Re Smith Kline & French Laboratories (Australia) Limited and Smith Kline & French Laboratories Limited v Anthony Jospeph Ayres, Secretary, Department of Community Services and Health [1989] FCA 384; 89 ALR 366

Federal Court of Australia|1989-09-21|Before: Gummow J

Mr. Bruce Connell

Smith Kline & French Laboratories (Australia) Limited

Smith Kline & French Laboratories Limited

Solicitors: Minter Ellison

Counsel: Mr. J.C. Campbell Q.C.

Mr. M.J. Ellicott

Secretary, Department of Community Services & Health

Solicitor: Australian Government Solicitor

Counsel: Mr. D.K. Catterns

Mr. R.J. Webb

These proceedings were commenced by Application filed 5 November 1987. The jurisdiction of the Court is attracted pursuant to s. 39B of the Judiciary Act 1903. On 10 November 1987, by consent, the Court made, effective "until the final determination of the proceedings or further order", an order in the following terms:

The reference to the vesting of decision making powers is to powers vested in the respondent inter alia by regulation 5E of the Customs (Prohibited Imports) Regulations in force under the Customs Act 1901. Regulation 5E empowers the respondent to grant an application made under that regulation in respect of certain therapeutic substances.

2. The first applicant carries on the business of developing and marketing in Australia pharmaceutical products and the second applicant is the registered proprietor of Australian Letters Patent No. 460353 relating to the pharmaceutical drug cimetidine; the patent expired on 15 February 1988, but there are currently on foot in the Supreme Court of New South Wales proceedings under Part IX of the Patents Act 1952 for a re-grant by way of extension of that term.

3. By its Further Amended Statement of Claim filed 18 May 1989, the first applicant alleges that on various occasions commencing 17 June 1975, it delivered to officers of the respondent's Department ("the Department") documents relating to products containing cimetidine and proposed to be sold under the trade marks "Tagamet" or "Duractin". The applicants allege that the information in question was confidential in character and was delivered to officers of the Department for a limited purpose. They allege that the information wrongfully has been used and applied in the course of evaluating applications by Drug Houses of Australia Pty. Limited for approval to market a drug containing cimetidine, which is not a Tagamet or Duractin product of the first applicant. The interlocutory injunction, which I have set out, has the effect of preventing any further allegedly wrongful use of the information in question, pending the trial of these proceedings.

"Upon the applicants by their Counsel

undertaking to pay to any party adversely

affected by the interlocutory injunction

. . . such compensation (if any) as the

Court thinks just, in such manner as the

Court directs."

There was thus spelled out the terms of what otherwise (pursuant to Practice Note No. 3 issued by Bowen C.J. on 15 February 1978) is involved in the giving of the "usual undertaking as to damages".

5. By Motion filed in Court on 29 August 1989, Alphapharm Pty. Limited ("Alphapharm") seeks an order that the interlocutory injunction granted 10 November 1987 be varied so as not to forbid the processing, consideration and determination by the officers of the Department of an application made by Alphapharm for approval of its brand of cimetidine.

6. As will be apparent, Alphapharm is not otherwise a party to these proceedings and was not enjoined by the interlocutory injunction in question. However, it was not disputed before me that where an injunction has been granted which affects someone who is not a party to the proceedings, that person may apply in the proceedings for the discharge of the injunction without himself being made a party to those proceedings: Cretanor Maritime Co. Ltd. v Irish Marine Management Ltd. (1978) 3 All ER 164 at 174 per Buckley L.J. Alphapharm is relevantly affected by the interlocutory injunction. It is manufacturer and seller of what it describes as "ethical generic pharmaceuticals". In the course of its business, raw materials are imported and made up into tablet and capsule form in accordance with the requirements of the Department; in some instances, finished products are imported and packaged and marketed in this country by Alphapharm in accordance with the requirements of the Department.

7. On 14 July 1988, Alphapharm made an application to the Department for product approval of its brand of cimetidine. A reply was not received until 31 January 1989. The Head of the Evaluation Support Branch of the respondent's Department wrote to the Managing Director of Alphapharm on 31 January 1989. The letter stated in part:

"The Department cannot process this

application at present because of an

injunction issued in the Federal Court.

This injunction prevents the Department

from using information obtained from

Smith, Kline and French Laboratories

(Australia) Limited in relation to

cimetidine for any purpose other than

matters relating to Tagamet or Duractin

brands of the drug cimetidine."

8. On the hearing of Alphapharm's motion, it became apparent that Alphapharm would accept the continuation of the interlocutory injunction in its present form and without amendment provided that it was assured that it had the benefit of an undertaking as to damages given to the Court by the applicants. To this end, Alphapharm sought to obtain a ruling by the Court that it was already the beneficiary of the undertaking given on 10 November 1987 because it was, within the meaning of the undertaking, a "party". If that transpired not to be the true position, then Alphapharm sought an extension of the undertaking so as directly to extend to it.

9. As to this, the applicants were not in complete disagreement. The applicants were prepared to proffer an undertaking as to damages to extend to Alphapharm with effect from 31 July 1989. That is the date upon which an offer, said to be to the same effect, was conveyed by letter from the solicitors for the applicants to the solicitors for Alphapharm. The offer had not been accepted. The point of difference here between Alphapharm and the applicants was that Alphapharm sought an undertaking with effect from an earlier date. Initially, that date was put as 10 November 1987, but during the hearing of the motion it was put at 14 July 1988, the date of Alphapharm's application to the Department.

10. At the conclusion of the argument, I disposed of the motion by orders in the following terms:

"1. The motion by Alphapharm Pty. Limited filed

29 August 1989 be dismissed on terms that

the Applicants, by their counsel, proffer to

the Court an undertaking to the Court to pay

to Alphapharm Pty. Limited, should it be

adversely affected by the interlocutory

injunction contained in Order 1 of the

Orders of this Court dated 10 November 1987,

such compensation (if any) as this Court

thinks just, in such manner as the Court

directs, this undertaking to have effect in

relation to adverse affectation suffered by

Alphapharm Pty. Limited after 31 July 1989.

2. Alphapharm Pty. Limited to pay the costs of

the Applicants; no order as to the costs of

the Respondent."

An undertaking in the form indicated in Order 1 was then given by the applicants to the Court. I indicated that I would give later the reasons for disposing of Alphapharm's motion in this fashion. What follows are those reasons.

11. I turn first to consider the question whether Alphapharm was already the beneficiary of the undertaking given by the applicants on 10 November 1987 because it was to be identified as "any party". One meaning of the term "party" in ordinary usage is one individual considered in some relation to another individual or individuals. In that wide sense, Alphapharm may be a party adversely affected by the interlocutory injunction. However, I am satisfied that that is not the meaning to be given to the term in question as it appears in Practice Note No. 3 or in the express terms of the undertaking given on 10 November 1987. In my view, in order to be a party there referred to, one must be a party to the proceedings in question. The term "party" is used in this sense in the Rules of Court; see, for example, Order 6.

12. Further, this construction is clearly consistent with the course of development of the undertaking as to damages over the last century. The evolution of the practice in the English Court of Chancery of requiring a successful applicant to do equity by offering an undertaking as to damages as the price for obtaining interlocutory relief was traced by Kriewaldt J. in Chisholm v Rieff (1953) 2 FLR 211 at 214-216, and later by Aickin J. Air Express Ltd. v Ansett Transport Industries (Operations) Pty. Ltd. [1981] HCA 75; (1979) 146 CLR 249 at 259-261. In the United States, the practice has gone somewhat further. Rule 65 (c) of the Federal Rules of Civil Procedure provides:

"65. (c) No restraining order or preliminary

injunction shall issue except upon

the giving of security by the

applicant, in such sum as the court

deems proper, for the payment of such

costs and damages as may be incurred

or suffered by any party who is found

to have been wrongfully enjoined or

restrained. No such security shall

be required of the United States or

of an officer or agency thereof.

. . ."

It appears clear enough that the reference in Rule 65 (c) to "any party" is to parties to the proceedings. It has been stated that the purpose of Rule 65 (c) "is to enable a restrained or enjoined party to secure indemnification for the costs, usually not including attorney's fees, and pecuniary injury that may accrue during the period in which a wrongfully issued equitable order remains in effect": Wright and Miller, "Federal Practice and Procedure", para. 2954.

13. In Joyce, "The Law and Practice of Injunctions in Equity and at Common Law", 1872, Vol. II, pp 1306-1307, the following was set out as an appropriate form of undertaking:

"(T)he plaintiff by his counsel

undertaking to abide by any order the

Court may make as to damages, in case the

Court should thereafter be of opinion

that the defendant shall have sustained

any, by reason of the order, which the

plaintiff ought to pay, . . ."

This was adopted in New South Wales (Cooper v Smyth (1883) 4 NSWLR (Eq.) 39 at 41) and in Victoria (Nicolson v Roff (1884) 6 ALT 97). However, this form of undertaking left unclear the position of a defendant who was not enjoined, but who nevertheless sustained damage by reason of the injunction against one or more of the fellow defendants. It also did not deal with the situation where there were cross- applications for injunctive relief, and it was the application by the defendant as cross-claimant which was successful, so that it was he who was required to give the undertaking. Hence, the attraction of drafting a usual undertaking as to damages in terms of payment to "any party adversely affected by the interlocutory injunction" as is the position with the present Practice Note in this Court.

14. In England, in present times, the usual undertaking apparently applies to all defendants, although not all of them may be restrained by the interlocutory injunction; see "The Supreme Court Practice", 1988, Vol. 1, p 477. This is said to reflect the observation by Cotton L.J. in Tucker v New Brunswick Trading Company of London (1890) 44 Ch D 249 at 252 that "when an injunction is granted the undertaking as to damages ought not to be confined to the persons restrained". Those remarks were referred to as representing the then current New South Wales Practice in 1902 in Rich, Newham and Harvey, "The Practice in Equity", p 19. In the 2nd edition of Parker's "Practice in Equity", p 27, the New South Wales Practice in 1949 is stated to be that previously directed by Harvey C.J. in Eq., namely that the undertaking should be in the form:

"The plaintiff by his Counsel undertaking

to abide by any order which this Court

may make as to damages, in case this

Court shall be of opinion that the

defendant shall have sustained any by

reason of this order or of any interim

continuation of the injunction contained

herein, which the plaintiff ought to pay

. . .".

See also in Victoria, Australian Marketing Development Pty. Ltd. v Australian Interstate Marketing Pty. Ltd. [1972] VicRp 21; (1972) VR 219 at 229, relevantly to the same effect.

15. It is unnecessary to trace the changes in the New South Wales practice from time to time, but I should refer to the Practice Direction issued 9 March 1971 which contained the paragraph:

"Any party seeking and obtaining the

benefit of an interlocutory injunction or

an interlocutory undertaking to the Court

is to be deemed to have given to the

Court the usual undertaking as to damages

regardless of whether such party is named

in the proceedings as a plaintiff, as a

defendant or otherwise."

What is there said is consistent with the Practice Note No. 3 issued in this Court by Bowen C.J. on 15 February 1978.

16. In this Court, there is no provision in the Rules corresponding to the most recent change in New South Wales which was made in 1984. Part 28 Rule 7 (2) of the New South Wales Supreme Court Rules provides:

"7. (2) The 'usual undertaking as to

damages', if given to the Court in

connection with any interlocutory

order or undertaking, is an

undertaking to the Court to submit to

such order (if any) as the Court may

consider to be just for the payment

of compensation, to be assessed by

the Court or as it may direct, to any

person, whether or not a party,

affected by the operation of the

interlocutory order or undertaking or

of any interlocutory continuation,

with or without variation, of the

order or undertaking."

This stands in plain contrast to the terms of Practice Note No. 3 in this Court, and, in my view, indicates the measure of the plain words that would have been necessary if Alphapharm successfully were to bring itself within the operation of the undertaking given in the terms of that accepted by the Court in these proceedings on 10 November 1987. For these reasons, I concluded that Alphapharm should not succeed on the first branch of its argument.

17. I should add that nothing that has been said here is intended to qualify the power of the Court in an appropriate case to require an undertaking as to damages, the beneficiaries of which are not only parties to the proceedings but also other persons whose interests are or may be adversely affected by the grant of interlocutory relief. With the expansion in modern times in the scope of interlocutory injunctive orders, no doubt the number of cases in which such an expanded form of undertaking is appropriate also will increase; see generally Jackson v Sterling Industries Ltd. [1987] HCA 23; (1987) 162 CLR 612.

18. I turn now to consider the other branch of Alphapharm's argument, namely that it should be given the protection of an undertaking as to damages to have effect from 14 July 1988 when it lodged its application for product approval for its brand of cimetidine. As I have indicated, the respondent's Department applied to the application by letter dated 31 January 1989, and at least from that time Alphapharm was on notice that the officers of the respondent's Department were treating themselves as bound not further to deal with the application by reason of the existing interlocutory relief granted to the applicants.

19. In support of the present application, Alphapharm says that the delay in dealing with its application threatens to cost it substantial amounts in possible sales, and thereby adversely to affect Alphapharm's business, and that it may be difficult accurately to quantify the loss which Alphapharm may suffer.

20. On the other hand, the following passage appears in para. 19 of an affidavit sworn on 6 June 1989 by Mr. Duchen, the Managing Director of Alphapharm, for another purpose but read on the present motion:

"19. Alphapharm has not sought to intervene in

these proceedings prior to this time.

Alphapharm took a commercial decision that

the costs to Alphapharm of such intervention

might not have been justified, as it

appeared to Alphapharm that (the Department)

was not willing to concede the entitlement

of the Applicants to the relief which they

sought. Alphapharm also expected that the

proceedings would have been resolved in the

space of a few months and took the view that

the issues raised by the Applicants were

best able to be argued by (the Department)."

21. I have set out a portion of the letter dated 31 January 1989 from the head of the Evaluation Support Branch of the respondent's Department to the Managing Director of Alphapharm. The letter also includes the following:

"The Department has obtained legal advice

that it is unable to process your

application if;

. there is any need for the evaluator to

directly consult the data or samples

which have been provided by SK & F, or

. if the evaluator or any other person

involved in the evaluation process has

any sense of relying on the experience

which they have gained through

evaluating SK & F material in the

course of making the evaluation of the

Alphapharm product.

While legal action is pending the

Department could be found to be in

contempt of court if it were to proceed

to process your application and were

found to come within either of the above

circumstances."

22. Counsel for the applicants submitted, with considerable cogency, that the immediate cause in the delay in dealing with Alphapharm's application was the failure by Alphapharm to support its application with its own information. The extent to which the Department, in dealing with Alphapharm's application, was free in law to utilise information provided by the first applicant in relation to its application, was the central issue at stake in the litigation.

23. Alphapharm submitted that this was the first case of its kind in Australia, where what the applicant sought to restrain was the use by a government of information provided to it, rather than the publication of that information. That may or may not be so. Castrol Australia Pty. Ltd. v EmTech Associates Pty. Ltd. (1980) 51 FLR 184, would appear to deny the assertion of novelty. In any event, the novelty of the proceedings cannot of itself in the present circumstances supply any significant ground for requiring an undertaking of the kind now sought by Alphapharm. The evidence indicates delay, with knowledge of the attitude of the respondent's Department, since 31 January 1989, the delay being pursuant to a particular commercial decision that was taken by Alphapharm.

24. In those circumstances, the applicants ask why they should be required to submit to a retrospective increase in what they described as the price they are called on to pay for the grant and continuation of interlocutory relief; cf. Kerridge v Foley (1968) 1 NSWLR 628 at 630. I agree. In my view, no case has been made out which calls for the provision of an undertaking extending to a time earlier than that offered by the applicants, namely 31 July 1989.

25. For these reasons, I made Order 1 of the Orders I have set out earlier. What has been said also explains the order made as to costs of the motion.

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