Otsuka Pharmaceutical Co., Ltd v Generic Health Pty Ltd

1. The Commonwealth of Australia's application for a stay of these proceedings be refused.
2. The Commonwealth of Australia pay the Applicants/Appellants' costs of the application. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

BURLEY J: 1 The Commonwealth of Australia seeks an order that any hearing concerning the adoption of the Report of the Referee, the Hon Thomas Bathurst AC KC delivered on 19 June 2024 (Report) be stayed pending the delivery of judgment by the High Court of Australia in Commonwealth of Australia v Sanofi (formerly Sanofi-Aventis) & Ors (Sanofi). Otsuka Pharmaceutical Co., Ltd and Bristol-Myers Squibb Company (together, Otsuka) oppose that course. 2 The background to the dispute is lengthy but may be briefly stated. On 22 March 2012 this Court made orders restraining Generic Health Pty Ltd from offering to sell and import its generic aripiprazole products in Australia and requiring it to withdraw its application to obtain listing of its product on the Pharmaceutical Benefits Scheme (PBS) upon Otsuka giving the usual undertaking as to damages; Otsuka Pharmaceutical Co., Ltd v Generic Health Pty Ltd [2012] FCA 239; (2012) 291 ALR 763 (Yates J). Subsequently, claims 1 and 7 of the patent in suit were found to be invalid; Otsuka Pharmaceutical Co., Ltd v Generic Health Pty Ltd (No 4) [2015] FCA 634; 113 IPR 191 (Yates J). Otsuka filed an appeal, and, upon Ostuka giving a further undertaking as to damages in the usual form, a stay of the discharge of the interlocutory injunction was granted; Otsuka Pharmaceutical Co., Ltd v Generic Health Pty Ltd [2015] FCA 848 (Nicholas J). The appeal was determined in favour of Generic Health; Otsuka Pharmaceutical Co., Ltd v Generic Health Pty Ltd (No 2) [2016] FCAFC 111; (2016) 120 IPR 431. However, a further stay, upon the giving of the usual undertaking as to damages, was granted pending an application by Otsuka for special leave to appeal to the High Court, which was subsequently refused. 3 On 15 June 2018 the Commonwealth filed a claim on the three undertakings given by Otsuka. It contends that a direct consequence of the various restraints imposed on Generic Health was that the Commonwealth paid millions of dollars more under the PBS than it otherwise would have paid and seeks compensation in respect of those overpayments. On 6 December 2022, Justice Yates made orders referring all aspects of the Commonwealth's claim to the Referee who conducted a hearing in mid-2023. The Report was delivered on 19 June 2024. Ultimately, the Referee was not satisfied, on the balance of probabilities, that approval to list Generic Health's product on the market would have been granted, with the result that the Commonwealth had not established causation of loss to the requisite standard. 4 The Commonwealth foreshadows that it will oppose the adoption of the Report for the primary reason that it was not open to Otsuka on the pleadings to contend that the Minister's delegate would have concluded that Generic Health may not have been able to meet its guarantee of supply obligations because its supplier would have experienced delays and because of those delays Generic Health's products would not have been ready to distribute and sell within the requisite time. 5 The Commonwealth's secondary position is that the Referee identified the wrong legal test to be applied on questions of causation pending the outcome of Sanofi. 6 It is in the context of this secondary position that the Commonwealth seeks deferral of the hearing about the adoption of the Report. The Commonwealth submits that if it was open to Otsuka to run its causation argument on the pleadings, then it may be that the decision of the High Court in Sanofi enables it to contend that the Referee erred in the identification of the legal test to be applied on questions of causation. 7 This then raises the question of a stay of these proceedings pending delivery of the judgment in Sanofi. The hearing in Sanofi before the High Court took place in September 2024 and judgment is reserved. The Commonwealth submits that one argument put to the High Court was that a "three-step" approach should be adopted to causation in which there is a shift in the evidential burden from the Commonwealth to Otsuka if the evidence shows that it has established a prima facie case. As I understand the argument, the Commonwealth contends that if that approach is applied, then the Report is not in accordance with the law. 8 This Court has an extensive jurisdiction to stay proceedings in the interest of justice. The question is a matter of discretion to be exercised having regard to the fact that prima facie the parties are entitled to have their action tried in the ordinary course of the procedure and business of the Court and the burden thus lies on the party seeking a stay to show that it is just and convenient in the circumstances to grant a stay. In considering the exercise of discretion to grant a stay of proceedings one must take into account the overarching purpose of civil practice and procedure as set out in s 37M of the Federal Court of Australia Act 1976 (Cth), see also Apotex Pty Ltd v Les Laboratoires Servier (No 6) [2012] FCA 745 (Bennett J) at [9]; Australian Rail, Tram and Bus Industry Union v Transit Systems West Services Pty Ltd (No 2) [2022] FCA 389 (Rares J) at [55]. 9 I am not satisfied that it is appropriate to grant the stay sought pending the outcome of Sanofi. 10 First, the arguments that the Commonwealth seeks to advance related to Sanofi are secondary and contingent upon failure of its primary argument, which is the pleading point. If that point fails, then its fall-back option is that the Referee erred on the question of causation if the High Court in Sanofi decides a point in favour of the Commonwealth. The reason for seeking the stay is accordingly based upon a contingency upon a contingency in circumstances where the proceedings have been on foot since 2018 and the factual matters in issue arose in 2012. 11 Secondly, the Commonwealth accepts that the argument that it now seeks to put was not advanced before the Referee. Otsuka submits that the Commonwealth was aware of and had formulated the three-step causation argument some three years earlier, in the Full Court appeal where it relied upon that argument as a ground of appeal, and which the High Court in Sanofi has now been asked to consider. After the Full Court decision was delivered on 26 June 2023, shortly after the hearing before the Referee concluded, the parties were given an opportunity to provide supplementary submissions to the Referee on the impact of that decision, yet the Commonwealth did not advance that argument then either. Although the Commonwealth will no doubt seek and may be granted leave to advance its three-step causation argument on the question of adoption of the Report (as to which I make no final finding), it is a factor against the exercise of discretion in favour of a stay that the argument forming the foundation for the stay was not put below. These circumstances raise the difficulties identified in Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1 at [11]; P Ward Civil Engineering v Civil & Civic [2003] NSWSC 603 (McClellan J) at [27]. 12 Thirdly, the adoption of the Report will be governed by the law as it stands at the time of its determination. It is a fact of life that existing propositions of law are from time to time upended on appeal. If that is so, then any decision concerning the adoption of the Report may be appealed. In the present case the Commonwealth submits that Otsuka, in its position statement concerning the adoption of the Report also raises issues that may be determined in Sanofi. That latter proposition may be correct but, in my view, it is likely only to a limited extent. 13 Whilst there are some factors of convenience that tend in favour of listing the matter for hearing after Sanofi is determined, the just outcome in my view is that no stay be granted, and the proceedings be listed for hearing at a date convenient to the Court. 14 Accordingly, the application for a stay is refused. The Commonwealth must pay the costs of the application. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Burley.