Otsuka Pharmaceutical Co., Ltd v Generic Health Pty Ltd

Federal Court of Australia|2019-02-27|Before: Mr J, Mr P, Yates J

The interlocutory application filed on 16 November 2018 by the Commonwealth of Australia (the Commonwealth) be dismissed.
The Commonwealth pay the costs of Otsuka Pharmaceutical Co., Ltd and Bristol-Myers Squibb Company of and incidental to the interlocutory application. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 The Commonwealth of Australia (the Commonwealth) applies to strike out paragraphs 78, 79, 80 and 82 of the Points of Defence which have been filed by Otsuka Pharmaceutical Co., Ltd (Otsuka) and Bristol-Myers Squibb Company (BMS) (together, Otsuka/BMS) in response to Amended Points of Claim filed by the Commonwealth in proceedings commenced by the Commonwealth to enforce undertakings as to damages given by Otsuka/BMS. 2 The undertakings were given by Otsuka/BMS in patent infringement proceedings commenced in January 2012 by Otsuka/BMS against Generic Health Pty Ltd (Generic Health) (NSD 121/2012 - the primary proceeding), and in a subsequent appeal filed by Otsuka/BMS (NSD 837/2015 - the appeal proceeding). In the primary proceeding, Otsuka/BMS sought, and obtained on 22 March 2012, interlocutory relief against Generic Health, including an interim injunction restraining Generic Health from, in effect, importing, selling or supplying certain pharmaceutical products listed on the Australian Register of Therapeutic Goods (the GH products or, simply, the products). The interlocutory relief also required Generic Health to withdraw its application to list the GH products under the Pharmaceutical Benefits Scheme (PBS) maintained by the Commonwealth under the National Health Act 1953 (Cth) (the NHA). An application for leave to appeal from the making of those orders was refused on 6 March 2013. 3 After a contested hearing for final relief conducted in the period 24 March 2014 to 17 April 2014, orders were made on 16 July 2015 revoking certain claims of the patent in suit. The orders also vacated the order that had been made for the interim injunction that had been granted on 22 March 2012. These orders were stayed on an interim basis, but the stay was extended on 14 August 2015 pending the determination of the appeal which Otsuka/BMS had commenced. On the same day, an order was also made requiring Generic Health to withdraw any application it had made to obtain listing of the GH products under the PBS. Otsuka/BMS gave further undertakings as to damages as a condition of the making these orders. 4 Otsuka/BMS's appeal was dismissed on 24 August 2016. However, the operation of the stay granted on 14 August 2015 was continued until 4.00 pm on 21 September 2016. As a condition of granting the further stay, Otsuka/BMS gave further undertakings as to damages. The further stay granted on 24 August 2016 expired by effluxion of time. The significance of this event was that the interim injunction was vacated.

The points of claim/points of defence 5 On 15 June 2017, Generic Health filed an interlocutory application in the primary proceeding seeking, amongst other things, a declaration that it was adversely affected by the operation of the orders made on 22 March 2012 that were extended on 14 August 2015 and 26 August 2016 (this date appears to be an error), and entitled to just compensation pursuant to the undertakings that had been given in respect of those orders. It also sought an inquiry to assess the amount of the compensation. On the same day, it filed its Statement of Particulars of Claim for Damages in the primary proceeding. 6 On 18 July 2017, Generic Health filed an interlocutory application in the appeal proceeding seeking, amongst other things, a declaration that it was adversely affected by the operation of the orders made on 14 August 2015 and 26 August 2016 (once again, this date appears to be an error), and entitled to just compensation pursuant to the undertakings that had been given in respect of those orders. It also sought an inquiry to assess the amount of compensation. On the same day, it filed its Statement of Particulars of Claim for Damages in that proceeding. 7 I will refer to the claims for compensation filed by Generic Health in the primary proceeding and the appeal proceeding as Generic Health's enforcement proceedings. 8 On 31 May 2018, the Commonwealth filed an interlocutory application in the primary proceeding seeking, amongst other things, an assessment of the amount payable to the Commonwealth pursuant to the undertakings given on 22 March 2012, 14 August 2015 and 21 August 2016 (this date appears to be an error). On 21 June 2018, it filed its Points of Claim in that proceeding and, on 30 June 2018, filed its Amended Points of Claim. 9 On 15 June 2018, the Commonwealth filed an interlocutory application in the appeal proceeding seeking, amongst other things, an assessment of the amount payable to the Commonwealth pursuant to the undertakings given on 14 August 2015 and 21 August 2016 (once again, this date appears to be an error). On 21 June 2018, it filed its Points of Claim in that proceeding and, on 30 June 2018, it filed its Amended Points of Claim. 10 I will refer to the claims for compensation filed by the Commonwealth in the primary proceeding and the appeal proceeding as the Commonwealth's enforcement proceedings. 11 The relevant paragraphs of the Commonwealth's Amended Points of Claim plead that, by reason of the interim injunction and its subsequent continuation, Generic Health was restrained from selling, disposing of or importing the GH products, and from keeping the GH products for these purposes, from 22 March 2012 to 21 September 2016 (para 78). Generic Health was also prevented from listing the products under the PBS (para 79). If not for the interim injunction that had been granted and continued, Generic Health would have obtained PBS listing for the GH products on 1 April 2012 (para 80) and, from no later than 1 April 2012, Generic Health would have supplied the products in competition with Otsuka's relevant PBS products (para 82). 12 In their Points of Defence, Otsuka/BMS express their reliance on the terms of the relevant orders but, in substance, deny the allegations in paras 78, 79, 80 and 82 of the Amended Points of Claim. They further say (in para 80) that, irrespective of the orders made: in the period between 22 March 2012 and 21 September 2016, Generic Health would not have taken any of the steps that were restrained by the interim injunction or applied to list the GH products on the PBS (para 80(a)); further or alternatively, the Minister, acting with a proper understanding of the relevant statutory provisions, would not have made a determination to list the GH products under the PBS prior to the patent being revoked (para 80(b)). 13 In its enforcement proceedings, Generic Health makes similar allegations to those made by the Commonwealth. In its Statement of Particulars of Claim for Damages filed in the primary proceeding, it alleges that, by reason of the interim injunction, it was restrained from importing, marketing, taking orders for, selling, supplying, offering to supply or otherwise exploiting the GH products in Australia from 22 March 2012 until 21 September 2016 (para 28). It further alleges that, during this period, it was restrained from listing the GH products under the PBS (para 29). It also alleges that, if not for the interim injunction, it would have obtained PBS listing for the GH products on 1 April 2012 and would have commenced to sell those products on the "PBS market" on 1 April 2012 (paras 30 and 31(a)). Generic Health makes the same allegations (although in different paragraphs) of the Statement of Particulars of Claim and Damages filed in the appeal proceeding. 14 In their Response, Otsuka/BMS admit these allegations. 15 The fact that Otsuka/BMS admit these allegations, but deny the corresponding allegations in the Commonwealth's enforcement proceedings and advance a positive case for those denials, is the reason why the Commonwealth has brought the present application. 16 Before proceeding to summarise the Commonwealth's submissions, it is appropriate that I should record that Generic Health's enforcement proceedings, and the Commonwealth's enforcement proceedings, are separate and different. Generic Health's enforcement proceedings are to recover compensation for its alleged loss resulting from the restraints placed upon it. In essence, its claims are based on its lost sales. The Commonwealth's enforcement proceedings are to recover compensation for its alleged loss resulting from higher payments that it was required to make under the PBS, occasioned by the delay in listing the GH products and other generic products involving the same active ingredient (aripiprazole), and the effect that the delay had in terms of automatic price reductions and price disclosure reductions under the NHA. 17 The Commonwealth has assessed the quantum of its claims to be in excess of $110 million. The quantum of Generic Health's claims has not yet been revealed but, in submissions, Otsuka/BMS drew attention to the amount of security they had provided to Generic Health in support of the undertakings that were given, which indicates that the quantum of Generic Health's claims, although large in monetary value, is nonetheless significantly less than the quantum of the Commonwealth's claims.

The Commonwealth's submissions 18 In essence, the Commonwealth submits that Otsuka/BMS's "pleading" in respect of these matters is a breach of the pleading rules in the Federal Court Rules 2011 (the Rules) or is at least inconsistent with those rules, and is an abuse of process warranting the intervention of the Court to strike out the offending paragraphs of Otsuka/BMS's Points of Defence filed in the Commonwealth's enforcement proceedings. 19 To elaborate, the Commonwealth submits that Otsuka/BMS's Points of Defence is a "pleading" within the meaning of the Rules and r 16.06 prohibits inconsistent pleadings. Rule 16.06 says: A party must not plead inconsistent allegations of fact or inconsistent grounds or claims except as alternatives. 20 The Commonwealth submits that, although its claims for compensation and Generic Health's claims for compensation are separate (in the sense that each party applies for compensation in its own right), the claims are, nevertheless, made in the same proceeding, in respect of the same interim injunction, and in respect of the same undertakings. The Commonwealth further submits that the two claims "share a substratum of factual allegations as to what the counterfactual scenario would have entailed" - namely, the allegations that, but for the interlocutory relief that was granted, Generic Health would have obtained listing of the GH products under the PBS and supplied those products from 1 April 2012. The Commonwealth submits that it is inconsistent with the "fundamentally equitable task of the Court" in determining and assessing a claim for compensation in respect of an undertaking as to damages, that the Court be placed in "the contrived position" which, it says, Otsuka/BMS seek to put the Court in. 21 The Commonwealth also relies on r 16.21(1)(f): A party may apply to the Court for an order that all or part of a pleading be struck out on the ground that the pleading: … (f) is otherwise an abuse of the process of the Court. 22 The Commonwealth submits that there are no closed categories of conduct that constitutes an abuse of the Court's process. Such an abuse can extend to the maintenance of particular issues which are frivolous and vexatious: Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256 at [15]. An abuse of process might also arise where the Court's procedures occasion unjustifiable oppression to a party or serve to bring the administration of justice into disrepute: UBS AG v Tyne [2018] HCA 45 at [1]. 23 The Commonwealth submits that Otsuka/BMS's conduct smacks of "tactical manoeuvring" that is productive of real prejudice to the Commonwealth because the admissions made by Otsuka/BMS in Generic Health's enforcement proceeding might lead to Generic Health electing not to adduce evidence to support the allegations that have been admitted - thus depriving the Commonwealth of the benefit of that evidence. 24 The Commonwealth also submits that Otsuka/BMS's inconsistent pleading will give rise to the potential for inconsistent findings and an inconsistent outcome. It submits that the Court could be placed in an invidious position and the administration of justice is at risk of being brought into disrepute, particularly "where the same question could be decided differently by the same judge in the same judgment on the same evidence". 25 The Commonwealth further submits that if the challenged paragraphs are to stand, complex questions will be raised as to the operation of r 22.07, which permits the Court to give judgment or to make an order on admissions that have been made.

Conclusions and reasons 26 I do not accept that paragraphs 78, 79, 80 and 82 of the Points of Defence filed in the Commonwealth's enforcement proceedings offend r 16.06 or any of the other pleading rules, or that the pleading of the denials and affirmative allegations in those paragraphs is an abuse of the Court's process. 27 I accept that the separate Points of Defence filed in respect of Generic Health's enforcement proceedings and in respect of the Commonwealth's enforcement proceedings are, each, a "defence", and hence a "pleading", for the purpose of the Rules. But I do not accept the Commonwealth's interpretation of r 16.06. 28 Rule 16.06 does not prohibit "inconsistent pleadings" as the Commonwealth submits. Rather, the rule contemplates the possibility of pleading inconsistent allegations of fact or inconsistent grounds or claims, and permits that to be done, provided the inconsistent allegations, grounds or claims are pleaded as alternatives. In this way, the rule is directed to ensuring clarity in pleading. It is not in and of itself a prohibition on the allegations, grounds or claims that a party can plead in a given proceeding. That said, a party cannot plead inconsistent facts where one set of facts must be known to the pleading party to be false. Such a pleading would be embarrassing and liable to be struck out for that reason or as an abuse of the Court's process: Issitch v Worrell (2000) 172 ALR 586 at [32]; J C Decaux Pty Ltd v Adhsel Street Furniture Pty Ltd [2000] FCA 1118; (2000) 178 ALR 339 at [21]; Surfing Hardware International Holdings Pty Ltd v McCausland [2008] FCA 1522; (2008) 171 FCR 533 at [57] - [58]. However, it is not suggested that Otsuka/BMS lack a sufficient basis to put in issue, in the way they have, the matters pleaded in paragraphs 78, 79, 80 and 82 of the Points of Claim filed in the Commonwealth's enforcement proceedings. It is certainly not suggested that they have done so with knowledge that the matters pleaded are false. 29 It is also important to bear in mind that, although Generic Health and the Commonwealth have each filed interlocutory applications in the primary proceeding and the appeal proceeding: (a) each interlocutory application is an "incidental proceeding" (see the definition of "proceeding" in s 4 of the Federal Court of Australia Act 1976 (Cth)) in connexion with the primary proceeding and the appeal proceeding, respectively; and (b) each incidental proceeding brought by Generic Health to enforce its claims for compensation is separate and distinct from each incidental proceeding brought by the Commonwealth to enforce its claims for compensation. 30 The separate and distinct nature of these incidental proceedings is not gainsaid by the fact that, in each case, enforcement is sought on the same undertakings given in support of the same interlocutory relief. I do not understand r 16.06 to be a rule that "speaks across all proceedings" involving a particular party where, as here, the several proceedings are commenced at different times and concern separate and distinct claims involving different claimants. 31 Further, regard must be had to the function and object of pleadings. In Laws v Australian Broadcasting Tribunal (1990) 170 CLR 70, Mason CJ and Brennan J observed (at 86): The suggestion that pleadings should be treated in the same way as any other form of admission fails, in our view, to take account of the function and object of pleadings, when they are not required to be verified, in outlining the party's case and defining the issues to be tried. Especially is this so in the case of pleading defences. A defendant is entitled to put a plaintiff to proof of his or her cause of action and to raise alternative matters of defence which may possibly answer the plaintiff's claim, without asserting in an absolute sense the truth or correctness of the particular matters pleaded… 32 I do not understand r 22.07 as contradicting these elemental propositions; nor has the Commonwealth explained how, in the context of the present question, r 22.07 would be or could be invoked. 33 An appreciation of these matters is important in order to understand the context in which the present question falls to be determined. Each set of enforcement proceedings will be determined on the particular issues formulated for determination by the pleadings that are filed and on the evidence that is adduced. The Commonwealth's submissions appear to proceed on the underlying assumption that its enforcement proceedings and Generic Health's enforcement proceedings are not separate and distinct and, further, that each set of proceedings will be heard and determined as, in effect, one proceeding involving two claims on substantially common evidence. 34 In this latter regard, in its separate interlocutory applications the Commonwealth seeks orders pursuant to r 30.11 that its claims for compensation be heard together with Generic Health's claims for compensation, and orders that the evidence admitted for the purposes of Generic Health's claims be admitted as evidence for the purposes of the Commonwealth's claims. One can appreciate that such an order might be appropriate given that a common element in each set of proceedings is the allegation that, but for the interlocutory relief granted, the GH products would have been listed and supplied under the PBS from 1 April 2012. However, as yet, no such orders have been made and their appropriateness has not been considered. In that regard, much will depend on how Generic Health and the Commonwealth propose to conduct their respective proceedings, and on the evidence they might seek to adduce in support of their respective claims. 35 On the present state of the pleadings in respect of its enforcement proceedings, Generic Health will be relieved of the burden of proving that, but for the interlocutory relief granted, the Generic Health products would have been listed and supplied under the PBS from 1 April 2012. I do not think that Otsuka/BMS's admissions in the Generic Health enforcement proceedings rise any higher than that. It is not for me to speculate on why, apparently contrary to their own forensic interests, Otsuka/BMS have chosen not to put Generic Health to proof of those alleged facts. To adopt the remarks of Jenkinson J in Stohl Aviation v Electrum Finance Pty Ltd (1984) 5 FCR 187 at 202, this would be an unprofitable collateral inquiry. Further, it does not follow that Generic Health will not seek in any event to adduce evidence on those matters in developing its own counterfactual case. 36 On the present state of the pleadings in respect of its enforcement proceedings, the Commonwealth will have the burden of proving those matters. As the moving party in those proceedings, it has no entitlement to be relieved of that burden if those matters are genuinely in dispute, as they appear to be on the evidence and information presently before me. It is not to be assumed that they are not genuinely in dispute simply because Otsuka/BMS have relieved Generic Health of some part of the burden of proof that rests on it in the Generic Health enforcement proceedings. 37 In short, the Commonwealth's position is to be considered as if Generic Health had never commenced its own enforcement proceedings. The fact that Otsuka/BMS have maintained the Commonwealth's burden of proof by pleading paragraphs 78, 79 80 and 82 does not mean that the Points of Defence are, thereby, defective as a matter of pleading. Still less does the fact that Otsuka/BMS have not relieved the Commonwealth of that burden constitute an abuse by them of the Court's process, simply because they have relieved Generic Health of a corresponding burden in separate and distinct enforcement proceedings. 38 It is, of course, possible that different findings might be made in each set of enforcement proceedings in respect of that part of each counterfactual case that is common with the other. But, if so, this will be a function, in large measure, of the issues defined by the pleadings for determination in each set of enforcement proceedings, and the evidence adduced in respect thereof. As I have said, it is not to be assumed that the two sets of proceedings will be heard together on common evidence. 39 Further, it is not to be assumed that, apart from the common elements referred to, each counterfactual case that is to be advanced will be the same in all respects. Indeed, it is quite possible that Generic Health's counterfactual case and the Commonwealth's counterfactual case could be markedly different overall, despite sharing some common elements. There is no evidence before me that Generic Health and the Commonwealth are cooperating to achieve an alignment of their respective claims for compensation in terms of the issues to be raised and the evidence to be adduced. It may well be, therefore, that the only practical course is for the two sets of proceedings to be heard and determined separately, as they have been commenced. If so, the possibility exists that, in the end result, there might be different findings of fact which, on casual observation and without due regard to the differences in the two sets of proceedings, might be thought to be "inconsistent". However, this is always a risk where a common issue of fact arises for determination in separately conducted proceedings and where an issue estoppel is not available. None of this means that the impugned paragraphs of Otsuka/BMS's Points of Defence filed in the Commonwealth's enforcement proceedings infringe the rules of pleading or constitute an abuse of the Court's process. 40 Further, insofar as the possibility exists that, in the Commonwealth's enforcement proceedings, the Court might find that the GH products would not have been listed under the PBS on 1 April 2012 or sold under the PBS on and from that date, such findings would not be "inconsistent", in the relevant sense, with an acceptance in Generic Health's enforcement proceedings that the GH products would have been listed and sold on and from that date. This is because, as Otsuka/BMS have submitted, in the Generic Health enforcement proceedings the Court will not be determining whether the GH products would have been listed and sold as alleged. Rather, these will be accepted facts based on the pleadings. They will not be facts determined by the Court in a contest on disputed facts.

Disposition 41 For these reasons, the Commonwealth's interlocutory application filed on 16 November 2018 will be dismissed, with costs. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Yates.

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