Alphapharm Pty Limited v Eli Lilly Australia Pty Limited [1996] FCA 1500 (24 May 1996)

ALPHAPHARM PTY LIMITED v. ELI LILLY AUSTRALIA PTY LIMITED

Practice And Procedure - pre-action discovery of documents - O 15A r 6 (b) of Federal Court Rules - whether applicant has not "sufficient information to enable a decision to be made to commence a proceeding" - meaning of "sufficient" in the context.

Mr D E Grieve QC with Ms A H Bowne of counsel instructed by Mallesons Stephen Jaques appeared for the applicant.

Mr J Spender QC with Mr P Dwyer of counsel instructed by Dunhill Madden Butler appeared for the respondent.

2. THAT the proceeding stand over to 9.30 am on 31 May 1996 for the making of orders as to costs.

3. THAT by 5.00 pm on 30 May 1996 the parties supply to the Associate to Lindgren J agreed form of short minutes of orders as to costs to be made on 31 May 1996, and if agreement has not by then been reached, the respective forms of short minutes of orders for which they will respectively contend.

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

LINDGREN J The application in this proceeding was filed on 30 April 1996 and came on for final hearing on 8 May 1996. Both parties are manufacturers of pharmaceutical products. The competition between them for market share is keen. The case relates to two anti-depressant drugs, one produced by each of the parties. That produced by the applicant ("Alphapharm") is called "Zactin". That produced by the respondent ("Eli Lilly") is called "Prozac".

2. For reasons which will appear, Prozac has been on the market for a much longer time than Zactin. Eli Lilly wrote a letter dated 16 April 1996 to pharmacists throughout Australia in relation to the two drugs. The letter (it is copied later in these Reasons) made certain allegations about Zactin. Alphapharm complained to Eli Lilly about the letter. Eli Lilly's solicitors responded to the effect that their client had in its possession material which fully supported the allegations.

3. This has led Alphapharm to apply for an order pursuant to O 15A r 6 of the Federal Court Rules for discovery by Eli Lilly of such material so that Alphapharm will be able to decide whether to commence a proceeding in the Court against Eli Lilly alleging that the letter was misleading or deceptive in contravention of s 52 of the Trade Practices Act 1974 ("the TP Act").

4. Eli Lilly's drug, Prozac, was the subject of an Australian patent number 484632 ("the Patent") granted to Eli Lilly with effect from 24 December 1974. After an extension, the Patent expired on 24 December 1994. The active ingredient of Prozac was a chemical called "fluoxetine". Apparently fluoxetine was the core invention which underpinned the Patent. Fluoxetine is also the active ingredient in Alphapharm's drug, Zactin. Both drugs contain "fillers" or "excipients" or "non-active ingredients". In Prozac, the excipient is starch. In Zactin it is lactose. The gravamen of Eli Lilly's letter dated 16 April was that pharmacists should not accept that lactose is as satisfactory an excipient as starch.

5. Before therapeutic goods for use by humans such as Prozac or Zactin may be lawfully sold in Australia, application must be made in respect of them to the Therapeutic Goods Administration ("the TGA") a division of the Commonwealth Department of Health and Family Services, and they must be included by the Secretary to the Department in the Australian Register of Therapeutic Goods maintained under the Therapeutic Goods Act 1989 ("the TG Act"). This will happen in relation to products such as Prozac and Zactin only if the TGA is satisfied as to their quality, safety and efficacy. An applicant for registration must put before the TGA evidence of research and testing relating to those matters.

6. On 31 October 1995 Zactin was approved by the Drug Safety and Evaluation Branch of the TGA and on 13 November 1995 it was included in the Australian Register of Therapeutic Goods as "Zactin fluoxetine 20 mg (as hydrochloride)" both as a "capsule bottle" and as a "capsule blister pack".

7. It is necessary to refer to the provision of pharmaceutical benefits by the Commonwealth in respect of drugs and medicinal preparations. This is provided for in Part VII of the National Health Act 1953. Such benefits are payable only in respect of products listed in the Schedule of Pharmaceutical Benefits under that Act ("the Schedule"). Listing in the Schedule determines the level to which the Commonwealth "subsidises" a drug. Where there is more than one brand of a drug in the Schedule and the two have been determined to be "bioequivalent" or "therapeutically equivalent", they are shown in the Schedule with the letter 'a' immediately before the brand name. This device is called "'a'-flagging". Prozac, and now Zactin, appear in the Schedule and have both been 'a'-flagged. This indicates that the TGA has determined Zactin to be "bioequivalent" or "therapeutically equivalent" to Prozac. The TGA's determination aggrieved Eli Lilly, particularly because of certain consequences shortly to be noted.

8. Both Prozac and Zactin are conveniently referred to as "prescribed drugs", to indicate that they may be lawfully supplied by a pharmacist only if prescribed by a legally qualified medical practitioner. But because of their bioequivalence as determined by the TGA, a pharmacist may lawfully supply either unless the medical practitioner indicates otherwise. They are treated as different brands of the same generic drug. In fact, the Schedule positively states that "Patients should not pay brand premiums if drugs are prescribed generally or the lowest priced brand is prescribed." The policy so expressed is directed to making drugs available to the public at a subsidised price based on the lowest priced brand.

9. On 1 February 1996 Zactin was listed in the Schedule as a brand of the generic drug, fluoxetine hydrochloride, additional to the Prozac brand. The entry for fluoxetine hydrochloride contained annotations, "Authority required" and "Treatment of major depressive disorders where other therapy is inappropriate".

10. Until 1 May 1996, Prozac and Zactin were both listed at a price of $55.53. But since 1 May 1996, Zactin has been listed at $50.47 while Prozac has remained at $55.53. Accordingly, since 1 May 1996 there has been a "brand premium" of $5.06 payable for Prozac. Pharmacists might therefore be expected to supply Zactin in preference to Prozac. Thus, Eli Lilly's letter dated 16 April to pharmacists.

11. Before I refer in more detail to that letter, it is necessary, for reasons which will appear later, to refer in some detail to earlier steps taken by Eli Lilly directed to protecting its market position and to Alphapharm's responses. It will be recalled that the Patent expired on 24 December 1994. On 19 December 1994, Eli Lilly caused a writ and statement of claim to be filed in the High Court of Australia No M 99 of 1994 against the Commonwealth seeking a declaration that s 6 of the Patents Amendment Act 1989 is invalid. It is pleaded that upon the grant of the Patent, Eli Lilly acquired certain valuable rights including the right, in the circumstances described in Part IX of the Patents Act 1952, to apply to a court exercising the judicial power of the Commonwealth for an extension of the term of the Patent for up to ten years. It is pleaded that s 6 of the amending Act of 1989 repealed Part IX and substituted a new Part whereby the Commonwealth acquired from Eli Lilly the right to apply for the extension. The case pleaded is that s 6 is invalid because it is contrary to s 51 (xxxi) of the Constitution to the extent that it effected an acquisition Eli Lilly's right to apply for an extension of the term of the Patent for a further term of up to ten years. It is said that s 6, if valid, effects an acquisition of property from Eli Lilly without just compensation.

12. Apparently the High Court proceeding has not been advanced by Eli Lilly. But since the registration of Zactin on 13 November 1995, Eli Lilly has been active in seeking to protect its position. On 6 December 1995 its solicitors, Dunhill Madden Butler ("Dunhills") wrote to Alphapharm drawing its attention to the existence of the High Court proceeding, asserting that their client had senior counsel's advice that an application for an extension of the term of the Patent under the former Part IX would probably have resulted in an extension to 24 December 2000, and advising that Eli Lilly intended "to exercise and enforce its patent rights in full."

13. Zactin was listed in the Schedule effective from 1 February 1996. This prompted Eli Lilly to write a letter to pharmacists throughout Australia and to instruct its solicitors to write a letter to Alphapharm. Omitting formal parts, Eli Lilly's letter to pharmacists was as follows:

As you are probably aware, a generic version of PROZACr

(fluoxetine hydrochloride, Lilly), the world's most widely

prescribed antidepressant, is now available in Australia. This

generic version, with the trade name Zactin, does not have the

approval or support of Eli Lilly. As you stock your pharmacy and

dispense your customer's prescriptions, Eli Lilly asks you to

keep the following points in mind.

(1) There is no price advantage to your customers if they are

dispensed the generic version.

(2) Antidepressant therapy is very different to other

treatments where generic substitution may occur. Many patients

have received significant clinical benefits from antidepressant

therapy. But specific treatments may have different effects on

individual patients. It is unclear whether a patient will have

an identical response should they start therapy on a generic

version of the treatment. There is little experience in this

area and because of the potential seriousness of treatment

failure, we believe any generic substitution ought only be

contemplated with considerable caution. You should not rely on

Eli Lilly's safety and efficacy data to support the safety and

efficacy of another company's product.

(3) PROZACr has helped many people in Australia over the

last 5 years. It is an antidepressant which is extremely well

known. Depressed patients can be especially labile and anxiety

prone. They may experience heightened anxiety and distress if

any attempt is made to change the brand which is well known to

them and to substitute an unknown generic version in its place.

(4) Professional indemnity insurance protects the pharmacist

from the costs and expenses associated with litigation, but there

appears to be uncertainty in relation to whether a pharmacist is

covered when a product has been generically substituted. If a

14. Eli Lilly's solicitors, Dunhill Madden Butler ("Dunhills"), wrote to Alphapharm on 13 February 1996 expressing the opinion that the listing of Zactin in the Schedule had been "wrongful", that the TGA's determination of equivalence between Prozac and Zactin had been "wrongful", and that the price reduction for Zactin had been "wrongful". They advised Alphapharm that if the Patent were to be extended, Eli Lilly reserved its rights and remedies in respect of loss or damage which it might suffer as a result of the listing, determination of equivalence or reduction in price.

15. Alphapharm's response to Eli Lilly's move was itself to write to pharmacists a standard form of letter. It was headed, ominously, "ZACTINr v PROZACr". It joined issue with Eli Lilly in the following terms:

"It's funny what some companies will do when faced with

competition]

You may recall receiving a letter from Eli Lilly about legal

proceedings on the expired Prozacr patent. Perhaps you would

like to know more:

1. The Facts

. Eli Lilly's Prozacr patent No. 484,632 finally expired

on 24 December 1994;

. This ended the 20 year patent monopoly: The Prozacr

patent is no longer in force.

2. The Case

. In 1989 Legislation was introduced which allowed Eli

Lilly to extend its patent from 16 to 20 years. As a result

the patent finally ended in December 1994;

. In December 1994, a few days before its extension

expired, Eli Lilly challenged the constitutionality of this

1989 Legislation, having already taken full advantage of

this further four year monopoly;

. Since then Eli Lilly has done absolutely nothing to

progress these constitutional proceedings in the High Court;

. The available facts suggest that Eli Lilly's

motivation for challenging this Legislation and writing to

you may be for reasons other than the hope of legal success.

3. Full Indemnity

Alphapharm will defend you against Eli Lilly: In the

event that Eli Lilly sues you for infringement of the

Prozacr patent, Alphapharm will fully indemnify you and all

other Australian Pharmacists against costs or damages

awarded to Eli Lilly.

4. Zactinr - You and your patients now have a choice.

. Zactinr and Prozacr are identified in the Schedule of

Pharmaceutical Benefits as being interchangeable - see 'a'

flagging on page 108;

. Alphapharm has every confidence in your professional

counselling skills when offering your patients a choice in

brands;

. There will be a brand premium in effect on the PBS

from 1 May 1996 for fluoxetine 20mg capsules.

16. Alphapharm also responded more directly to Dunhills' letter dated 13 February. Its solicitors Mallesons Stephen Jaques ("Mallesons") wrote to Dunhills, a letter dated 26 February in response to Dunhills' three allegations of "wrongful" acts, denying them and adding this:

"Our client denies each of these allegations. We are

instructed that in all respects the proper procedures for the

listing of Zactin have been followed. Similarly, the procedures

for determining equivalence were duly complied with.

Our client is entitled to adjust the price of Zactin. There is

no basis for the allegation that the price reduction is wrongful.

We note that you do not specify in which ways these matters are

'wrongful', nor the legal consequences if they were to be

'wrongful'."

17. On 25 March 1996 Eli Lilly filed in the Victorian Registry of this Court an application for an order of review under ss 5 and 16 of the Administrative Decisions (Judicial Review) Act 1977 ("the ADJR Act") and s 39B of the Judiciary Act 1903 against David Graham as delegate of the Minister for Human Services and Health. The application sought review of his decision that the "Zactin" brand of fluoxetine hydrochloride 20 mgm capsules be listed pursuant to s 85 of the National Health Act 1953 with an indication in the Schedule that Zactin and Prozac were equivalent. The reasons why Eli Lilly claimed to be aggrieved were stated in the application as follows:

"1. Zactin and Prozac cannot be regarded as equivalent

because of the nature and effects of their differing

formulations;

2. Use of lactose as an excipient in Zactin gives rise to

potentially adverse implications for its safety and efficacy not

found in Prozac which does not use lactose in its formulation;

3. This difference in formulation may result in differing

clinical effect as between the two products;

4. Because of these differences in formulation and clinical

effect, Zactin and Prozac cannot be regarded as equivalent or

essentially similar products;

5. By indication in the Schedule that the products are

equivalent they are held out to prescribers and pharmacists as

interchangeable and without different formulation and clinical

effect;

6. Listing of the two products as equivalent may adversely

affect patients successfully treated with Prozac should

prescribers in reliance upon the listing, regard it and Zactin as

equivalent and interchangeable without difference in clinical

effect as indicated in the Schedule;

7. When prescribed Prozac, patients may be exposed to

potentially adverse effects should pharmacists, in reliance upon

the Schedule indicating equivalence and interchangeability

without difference in formulation and clinical effect, substitute

Zactin pursuant to s.103(2A) of the Act;

8. In reliance upon the Schedule patients prescribed Prozac

may request their doctor to prescribe and/or a pharmacist to

substitute, Zactine (sic) unaware of the differences in

formulation and clinical effect;

9. Because of the long record of safety and efficiency with

Prozac use, the decision listing Zactin as equivalent to Prozac

and therefore interchangeable with it, may result in the

Applicant being adversely affected;

10. The decision indicating equivalence and therefore

18. The grounds of the application included the following:

"2. The Delegate failed to take into account, or

alternatively failed to sufficiently consider any, data

demonstrating adverse implications for safety and efficacy in

Zactin's formulation using lactose as excipient and lack of

equivalence between the products including different clinical

effect; ..."

19. Against the foregoing background the statements in Eli Lilly's critical letter to pharmacists dated 16 April 1996 will be understood. The letter was as follows:

"16 April 1996

Dear Pharmacist

RE: Prozac (fluoxetine IICI, Lilly) and Zactin (Alphapharm)

As we previously advised in a letter to you on 27 February

1996 a non Eli Lilly generic version of Prozacr called Zactin has

been available on the PBS since February 1st 1996.

Eli Lilly is of the view that Prozacr and Zactin are not

identical products.

Prozacr, available in Australia since 1990 with a safety and

efficacy profile known to you and your patients, is formulated

with starch as the filler. Zactin, on the other hand, is

formulated with lactose as the filler. Fluoxetine, the active

ingredient of Prozacr and Zactin reacts with lactose to some

extent.

Eli Lilly is concerned enough about this reaction to have

decided to challenge the decision by the PBAC to list Prozacr and

Zactin as bioequivalent on the PBS. Eli Lilly's concern is in

part based upon its findings that the reaction of fluoxetine with

lactose can lead to reduced quantities of fluoxetine being

available and the creation of various degradation products, some

of which have yet to be precisely identified.

It is the view of Eli Lilly that the safety and efficacy

record of Prozacr should not be used to support the safety and

efficacy of Zactin because that product has a different

formulation.

We will keep you informed of developments. If you have any

queries or require further information simply call the Eli Lilly

Medical Information Services department on 02 3254622.

Yours faithfully,

ELI LILLY AUSTRALIA PTY LIMITED"

20. Alphapharm was not slow to respond. On 22 April 1996 it sent its own letter to pharmacists, as follows:

"Dear Pharmacist,

ZACTINr v PROZACr

Re: Eli Lilly's letter to you of 16 April 1996

Here they go again.....

It's interesting what some companies will do when the

competition hots up.

First Eli Lilly took on the Constitution. Then they

threatened legal action against every pharmacist in Australia.

Now they are taking on the Health Department] They certainly like

to keep us all informed of their every legal manoeuvre.

The timing of Eli Lilly's latest desperate stunt is certainly

no coincidence. From 1 May the brand price premium on Prozacr is

$5.06.

No doubt Eli Lilly are concerned -- concerned about their

sales.

The facts are:-

. The TGA have approved Zactinr as bioequivalent to Prozacr.

. The TGA is an un-biased authority, recognised

internationally.

. As of 1 February 1996, Zactinr was 'a' flagged as

bioequivalent and therefore interchangeable with Prozacr on the

PBS.

. Your customers will have to pay an extra $5.06 for Prozacr

from 1 May 1996.

We anticipate a large increase in demand for Zactinr. Should

you wish to place an order, please call your Alphapharm

representative or our Customer Service Department on 1800 077

Thank you,

David Duchen

Managing Director"

21. On 24 April 1996, Mallesons wrote to Dunhills. They referred to Eli Lilly's reference in its letter of 16 April to its two "findings" "that the reaction of fluoxetine with lactose can lead to reduced quantities of fluoxetine being available and the creation of various degradation products, some of which have yet to be precisely identified", and to its claim that "Fluoxetine ... reacts with lactose to some extent". These three statements (of the two findings and of the claim) by Eli Lilly constitute the factual basis of Alphapharm's complaint of misleading or deceptive conduct. Mallesons' letter continued as follows:

"These claims are contrary to Alphapharm's stability and

bioequivalence studies which were submitted to the Therapeutic

Goods Administration. The results of the bioequivalence study

undertaken by independent experts on behalf of Alphapharm indicate

no significant differences between Zactin and Prozacr.

The allegations in Eli Lilly's letter dated 16 April 1996 are

likely to cause pharmacists and their customers concern about the

safety and efficacy of Zactinr, to damage Alphapharm's reputation

in the pharmaceutical industry, and with customers, and to cause

Alphapharm financial loss. In its letter, Eli Lilly said it

relies on its 'findings' without specifying the test data or

studies on which it relies. We understand from some pharmacists

that Eli Lilly has declined to discuss the test data with them

when the pharmacists have contacted Eli Lilly in response to the

letter.

We require Eli Lilly to deliver to us at our Sydney office

not later than 3pm on Friday, 26 April, all documents and other

information upon which Eli Lilly relies to substantiate its

claims about Zactinr, including:

(i) results of tests or studies carried out by independent

experts with sufficient detail of the test conditions and

methodology to enable the tests to be repeated and the results

evaluated;

(ii) results of tests carried out by or on behalf of Eli

Lilly Australia or Eli Lilly and Company with sufficient detail

of the test conditions and methodology to enable the tests to be

repeated and the results evaluated;

(iii) relevant published articles;

(iv) internal memoranda of Eli Lilly;

(v) any other information on which Eli Lilly relies.

It is reasonable to require the production of the above

documents by Friday as Eli Lilly has elected to publish the

adverse allegations in their April 16, 1996 letter.

22. On the same date (24 April) Mallesons wrote to the Department of Health and Family Services forwarding a copy of Eli Lilly's letter to pharmacists dated 16 April. Mallesons informed the Department that Eli Lilly had not produced to Alphapharm or pharmacists any test data or other studies to substantiate its allegations and that Alphapharm had written to Eli Lilly's solicitors requesting production of test results and/or studies upon which Eli Lilly relied. They advised the Department that if these were not forthcoming, Alphapharm would seek an order for discovery from Eli Lilly under O 15A r 6 of the Federal Court Rules.

23. Mallesons' letter also observed that O 15A r 6 required Alphapharm to make all reasonable inquiries to obtain sufficient information to enable it to decide whether or not to commence proceedings for an injunction against Eli Lilly. Accordingly, the letter requested the Department to provide Mallesons with copies of any document or other information which Eli Lilly might have supplied to the Department on which Eli Lilly might be relying to substantiate its claim.

24. The Department replied on 26 April advising Mallesons that a search had revealed that no such information had been supplied by Eli Lilly to the Department.

25. After, or perhaps concurrently with, a reminder letter dated 26 April from Mallesons, Dunhills wrote a letter dated 26 April to Mallesons on which Alphapharm placed particular reliance in the present application. Omitting formal parts, the letter was as follows:

"We refer to your letter of 24 April 1996, wherein you demand

that Eli Lilly delivers to you documentation upon which it relies

to substantiate the claims made in its letter of 16 April 1996.

We are instructed that Eli Lilly has in its possession

material which fully supports the assertions made in the letter.

This material has been prepared for, and will be used for the

purposes of, the proceeding against the Delegate of the Minister

of Human Services and Health.

We note that your client possesses documentation, such as a

'stability and bio-equivalence' study, that may suggest findings

contrary to those asserted in the letter of 16 April 1996.

We would be pleaded to consider any such material, and look

forward to receiving copies of same." (emphasis supplied)

26. As noted earlier, Alphapharm filed its application in the present proceeding on 30 April 1996. It claims the following substantive order:

"1. An order pursuant to Order 15A rule 6 of the Federal

Court Rules that, within 2 days of the making of this order, the

First Respondent make discovery to the Applicant of all

documents, in whatever form, in the power, possession or control

of the First Respondent which relate to:

(a) any reaction between fluoxetine and lactose

including without limitation the reaction referred to in the

16 April 1996 Letter;

(b) the bioavailability of fluoxetine after combination

with lactose including without limitation the findings

referred to in the 16 April 1996 Letter;

(c) the stability of fluoxetine when combined with

lactose including without limitation the findings referred

to in the 16 April 1996 Letter;

(d) the creation and identity of all degradation

products resulting from fluoxetine being combined with

lactose including without limitation the findings referred

to in the 16 April 1996 Letter; or

(e) the bioequivalence, or lack thereof, of fluoxetine

when combined with lactose as compared with fluoxetine when

combined with starch."

"6 Where -

(a) there is reasonable cause to believe that the applicant

has or may have the right to obtain relief in the Court from a

person whose description has been ascertained;

(b) after making all reasonable inquiries, the applicant has

not sufficient information to enable a decision to be made

whether to commence a proceeding in the Court to obtain that

relief; and

(c) there is reasonable cause to believe that that person

has or is likely to have or has had or is likely to have had

possession of any document relating to the question whether the

applicant has the right to obtain the relief and that inspection

of the document by the applicant would assist in making the

decision -

the Court may order that that person shall make discovery to

the applicant of any document of the kind described in para

(c)."

28. The reference in para (a) to "a person whose description has been ascertained" is plainly intended to distinguish the concern of r 6 from that of r 3 which provides for an order for the examination of a person or discovery of documents where an applicant, having made reasonable inquiries, is unable to ascertain the description of a person sufficiently for the purpose of commencing a proceeding in the Court against that person.

29. The "relief" which was in question in the present case was relief under the the TP Act for alleged misleading or deceptive conduct in contravention of s 52 of that Act engaged in by Eli Lilly by the writing and distribution of its letter dated 16 April. It was not suggested that the result might differ according to whether Alphapharm sought an injunction under s 80, an order for "corrective advertising" under s 80A, damages under s 82 or an order of a kind provided for in s 87. Accordingly, the parties treated the question raised by Alphapharm's application as relating to liability only.

30. There was no issue between the parties that on the basis of the evidence before the Court, para (a) or para (c) of rule 6 was satisfied, and argument focused on the condition laid down in para (b). At first, Eli Lilly submitted that Alphapharm had not made "all reasonable inquiries" but ultimately accepted that it had done so. Accordingly, the issue before me was narrowed to whether the evidence established that Alphapharm did not have sufficient information to enable it to decide whether to commence a proceeding in the Court to obtain relief against Eli Lilly in respect of the three statements in its letter dated 16 April as being misleading or deceptive.

31. It is convenient to set out again the three express allegations made in Eli Lilly's 16 April letter:

1. that fluoxetine, the active ingredient of Prozac and

Zactin, reacts with lactose to some extent;

2. that Eli Lilly has found that the reaction of fluoxetine

with lactose can lead to reduced quantities of fluoxetine being

available to the consumer;

3. that Eli Lilly has found that the reaction of fluoxetine

with lactose can lead to the creation of various degradation

products, some of which have yet to be precisely identified.

32. Paul Gregory Duchen, the Business Development Manager of Alphapharm and assistant to its Managing Director (who is his father), gave affidavit evidence that if the three allegations set out in Eli Lilly's letter of 16 April "are without reasonable basis or are misleading or deceptive, Alphapharm intends to commence legal proceedings in respect of those allegations."

33. Alphapharm led a voluminous body of affidavit evidence directed to showing that the Zactin formulation is indeed bio-equivalent to the Prozac formulation, that is to say, that the purport of the three allegations is false. The evidence was directed to satisfying para (a) of rule 6, as to which, in the event, there has been no issue.

34. Eli Lilly read an affidavit of Dr Gerald Michael Holder, Associate Professor in the Department of Pharmacy at the University of Sydney. In paras 4, 5 and 6 respectively the Professor refers to three articles written in the 1950s. Paragraph 5 concludes as follows:

"The work cited is not sufficient to enable the conclusion to

be drawn that fluoxetine hydrochloride does not react with

lactose. Rather it raises the possibility that fluoxetine may

react, and that the reaction may occur at room temperature on

storage of a mixture of the base (or its salt) and lactose."

35. Paragraph 6 of Professor Holder's affidavit concludes as follows:

"6 This information raises the possibility that if the

glycosylamine of fluoxetine and lactose is formed, it may undergo

the Amadori re-arrangement on storage, although the review does

point out that generally the re-arrangement is less likely with

secondary amine derivatives."

36. The final paragraph in Professor Holder's affidavit is para 7:

"7 Any chemical reactions which occur in the formulation are

expected to decrease the effective dose of the active ingredient

received by the patient. Furthermore, the products of these

reactions may have pharmacological and toxicological properties

of their own. This may apply to a formulation such as fluoxetine

and lactose."

37. Professor Holder was cross examined (see below).

38. Alphapharm read in reply an affidavit of John Peter Bartley of the School of Chemistry, Queensland University of Technology. Dr Bartley, who was not cross examined, firstly responded to the references to the literature in paras 4, 5 and 6 of Professor Holder's affidavit. I need, however, only refer to Dr Bartley's response to Professor Holder's conclusions:

"15. ........................................

These conclusions (of Professor Holder) are based in

part on 3 scientific papers which were written before

fluoxetine was invented, and which refer to reactions

occurring in conditions that are unlikely to occur in

capsules stored under the conditions recommended for Zactin

capsules. Dr Holder's conclusions do not appear to be based

on any experimental research conducted using fluoxetine and

lactose."

39. Alphapharm's case is that it has made all reasonable inquiries, has a substantial body of evidence to show that the three allegations made in Eli Lilly's letter to pharmacists dated 16 April were misleading and deceptive, but lacks sufficient information to enable it to decide whether to commence a proceeding against Eli Lilly because of the several specific references made by or on behalf of Eli Lilly to its "findings" and to the "material" in its possession which, Eli Lilly asserts, fully support its allegations.

40. Eli Lilly, on the other hand, submits that Alphapharm wishes to obtain pre-action discovery, not because it presently lacks sufficient information to enable it to decide whether to commence a proceeding against Eli Lilly, but because it wishes to know how strong its case is.

41. It is useful now to set out certain relevant propositions.

1. Paragraphs 6 (a) and 6 (c) pose an objective test, the

opening words "there is" in each paragraph signifying "there

exists"; but the "insufficiency test" of para 6 (b) has both

subjective and objective aspects.

2. Although I need not explore the subjective aspect fully,

it seems clear that if the evidence went so far as to show that a

particular applicant was already able to decide to commence a

proceeding by, for example, showing that the applicant had in

fact decided to do so, para 6 (b) would not be satisfied even

though the information available did not satisfy the objective

aspect of the insufficiency test referred to below.

3. The fact that a particular applicant genuinely feels

unable, because of a lack of information, to decide to commence a

proceeding does not, without more, satisfy para 6 (b); the

objective aspect of the paragraph requires it to be shown as an

objective fact that the applicant lacks "sufficient information

to enable a decision to be made whether to commence a

proceeding".

4. In my view, the objective aspect of para 6 (b) invokes a

notion of "reasonable sufficiency", the question raised being

whether it is reasonable that the applicant for an order be

required to take its decision without having the information to

become available from inspection of the document or documents of

which discovery is sought.

5. If the insufficiency test is satisfied, a second question

will arise, namely, whether the Court's discretion should be

exercised in favour of the making of an order.

6. The questions posed by rule 6 and referred to above are to

be answered in the context of an adversary system of forensic

contest in which a proposed respondent is ordinarily entitled to

withhold its evidence, certainly prior to the commencement of

proceedings.

7. The questions are also to be answered in the light of the

42. In the light of the foregoing propositions, I proceed to consider the facts of the present case. There is no dispute that Eli Lilly made the three statements in its letter to pharmacists dated 16 April 1996 "in trade or commerce". Has Alphapharm established that it lacks sufficient information as to the misleading or deceptive nature of the representations which those statements conveyed, to enable a decision to be made to commence a proceeding in respect of them?

43. Both Alphapharm and Eli Lilly engage in pharmaceutical research. It is true that in the absence of pre-action discovery, Alphapharm cannot know precisely what research Eli Lilly has undertaken and what findings it has made. But Alphapharm is well equipped to conduct research as to the reaction of fluoxetine with lactose, and for that matter, as to the reaction of fluoxetine with starch. Not only is Alphapharm in a position to do so; it has already conducted extensive research as to the bioequivalence of the two drugs and has filed voluminous affidavit evidence to that effect. Notwithstanding the allegations of Eli Lilly, Alphapharm has never faltered in the marketing of Zactin or had any difficulty in urging pharmacists to disregard Eli Lilly's warnings; see Alphapharm's letters to pharmacists dated 6 March and 22 April and Mallesons' letters to Dunhills dated 26 February and 24 April.

44. Mr D E Grieve QC, who appeared with Ms A H Bowne of counsel for Alphapharm, fairly summarised the case from Alphapharm's perspective in the following terms:

"The point of the matter boils down to this. True it is we

have prima facie a very strong case against the respondent.

Indeed common sense teaches that they probably have no defence to

it whatever and that they are bluffing when they say they have

got findings and material that vindicate their offensive letter

but one cannot be certain of these things. They have said it -

it is not a matter of possibility, they have made the positive

assertion that they have got this material which bears directly

on the issues which would be involved in a section 52 case and

they have not made that assertion in any half hearted fashion,

they have made it in a very dogmatic fashion in their

correspondence with us and they have also made it qua the

department in the administrative proceeding.

They have said that the department fell into error by denying

them natural justice by failing to consider this so called data

that they have got. In effect they accused the department of

having breached its duty under the statute; of having acted

wrongfully and irresponsibly in a matter of great social

importance both from a fiscal and from a health point of view.

Now, those are very bold allegations, they are very bald

allegations, they are very certain allegations, there is nothing

qualified about them. They say in substance, look, when you sue

us we will put an insuperable obstacle in your path being this

material, you will fail, you will lose.

That no doubt remains to be tested but we are entitled to

know what the obstacle is. It is as simple as that. We are not

outside the rule at all, we are well and truly within the four

walls of it." (T 71.30-72.10)

45. There is no clear evidence from any representative of Alphapharm to the effect that it is encountering a real difficulty in deciding whether to commence proceedings. The relevant evidence was given, not by Mr David Duchen, the managing director of Alphapharm, but by his son, Paul Gregory Duchen, the business development manager of the company. In his affidavit sworn 29 April 1996, he said this:

"34 If the allegations set out in the 16 April 1996 Letter

are without reasonable basis or are misleading or deceptive,

Alphapharm intends to commence legal proceedings in respect of

those allegations."

46. This passage, understood in the light of the position strongly asserted by Alphapharm in the correspondence to which I referred earlier, is hardly evidence of a company on the horns of a dilemma: to sue or not to sue. I do not imply that an applicant for an order under the rule must lead evidence that without the documents sought, it will not sue. The rule is, however, directed to aiding an applicant who is having real difficulty, and reasonably so, in deciding whether to litigate because of a lack of key information, whether relating to its own case or to that of the proposed respondent, which is in the possession of the respondent. I have reached the conclusion that this is not Alphapharm's position.

47. The cross examination of Mr Duchen included the following:

"MR SPENDER: And as the person authorised to swear the

affidavit which you have sworn you believe that you have evidence

of misleading conduct by the respondent company that has caused

you damage?---Yes.

And you believe that evidence to be convincing?---Yes.

What further information do you need for the purposes of

deciding whether or not to proceed against Eli Lilly?---I leave

that to the lawyers.

There is none that you can think of?---I personally, if you

are asking me. I would like to see the information Eli Lilly

has, that they have said in the letter.

Because that would tell you what your chances of success are

likely to be?---It would tell us what Eli Lilly has.

And it would also tell you how strong your case would be?---I

don't know, I don't know, the lawyers will tell me that."

(T 49.26-50.04)

48. Later in the course of Mr Duchen's cross examination, the following exchange occurred:

"Let me not be leading the obvious but it would certainly

help you, would it not, and this is your firm's - your company's

mind to know what Eli Lilly has in its hands?---It would help,

absolutely." (T 51.24-.26)

49. Alphapharm submits that "it remains within the bounds of possibility at least, that Eli Lilly has carried out tests which disprove the results found as a consequence of our tests and the Government's." (T 58.11-13)

50. Having regard to the extensive scientific research which has been carried out by or on behalf of Alphapharm and its strong prima facie case, it is difficult to avoid the conclusion that in seeking re-action discovery, it is seeking to eliminate a possibility, rather than to obtain key information without which it is not able to decide whether to commence a proceeding. No doubt inspection of the documents referred to in Alphapharm's application would assist it in taking that decision, but I am of the view that it already has reasonably sufficient information to enable it to decide. Another way of expressing the matter is to say that Alphapharm has not, after making all reasonable inquiries, come up against an obstacle consisting of the lack of key information which it reasonably needs to enable it to decide whether to commence a proceeding; rather, it hopes to be comforted in taking the decision which it already has sufficient information to enable it to take.

51. In certain respects I reach the foregoing conclusion reluctantly, but for better or for worse, pre-action discovery, whether documentary or oral, does not characterise the adversary system as administered in Australian courts, and provisions such as that in O 15A r 6 afford only a limited exception to the general position.

52. As has been correctly put on behalf of Alphapharm, Eli Lilly has repeatedly, and in various terms, asserted that Zactin is not bioequivalent to Prozac. It did so in its letters to pharmacists of February 1996 and 16 April 1996, in its application under the ADJR Act, and through Dunhills in their letter to Alphapharm of 24 April. On the hearing before me it has not disavowed any of those statements. Yet it persists in declining to produce the evidence which it claims to have.

53. Without wishing to express a concluded view on the matter (which I certainly have not reached), the circumstances might well be of the exceptional kind which would warrant the making of a special order for costs in any proceeding which Alphapharm may commence. For example, it may be appropriate to conclude that Eli Lilly invited or contributed to the commencement of the proceeding so that, even if it should succeed in defending such a proceeding, it should not have its costs. Again, if Alphapharm should succeed, the case may be an appropriate one for it to have its costs on an indemnity basis. Finally, it may be appropriate that the making of any costs order in the present proceeding await the outcome of any proceeding to be commenced within a limited period by Alphapharm.

54. The application will be dismissed but the proceeding will be stood over to a date convenient to the parties on which, if agreement has not by then been reached, the question of costs will be dealt with.