intellectual Property and work product generated in any form or media in the course of the performance of the Services by Endpoint ... is the sole and exclusive property of Onyvax and shall be remitted by Endpoint to Onyvax no later than the termination date of this Agreement.

12.3 Upon request of Onyvax and/or at the end of the work covered by this Agreement, Endpoint will promptly return all documents and information made available to Endpoint and created by Endpoint during the course of the work covered by this Agreement."

Nor could it be said that an interim order at this stage would be inappropriate as exhausting the pursuers' claims in this action. On the contrary, an interim order made on prima facie grounds would not resolve the declarator sought in the first conclusion, nor would it affect the substantial pecuniary claims which had recently been added by amendment.

[6] In all the circumstances, counsel submitted that the requirements laid down in the Scottish Power case had been satisfied, and that they were entitled to the interim order which they sought. If so required by the court, they might be prepared to consign up to £120,000 in return, but their primary position remained that the motion was justified and should be granted without qualification. As between the parties it was the defenders and not the pursuers who were in financial difficulty, and where the pursuers were solvent the defenders could not be said to require any security for their pecuniary claims.

[7] In response, counsel for the defenders agreed that the requirements for an interim order under section 47(2) of the 1988 Act were those set out in the Scottish Power decision. He also accepted that, in principle, the only answer to a claim based on ownership would be a special lien, and that such a lien could not be asserted where it was inconsistent with contractual obligations, or indeed if the court intervened on equitable grounds. That said, however, he maintained that there were several distinct grounds on which the pursuers' motion was ill-founded and should be refused.

[8] First, the defenders were well entitled to assert a lien over the TMF while their invoices totalling over £147,000 remained unpaid. As explained in the Stair Memorial Encyclopaedia, vol.20 at para.75, such a lien rested on principles of mutuality and would clearly cover the TMF which was in part provided by the pursuers and in part generated by the defenders in the course of their work. Clauses 8.1 and 12.3 of the MSA were not inconsistent with the existence of the lien, and clause 10.3 plainly contemplated such a remedy being open to the defenders where (as here) the pursuers had defaulted on the payment of sums contractually due. There was thus no obligation on the defenders to return the TMF until the parties' contractual disputes had been resolved. In this context the Declaration of Helsinki and other incorporated documents were irrelevant, since they were aspirational in nature and sought to regulate the conduct of clinical trials rather than the resolution of subsequent disputes. Moreover, retention of the TMF did not place the pursuers in breach of Regulation 31A of the 2004 Regulations. On one view, compliance was achieved by the defenders' retention of the document on the pursuers' behalf, but in any event the pursuers were already in default by having failed to keep a full copy of the TMF for themselves.

[9] Over and above that, there was no equitable basis on which the court should interfere to prevent assertion of the defenders' lien. The alleged risk to patient safety was not accepted. No such risk had materialised since the parties came to court in September, and in any event the pursuers already had all relevant information, including patient data, that they could reasonably require. The pursuers' offer to mediate was admittedly a factor which could be taken into account, but it was important to remember that arbitration had been agreed by the parties as the appropriate method of settling any dispute. The defenders had made various efforts in that direction, although as yet no sist of the Sheriff Court proceedings had occurred. As regards the parties' respective finances, the pursuers remained unwilling to consign anything in return for an interim order, and without consignation of the full sum in dispute no such order would be appropriate. In all these circumstances, neither contract nor equity could properly deprive the defenders of their lien.

[10] Second, the effect of the parties' arbitration clause was to oust the jurisdiction of all courts for present purposes. On the authorities, the raising of proceedings in the Sheriff Court would not per se indicate abandonment of the right to arbitrate, and did not do so here. In this context, reference was made to D & J McDougall Ltd v Argyll & Bute District Council 1987 S.L.T. 7; Presslie v Cochran McGregor Group Ltd 1996 S.L.T. 988; Wylie v Corrigan 1999 S.L.T. 739; Macphail, Sheriff Court Practice, 3^rd ed., para.2.99; and Davidson, Arbitration, para.7.19. As such authorities confirmed, court proceedings might legitimately be raised for protective purposes without in any way affecting a party's right to go to arbitration in due course. Moreover, so far as the UNCITRAL model law was concerned, no interim order should be granted here where an arbitration was in prospect and the same issue could be brought before the arbiter.

[11] Third, the balance of convenience and the wider equities favoured the defenders. The pursuers already had all of the information which they could legitimately require for the purposes of patient safety, and could readily reconstitute a TMF of their own from such materials as they held. Esto the pursuers were in breach of Regulation 31A of the 2004 Regulations, that breach pre-dated the present dispute. More importantly, the defenders had repeatedly undertaken to make the TMF available for audit and regulatory purposes, so that any real prejudice to the pursuers would be avoided. Such access had already been offered in December 2006 while the contract was in operation. Moreover, the grant of an unqualified interim order would deprive the defenders of legitimate security for sizeable financial claims.

[12] For all of these reasons, counsel submitted that this was not an appropriate case for an interim order under section 47(2) of the 1988 Act.

[13] Having taken time to consider the parties' competing contentions, I have reached the conclusion that a conditional interim order should be granted in the circumstances of this case. Such an order would remove an unnecessary complication from the scope of the parties' dispute; it would remove any possible risk to patient safety in the shorter and longer term; and it would leave the parties free to resolve their remaining differences along ordinary commercial lines. By contrast, refusal of the motion would in my view risk continuing endangerment of the health and safety of third parties; it would perpetuate an area of disagreement where entrenched and unreasonable attitudes are to my mind already beginning to be evident; and it would give the parties no assistance towards ultimate resolution of the real dispute between them. Refusal of the motion would, I believe, be in nobody's interests at the present time.

[14] Both parties acknowledge that the issue between them is as between the pursuers' right of ownership, on the one hand, and the defenders' asserted lien on the other. Prima facie I consider that the pursuers are entitled to assert that right of ownership, and to obtain delivery of the TMF at this stage, unless the defenders can identify some legal justification for their refusal to comply. But for the existence of the parties' contractual arrangements, in the form of the MSA and associated documents, it would in my view have been difficult to find much to say in favour of the defenders' position. According to the latest accounts produced, they are a company with a serious balance sheet deficit. They have ceased to trade in the United Kingdom, maintaining only a formal registered office here, and they may now have no senior personnel who remain directly amenable to the jurisdiction of this court. Furthermore, the TMF has for some months been held in Toronto, Canada, albeit apparently in a purpose-built, secure location. In the course of the hearing, counsel for the defenders was unable to identify any value which the TMF might represent to them, other than as a lever or bargaining counter in connection with their financial claim. To date they have refused the pursuers' offer to mediate, or otherwise to enter into discussions on outstanding issues, and although pleading the arbitration clause they have as yet taken no effective steps in that direction. Indeed they have raised a Sheriff Court action for payment of the outstanding invoices, and although I do not accept that abandonment of the right to arbitrate can yet be inferred it is clear that further pursuit of that action might soon have that effect. No doubt the defenders have given certain undertakings with regard to production of the TMF to meet audit and regulatory requirements, but at the same time they flatly refuse to make it available for any other purpose. If, as the pursuers contend, the absence of materials within the TMF presents a potential risk to the health and safety of patients, then the defenders may be seen as willing to ignore that risk for their own commercial advantage.

[15] As against that, the pursuers' position is not self-evidently beyond reproach either. Past invoices to the value of more than £147,000 remain unpaid; the pursuers seem unwilling to acknowledge the ambit of the arbitration clause in the MSA where, to my mind, it covers broadly the same ground as clause 24 which prorogates the jurisdiction of the Scottish courts; and they assert a material risk to the health and safety of patients without explicit identification of the crucial materials which the TMF is said to contain. That said, however, I cannot ignore the fact that this latter assertion was made and repeated by responsible counsel, nor can I in all conscience ignore the possibility (albeit disputed by the defenders) that the assertion may be correct. In the course of the debate before me, counsel for the defenders very fairly accepted that the disputed health risk to patients was a factor which would have to be taken into account for present purposes.

[16] In my opinion the parties' contract is of great significance here. In general terms, I think that its existence materially qualifies the right of ownership in the TMF which the pursuers seek to assert. In particular, it spells out the basis on which materials owned by the pursuers may legitimately be held by the defenders, at least during the progress of the trials and/or the subsistence of the parties' arrangements. It is thus essentially to the contract that one must look in order to ascertain whether, in present circumstances, the pursuers are in a position to demand the immediate return of their property including the TMF. On the face of the MSA, it seems to me that the pursuers have an express entitlement to demand the return of these materials. Paragraphs 8.1 and 12.3 in particular bear to confer such rights by reference to either (i) the date of a demand or (ii) the cessation of work or (iii) the termination of the Agreement. On the other hand, the lien which the defenders assert is founded on the principle of mutuality of obligations, and in that respect is similar to the contractual right of retention which the defenders might have asserted in other circumstances. The key difference here, however, is that whereas retention would have been a legal right, the defenders' lien is in the nature of an equitable claim subject to the scrutiny and control of the court.

[17] In my opinion the lien which the defenders assert is not necessarily inconsistent with the express terms of the MSA and associated documents. These contractual materials contain no clause or qualification to the effect that no lien may be asserted, and I can see no obvious reason why a lien should be any less valid where contractual redelivery dates are specified than when they are not. For instance, a lien asserted while the MSA remained in force would not in my view simply fly off on its termination. Similarly I am unable to accept that the incorporated affirmation of patient safety as a guiding principle can properly be read as an implied bar to the assertion of a special lien in any circumstances.

[18] Against that background, the basis for my decision comes to be the equitable nature of the special lien which the defenders assert. In my opinion it would be unconscionable to allow that lien to be asserted on an unqualified basis, having regard in particular to (i) the risk to the health and safety of patients which, according to the pursuers, flows from the unavailability of the TMF; (ii) the fact that the TMF is apparently being held by the defenders in Toronto, and outwith the prorogated jurisdiction of this court; (iii) the questions regarding the defenders' financial viability which appear to be raised by their own recent accounts; (iv) the defenders' refusal to mediate or otherwise to discuss the parties' current disagreements; and (v) the apparent lack of value of the TMF to the defenders, other than as a lever or bargaining counter in relation to their outstanding financial claim.

[19] On the other hand, I do not consider that the pursuers, for their part, can legitimately claim delivery of the TMF on unqualified terms either. Their problem is that they now refuse to pay past invoices totalling over £147,000, and in that situation unqualified delivery would in my view only be appropriate if it could be said that the defenders had no potentially valid right of lien to assert at all. For the reasons set out above, it seems to me that the defenders do have such a right, although subject to the equitable scrutiny and control of the court, and I therefore find it impossible to accede to the pursuers' primary motion for unqualified interim delivery of the TMF.

[20] Taking all of these considerations into account, I have come to the view that an interim order should be granted here, but that it should be made conditional on the pursuers consigning the whole of the disputed sum of £147,267.70 in court pending determination or settlement of the defenders' claim for payment of their outstanding invoices. Along similar lines, the lifting of a lien subject to consignation was ordered by the court in Garscadden v Ardrossan Dry Dock & Shipbuilding Co Ltd 1910 S.C. 178, and it is also significant that during the debate before me the pursuers reluctantly expressed willingness to consign a substantial sum in court if required, and the defenders in turn indicated that consignation of the disputed sum would represent an appropriate solution.

[21] On the whole matter, I am satisfied that the requirements for an interim order under section 47(2) of the 1988 Act have been made out in this case. The pursuers' prima facie entitlement to receive possession of the TMF which they own is beyond dispute; the express clauses of the contract confirm that entitlement; and in my judgment the pursuers have also made out a prima facie entitlement to have the defenders' lien cut down on equitable grounds. Furthermore the UNCITRAL model law permits interim orders to be obtained from the court notwithstanding the existence of a contractual arbitration clause. If anything innovates on the parties' express contract, it is the equitable lien asserted by the defenders, and for the reasons already given I do not consider that that can receive unqualified effect. The equities, and the balance of convenience, clearly favour the release of the TMF into the pursuers' possession now, but only upon consignation of the disputed sum of £147,267.70 in the hands of the court. Subject to that condition, I now grant the pursuers' motion.