Pfizer Australia Pty Ltd v Probiotec Pharma Pty Ltd

DECISION : Probiotec's application for leave to amend to plead fraud against AZPA is dismissed.

CATCHWORDS : AMENDMENT - to defendant's pleading to allege fraud against another defendant after close of evidence in order to bolster statutory proportionate liability defence. - CONTRACT - whether statutory proportionate liability regime applies to a claim for breach of a strict contractual performance duty

Civil Liability Act 2002 LEGISLATION CITED : Civil Procedure Act 2005 Trade Practices Act 1974 (Cth) Uniform Civil Procedure Rules 2005

Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27, 239 CLR 175 CASES CITED : Queensland v J L Holdings Pty Ltd [1997] HCA 1, 189 CLR 146 Reinhold v NSW Lotteries Corporation (No 2) [2008] NSWSC 187

TEXTS CITED : McDonald and Carter, "The Lottery of Contractual Risk Allocation and Proportionate Liability" (2009) 26 JCL 1

Pfizer Australia Pty Ltd (Plaintiff) PARTIES : Probiotec Pharma Pty Ltd (First Defendant/Cross Claimant) AZPA Holdings Pty Ltd (Second Defendant/Cross Respondent)

Mr L Gyles SC with Mr E Cowpe (Plaintiff) COUNSEL : Mr D Fagan SC with Mr P B Walsh (First Defendant/Cross Claimant) Mr R Manly SC with Mr P Hamill SC and Mr B Guzzo (Second Defendant/Cross Respondent)

Piper Alderman (Plaintiff) SOLICITORS : Church & Grace (First Defendant/Cross Claimant) Doherty & Colleagues (Second Defendant/Cross Respondent)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

2007/266606 PFIZER AUSTRALIA PTY LTD v PROBIOTEC PHARMA PTY LTD AND ANOR EX TEMPORE JUDGMENT 1 HIS HONOUR: This is an application for leave to amend a pleading made late in a trial after the close of evidence. BACKGROUND 2 At all material times the plaintiff, Pfizer Australia Pty Ltd, was a marketer and supplier of consumer health care products; the first defendant, Probiotec Pharma Pty Ltd was a manufacturer of pharmaceuticals and non-prescription medicines; and the second defendant, AZPA Holdings Pty Ltd, was a supplier of ingredients for pharmaceutical manufacture. 3 Pfizer purchased Codral cold and flu tablets in bulk from Probiotec, the manufacturer. Probiotec purchased a key ingredient, paracetamol, from AZPA. 4 The contractually specified paracetamol in both sale contracts was Compap-L 0093 manufactured by Mallinckrodt Inc Pharmaceuticals Group (a division of Tyco Healthcare) in Illinois, USA. The tablets did not conform with the specifications. They were counterfeit because the paracetamol used in the manufacture was not the contractually specified Compap-L 0093 manufactured by Mallinckrodt but a paracetamol manufactured by an uncertain foreign manufacturer, possibly located in China. 5 AZPA purchased the paracetamol from another company, which is now in liquidation, which appears to have purchased it from the foreign manufacturer. 6 Pfizer sues Probiotec for more than $5 million for breach of contract in failing to meet the specifications for the tablets, negligence and misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth). The plaintiff sues AZPA in negligence. Probiotec cross-claims against AZPA for breach of contract, negligence and contravention of s 52. THE PROPORTIONATE LIABILITY ISSUE 7 Probiotec and AZPA raise defences under the proportionate liability provisions in Part 4 (ss 34-39) of the Civil Liability Act 2002 and equivalent provisions of the Trade Practices Act. They plead that the plaintiff's claim is an "apportionable claim" and that Probiotec and AZPA are "concurrent wrongdoers" within the meaning of those expressions in the proportionate liability provisions. An "apportionable claim" is defined in s 34 of the Civil Liability Act as: "A claim for economic loss or damage to property in an action for damages (whether in contract, tort or otherwise) arising from a failure to take reasonable care". A "concurrent wrongdoer", in relation to a claim, "is a person who is one of two or more persons whose acts or omissions (or act or omission) caused, independently of each other or jointly, the damage or loss that is the subject of the claim": s 34(2). In any proceeding involving an apportionable claim, the liability of a defendant who is a concurrent wrongdoer in relation to that claim is limited to an amount reflecting that proportion of the damage or loss claimed that the Court considers just having regard to the extent of the defendant's responsibility for the damage or loss: s 35(1)(a).

8 There is a lively issue as to whether the proportionate liability legislation is applicable to the claims for breach of strict contractual performance duties. The defendants argue that it is applicable, relying on the decision in Reinhold v NSW Lotteries Corporation (No 2) [2008] NSWSC 187 one of the few decisions on the proportionate liability regime. There, Barrett J held that the proportionate liability provisions of the Civil Liability Act applied to a claim for breach of a strict contractual performance duty. It seems to me to follow that every case of breach of a strict contractual performance provision is a potential negligence case at the insistence of defendants seeking to limit their liability under proportionate liability legislation, and that the law of contract has thereby radically changed. Strong arguments can be marshalled against the Reinhold decision in favour of the contrary view that the definition of "apportionable claim" is satisfied in relation to claims for breach of contract only where the action is based on a breach of a contractual duty to take reasonable care. That contrary view is expressed by Professors Barbara McDonald and John Carter, "The Lottery of Contractual Risk Allocation and Proportionate Liability" (2009) 26 JCL 1. They conclude: "Where there is merely a careless performance of a strict duty, the legislation should have no application. To adopt the contrary view is to place a large number of potential plaintiffs in a lottery to which they never subscribed". But that debate can be left aside for present purposes. THE PROPOSED FRAUD AMENDMENT 9 Probiotec applies to amend its commercial list response to the third further amended summons by adding a plea that AZPA committed the tort of deceit by fraudulently representing that the paracetamol supplied by AZPA to Probiotec was Compap-L 0093 manufactured by Mallinckrodt. 10 The purpose of the amendment is to increase AZPA's liability to the maximum and minimise Probiotec's liability under the proportionate liability legislation. Nothing in Part 4 of the Civil Liability Act operates to limit the liability of a concurrent wrongdoer in proceedings involving an apportionable claim if the concurrent wrongdoer fraudulently caused the economic loss the subject of the claim: s 34A(1)(b). 11 Probiotec submits that the amendment should be allowed because it is based upon evidence served a reasonable time before commencement of the trial. In particular, reliance is placed upon an affidavit of Ms Derya Kurt, a former bookkeeper for AZPA; and a chain of emails between AZPA and its upstream supplier. The evidence of Ms Kurt is highly contentious because she substantially resiled from her affidavit and gave certain explanations as to why she swore the affidavit, which it is unnecessary for me to consider for present purposes. Probiotec submits that as all this material was served a reasonable time before the trial, there is no prejudice to any party if it also characterises the conduct of AZPA as fraudulent. 12 The plaintiff does not oppose the amendment provided that it is able to amend its summons to pick up the same allegations of deceit against AZPA. The plaintiff has provided a prospective fourth further amended summons which would do this if the amendment sought by Probiotec were to be allowed. 13 AZPA opposes Probiotec's proposed amendment. The first reason is the lateness of the amendment application. AZPA points out that the trial of this matter was originally fixed for August 2009, there was an adjournment to September 2009, and ultimately it was adjourned to May 2010. The procedural history of the matter was recounted in the submission by reference to discovery, witness statements and the like being attended to in 2008 and 2009, and to previous amendments by Probiotec. 14 Secondly, AZPA submits that there has been unexplained delay in seeking leave to amend. 15 Thirdly, AZPA points to the well known principles in the leading case of Aon Risk Services Australia Ltd v Australian National University, [2009] HCA 27, 239 CLR 175, where the High Court accepted that a stricter approach should be taken to late amendments under modern case management regimes, such as those that are now found in New South Wales in the Civil Procedure Act 2005, and the Uniform Civil Procedure Rules 2005 compared with the regime in force when Queensland v J L Holdings Pty Ltd [1997] HCA 1, 189 CLR 146, was decided. It was held that a party does not have an entitlement to amend a pleading subject to payment of costs by way of compensation, and that all matters relevant to the exercise of the power to permit amendment should be weighed. Relevant matters include the explanation for any delay in applying for amendment. 16 Fourthly, AZPA submits that it would be prejudiced by the proposed late amendment. For AZPA it poses the overarching question: Would AZPA have made any other inquires or marshalled any other evidence if a deceit claim had been made in a timely way and not on the penultimate day of the trial? In relation to that overarching question several further questions are posed: What witnesses may have been called? What marshalling of documents may have been undertaken? Would AZPA have joined the foreign manufacturer as a third party? Would it have gone to the trouble of going to the foreign country where the manufacture occurred for the purpose of marshalling evidence? Would it have marshalled its existing evidence in a different way? AZPA answers these questions in a general way by submitting that there would have been a different body of evidence. 17 Probiotec's reply is that it has always sought to prove AZPA's faults to the maximum, in order to take full advantage of the proportionate liability provisions; and that it has always been plain that it has been alleging egregious negligence involving an element of deliberateness. Further, Probiotec points out that AZPA has put in considerable effort to have Ms Kurt disavow her affidavit by interviewing Ms Kurt and arranging for her to mark up substantial parts of that affidavit which she testified were false, and arranging for her to be legally represented. As regards any cross claim against a foreign manufacturer, Probiotec says that was always something that could have been done in any event. Finally, Probiotec points out that no adjournment application has been foreshadowed if the amendment were to be allowed. 18 At any stage of the proceedings the Court may grant leave to a party to amend: s 64(1)(b) Civil Procedure Act 2005. In deciding whether to make any order for the amendment of a document the Court must seek to act in accordance with the dictates of justice: s 58(1)(a)(i). For the purpose of determining what is in the interests of justice the Court must have regard to ss 56 and 57 and may have regard to a list of specified matters including the degree to which the parties have been timely in their interlocutory activities and the degree of injustice that would be suffered by parties as a result of the order. Section 56(1) provides "The overriding purpose of this Act and of rules of court, in their application to civil proceedings, is to facilitate the just, quick and cheap resolution of the real issues in the proceedings". For the purpose of furthering that overriding purpose, proceedings are to be managed having regard to a number of objects, including the just determination of the proceedings and the efficient disposal of the business of the Court: s 57. 19 In the present case there are competing considerations, as indicated in the parties' submissions, which I have weighed.

20 Perhaps the strongest matter favouring the grant of leave to amend is that, as Probiotec submits, the evidence which Probiotec has tendered appears to be supportive of its submission that AZPA's conduct was egregious (of course, that is not to pass any judgment on that issue).

21 However, I think that the countervailing matters are weightier. Two of the countervailing matters particularly impress me. First, I cannot exclude the real possibility that, as AZPA has submitted, it would or might well have conducted its case differently if this allegation of fraud, which is the most serious allegation that can be made in civil proceedings, had been pleaded earlier. Secondly, there is no or little explanation for the delay in applying for leave to amend until the hearing and after the evidence has closed. The material which Probiotec points to as supportive of deceit was served a substantial time ago. This is not a case where something has emerged unexpectedly to found a deceit allegation.

CONCLUSION 22 Probiotec's application for leave to amend to plead fraud against AZPA is dismissed.

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