F H Spaulding & Co Ltd v Ranbaxy Laboratories Ltd
[2004] VSC 347
•27 August 2004
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
PRACTICE COURT
No. 7597 of 2004
| F.H. FAULDING & CO LTD | Plaintiff |
| v | |
| RANBAXY LABORATORIES LTD | Defendant |
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JUSTICE: | OSBORN J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 27 AUGUST 2004 | |
DATE OF JUDGMENT: | 27 AUGUST 2004 | |
CASE MAY BE CITED AS: | F.H. FAULDING & CO PTY LTD v RANBAXY LABORATORIES LTD | |
MEDIUM NEUTRAL CITATION: | [2004] VSC 347 | |
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Injunction sought – Form of injunction sought unsatisfactory – Serious question to be tried but factual basis of claim attended by doubt – Balance of convenience - Plaintiff’s application dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N. Mukhtar QC with Mr P. Nicholas | Minter Ellison |
| For the Defendant | Ms H.M. Symon SC with Mr Cordner | Deacons |
OSBORN J:
The background to this matter is set out in my extempore reasons given on 19 August 2004 for the grant on an interim basis of an interlocutory injunction for the benefit of the plaintiff.
I shall repeat only what I regard as essential matters. The defendant manufactures generic oral pharmaceutical drugs in India. In July 2000, it appointed the plaintiff as its exclusive distributor within Australia of certain pharmaceutical drugs for a period of ten years pursuant to a written licence agreement (“the agreement”).
On 4 July 2004 the plaintiff publicly announced that it intended to sell its Australian oral generic pharmaceutical business to Apotex Australia Pty Ltd (“Apotex”) by way of a transfer of shares in the vehicle for that business, being a company known as GenRx Pty Ltd (“GenRx”).
The defendant contends that this sale and an associated purported grant to GenRx of rights pursuant to the agreement constituted a breach of the agreement and in particular, clause 22.1 which provides that neither party may assign or transfer “the agreement” without the prior written consent of the other party.
The plaintiff's position is that the transaction upon which the defendant relies is a delegation in accordance with clause 24.2 of the agreement, which provides the performance of any or all of a party's obligations or the exercise of any or all of a party's rights under the agreement, may be delegated to affiliates and to delegates of that party.
It is further provided such delegation will not derogate from each party's obligations or rights under the agreement.
The plaintiff's position was stated by way of letter to the defendant on 6 July 2004 as follows:
"We confirm that GenRx Pty Ltd was sold to Apotex Australia Limited on 1 July 2004. We can confirm that under the terms of the sale, we did not assign any of our rights under the agreement to Apotex or GenRx. Accordingly there has been no breach of the assignment clause of the agreement. Pursuant to clauses 2.1, 2.2 and 24.2 of the agreement, we, by this letter, on behalf of our subsidiary, F.H. Faulding & Company Limited are notifying Ranbaxy that we have nominated GenRx as a delegate of F.H. Faulding & Company Limited for the purposes of the agreement."
On the same day, the plaintiff also advised the defendant by e-mail that all future orders of pharmaceutical drugs pursuant to the agreement would be made by GenRx rather than the plaintiff.
In reliance upon its view that the transaction involving the plaintiff, GenRx and Apotex should be characterised as an unauthorised assignment however, the defendant gave notice on 20 July 2004 giving the plaintiff 30 days to remedy such breach of the agreement.
Consequent upon the expiration of that period, the defendant now contends the licence has terminated under the agreement or alternatively, that the agreement itself has been repudiated by the plaintiff's on-going refusal to abide by its terms.
The plaintiff contends that once it is established that there is a genuine question for arbitration in accordance with the provisions of the agreement and in particular, clause 18.1 which provides for the submission of disputes to arbitration, an injunction should go to preserve the status quo.
I should add that there is no dispute as to the Court's jurisdiction to grant such an injunction.
The plaintiff further contends that the cessation of supply to GenRx pursuant to the agreement, will cause loss to the plaintiff because it has retained substantial distribution functions under the agreement. It contends that it will suffer loss, despite the provisions of clause 17.7 of the agreement, which governs the situation after termination and purports to provide for some 12 months continuation of supply by the defendant during a run-off period. I will return to this provision in due course.
Mr Mukhtar of Senior Counsel, who appeared for the plaintiff submitted and I accept that a serious question arises as to the true meaning of clause 24.2 and in particular, the ambit of the power to delegate rights. When read in the context of the agreement as a whole, the meaning of the clause permits of some substantial argument which counsel have developed before me with some subtlety. Nevertheless it appears to me that prima facie, a delegation cannot extend to an assignment and that the notion of delegation assumes that rights will be exercised for the purposes of the licensee and not for the purposes of another business now controlled by another entity.
The plaintiff has elected to place no material before the Court directly evidencing the substance of the transaction in issue. This is so despite reservations expressed by me last week, that doubts as to the factual basis of the plaintiff's case might raise questions as it its relative strength. In my view, the clear inference to be drawn is that the broad characterisation of the transaction for which the defendant contends is on the preliminary material before me, more probably than not, correct. The Defendant contends that the plaintiff has transferred its equity in and control over the relevant pharmaceutical business to Apotex and that the purported delegation is ancillary to and consequential upon this transfer and is in substance, an assignment. Having said this, I accept that the plaintiff retains a subsidiary interest in the operations of such business by virtue of its role as a pre-wholesaler, a wholesaler and a participant in retailing arrangements.
The injunction the plaintiff seeks is in floating terms, namely that the defendant, whether by its employees, agents or otherwise, be restrained from terminating the in-licence distribution and development agreement made between the plaintiff and the defendant on 17 July 2000 by acting on or giving further effect to its written notice of termination dated 20 July 2004.
It is apparent that an injunction in these terms would not of itself resolve the question of whether the defendant is required by the agreement to supply GenRx.
Furthermore the plaintiff's own case as put to the Court embraces alternatives which would either necessitate or alternatively not require continuing supply to GenRx. The plaintiff's contention is that if, contrary to its primary position , an arbitrator or Court were to ultimately to find that an invalid delegation has occurred, the consequence would be not that the agreement has been terminated, but that the obligation to supply devolves back to the benefit of the plaintiff.
It can be seen that given the terms of the injunction sought, and having regard to the respective positions of the parties overall, the injunction would remain contentious as to its effect. This would be so in circumstances where the injunction would, if given the effect apparently intended for it by the plaintiff, have mandatory consequences requiring ongoing supply of pharmaceutical products for a potentially extended period.
In this regard, I note that the Court was advised that in an existing arbitration proceeding, which the plaintiff has instituted under the agreement, an arbitrator has not yet been appointed, despite the elapse of three months of preliminary procedural steps.
In my view, even if the principal questions of construction of the contract which are in issue between the parties are resolved wholly or substantially in favour of the plaintiff, the plaintiff's case is a doubtful one, having regard to the apparent character of the transaction which the plaintiff seeks to label as a delegation.
In Bullock v Federated Furnishing Trades Society of Australasia[1], Woodward J. with whom Smithers J. agreed, stated as follows:
"The only point I would wish to add for myself is that, when it becomes necessary to consider the balance of convenience, it is, I believe, quite proper to continue to bear in mind the apparent strength of the applicants' case; the two legs of the test need not be considered in isolation from each other. Thus an apparently strong claim may lead a court more readily to grant an injunction when the balance of convenience is fairly even. A more doubtful claim (which nevertheless raises 'a serious question to be tried') may still attract interlocutory relief if there is a marked balance of convenience in favour of it."
[1](1985) 60 ALR 235 at 241
Likewise in Optus Networks Pty Ltd v Boroondara[2], Charles JA (with whom Ormiston and Callaway JJA concurred as to this aspect) cited with approval the statement of the Full Court in K-Mart Australia Ltd v Stud Park Investments Pty Ltd[3]
"When, assuming there is a serious question to be tried, the Court is determining whether an interlocutory injunction should be granted, an evaluation of the seriousness of the question to be tried, and in particular the strength of the plaintiff’s case, generally ought to be considered together with, and as part of the overall assessment of, the balance of convenience."
[2][1997] 2 VR 318 at 329
[3](unreported, Full Court, 14 October 1994)
I turn then to the balance of convenience. In addition to the matter I have just referred to the following considerations do not favour the plaintiff.
Firstly, I am not satisfied the plaintiff's affidavit material establishes that it is at risk of serious loss from its subsidiary operations if no injunction is granted. More particularly, it is not established that the continuing supply of drugs of the types in issue, is not feasible from other sources.
Secondly there is no satisfactory evidence that the plaintiff will suffer loss pursuant to contractual obligations to Apotex or GenRx if no injunction is granted.
Thirdly, I am satisfied that if as appears to be common ground, Apotex is a direct commercial competitor of the defendant, there is a substantial risk that compelling the defendant to exclusively supply GenRx within Australia, which supply will necessarily be controlled as to its extent and nature by Apotex, may well cause the defendant significant economic loss.
Fourthly, I am not satisfied any loss the plaintiff will suffer as a result of failing to enforce its interpretation of the agreement on a continuing basis, is not compensable by damages. To the contrary, it appears to me that there will be sales and other evidence directly facilitating the quantification of any damages and there is no suggestion that the defendant is impecunious.
Fifthly, I am not satisfied that the plaintiff contends in substance for the maintenance of the status quo. In my view, the sale of GenRx and the associated purported delegation of rights to it, fundamentally altered the status quo. The Court is now faced with the necessity to evaluate the consequences of that change. This is not a case in which the plaintiff seeks to maintain existing stable arrangements.
Sixthly, the agreement itself provides for the continuation of run-off supply after termination of the licence. Although there may be some doubt about the extent and consequences of the obligation, the defendant has proffered an undertaking to supply the plaintiff as distinct from GenRx, in accordance with its understanding of the obligation in the following terms:
"Ranbaxy undertakes to accept orders from F.H. Faulding in accordance with the agreement and to supply F.H. Faulding the Ranbaxy products for the nominated 12 month period after termination."
Seventhly, I do not accept that if the plaintiff has assigned the benefit of the agreement in breach of clause 22.1, it is likely an arbitrator or Court would ultimately take the view that the plaintiff having wrongly required the defendant to supply the assignee, and the plaintiff having wrongly failed to respond to the defendant's complaints and notice of breach, the plaintiff can simply reinstate the original basis of performance of the agreement at the conclusion of some future proceeding.
Lastly, I do however accept that the ultimate question for the Court is whether it is just in all the circumstances of the case, that the plaintiff obtain the injunction it seeks. I am not so persuaded on the plaintiff's material, both viewed as a whole and for the specific reasons I have identified.
In summary, firstly the form of the injunction sought is unsatisfactory. Secondly, although I accept the plaintiff's case raises serious questions to be tried, its factual basis is attended by substantial doubt and thirdly, I am not satisfied the balance of convenience favours the grant of the injunction sought.
In the circumstances, provided that the undertaking proffered by the defendant with respect to run-off supply is given, the plaintiff's summons will be dismissed.
I am also minded to order that the original documents provided by the plaintiff on subpoena to the Court, be released to the plaintiff's solicitors.
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