R v Comax-Pharma Pty Ltd

[2008] NSWDC 200

Reported Decision: 7 DCLR (NSW) 288

District Court

CITATION:	R v Comax-Pharma Pty Ltd [2008] NSWDC 200
HEARING DATE(S):	12 September 2008
JUDGMENT DATE:	18 September 2008
JURISDICTION:	Criminal
JUDGMENT OF:	Goldring DCJ
DECISION:	On Count 1 taking into account offence on Crimes Act s 16BA Form the offender is fined $270,000. On Count 2 the offender is fined $252,000.
CATCHWORDS:	CRIMINAL LAW - manufacture counterfeit therapeutic goods - penalty
LEGISLATION CITED:	Therapeutic Goods Act 1989 Crimes Act 1914 (Cth)
CASES CITED:	R v Pan Pharmaceuticals Ltd NSWDC 12 December 2005
PARTIES:	Crown Comax-Pharma Pty Ltd (Offender)
FILE NUMBER(S):	08/11/0027
COUNSEL:	R J Bromwich (Crown) TG Feerick, solicitor (Offender)
SOLICITORS:	Commonwealth DPP Frontier Law Group

SENTENCE

1. Comax-Pharma Pty Ltd (Comax) pleaded guilty to two charges that it manufactured therapeutic goods knowing that those goods were counterfeit, because they contained false representations about the identity of the goods, contrary to the Therapeutic Goods Act 1989, (the Act), section 42E. It also asked me to take into account a further charge that it breached a condition of a licence under that Act by failing to ensure that the person, nominated by it as having control of quality control measures in respect of the goods, maintained that control.

2. The maximum penalty for each of the two charges in the indictment is $220,000 for individuals, but because the offender is a corporation, the maximum pecuniary penalty is five times that sum, $1.1 million.

3. A number of other persons have been charged in relation to this offence, as accessories. Each has now pleaded guilty, having earlier defended the charges, and they will be sentenced later. They are Dr Shahid, Dr Adil, and Mr Jobanputra. Dr Shahid was the quality control manager of the offender, Dr Adil was the quality assurance manager, and Mr Jobanputra, the production manager. In theory, the production and quality control operations of the offender were supposed to be separate, according to the code of good practice for the pharmaceutical industry, but, in fact, Dr Adil was answerable to Dr Shahid, and Dr Shahid appeared to be answerable to Mr Jobanputra. There was a director of the offender, Mr Sohn, but I am told from the Bar table that he knew nothing of these offences until they had been reported. It is the responsibility of the directors and officers of a corporation that they ensure that the corporation obeys the law, and it is that failure on the directors’ part that gives rise to the charge on the s 16BA Form.

4. At the time the charges were laid, the company appeared to be functioning, but it subsequently went into administration, and is now in liquidation. A committal hearing was held and the offender and the three individuals defended the charge against them. A solicitor represented the liquidator on the sentencing hearing. The company has stopped trading, and the three other persons charged are no longer employed by it.

5. At relevant times Comax held a licence under the Act to manufacture goods of specified classes, including those in respect of which these charges were brought. The Act (s 3) gives an extended definition to the term 'manufacture', and it includes any part of the process of bringing the goods to their final state including labeling, testing or releasing for supply the goods or any component or ingredient of them. Therapeutic goods are counterfeit, and therefore manufactured in breach of the Act, s 42E, if false representations are made about them in documents or records relating to the goods or their manufacture. These charges concerned internally generated records and laboratory test results in respect of two particular therapeutic goods, which Comax manufactured on a contract basis for companies, which held the registration for those goods.

6. The two products in question are batch 9993 of AB Isobone, which is indicated for temporary pain relief for rheumatism and symptomatic relief of rheumatism and osteoarthritis, and batch 10121 of Lior Red Grape Seed, indicated for use to assist with maintenance or improvement of general well-being and to help maintain a healthy immune system. This product was also released by Comax as a finished product using a registered export alias, Hi-Life Red Grape Seed, batch number 10128.

7. Comax adopted, for both these batches, the TGA laboratories guideline for assessing the results of microbial tests on non-sterile pharmaceuticals. These guidelines provided test limits for products containing raw materials of vegetable or animal origin. These limits included specified amounts of yeast, mould, enterobacteria, E coli and salmonella. E coli and salmonella are both a risk to human health, E coli if it can be detected in 1 g of the product, and salmonella if it can be detected in 10 g of the product. The limits are expressed in terms of not more than (NMT) 100 colony forming units (cfu) per gram. The standards allow a certain tolerance.

8. Comax had its own specifications. This was, in each case, 100 cfu/g without the tolerance allowed by the TGA standard. The test limit for both the batches in question was exceeded. The failed tests for both batches indicated that neither E coli nor salmonella had been detected, but there was a risk that this was a ‘false negative’ because where there is a reading of between 100 and 500 cfu/g, the presence of E coli and salmonella among other enterobacteria can be masked. When the reading is above 500 cfu/g, the masking effect risk is much greater. In fact, as part of the investigation by the Therapeutic Goods Administration (‘TGA’), further tests were undertaken on both batches, and those tests did not detect levels of enterobacteria in excess of the guidelines.

9. Comax contracted out its laboratory testing to a licensed laboratory, AMS Laboratories Pty Ltd. The results produced by that laboratory have never been invalidated and it has not been suggested that the laboratory had any knowledge of the substitution.

Offence in relation to AB Isobone

10. The test procedures and records in this case were falsified in the following way. When Comax found that the microbial test results for the batches were fail results, it submitted for retesting samples purportedly from the same batch of each product, but which were, in fact, not samples from those batches at all. In the case of AB Isobone, the sample submitted was from a prior batch of the same product. In the case of the grape seed, the sample was from a batch of a different grape seed product made for a different customer. The retesting of both batches produced a pass result.

11. In my view, the obtaining of a fail result was not, in itself, serious. The serious element of the offences was the deliberate submission for retesting of samples drawn from a different bulk of the product from that which Comax intended to supply.

12. Comax also produced an internal interim certificate of analysis which falsely stated that batch 9993 of AB Isobone had passed microbial testing, when the only existing test result at that time was a fail result. This is also a serious element of the offence.

13. Late in January 2005, a Dr Ahmed, a microbiologist employed by Comax, reported the matter to the TGA. There was also another ‘whistleblower’. Dr Ahmed supplied copies of key documents and gave them to the TGA. This led to the execution of search warrants and obtaining of further witness statements.

14. The manufacture of batch 9993 of AB Isobone took place on 15 December 2004 and the test commenced the following day. Dr Ahmed was instructed to undertake unofficial microbial testing, and he obtained a fail result. It took several days. About 20 December 2004, Dr Ahmed reported the results to Mr Jobanputra, who said that the result must be wrong. The batch was intended to be exported and there was pressure to complete the delivery. A sample from the batch was sent to AMS Laboratories Pty Ltd on 17 December, before Dr Ahmed had any results.

15. On 21 December 2004, Dr Adil signed an internal ‘interim report certificate of analysis’ which included the following entry: " Enterobacteria Not more than 100 cfu/g". By that time, the internal testing by Comax revealed an enterobacteria count of 390 cfu/g. On 24 December, at about 3 in the afternoon, the laboratory faxed a certificate to Comax stating that the sample had failed to meet the specifications because the enterobacteria count was too high.

16. The next working day was 29 December. Mr Jobanputra came to the general office area where Dr Adil and Dr Shahid worked. Dr Ahmed was also present. Dr Adil and Dr Ahmed both said that the results were outside the specification. Mr Jobanputra was sitting at Dr Shahid's desk. He wrote on a small yellow post-it note "send old batch to get and get new test result" and attached the note to the certificate. Dr Ahmed asked Dr Adil about this message and specifically asked if Comax was going to swap the samples. Dr Adil replied, "Yes, they do it that way."

17. The same day Dr Adil prepared and signed the final internal certificate of analysis which falsely represented that batch 9993 of AB Isobone had no more than 100 cfu/g of enterobacteriaceae, and therefore had passed testing. Dr Ahmed was told to countersign the certificate, but gave evidence at the committal that he did not realise that he was signing a false certificate until later. Dr Adil said that he was told to sign the fake certificate by Mr Jobanputra, to enable the product to be released. He said that he, Dr Adil, knew that this was not correct and questioned Mr Jobanputra. Mr Jobanputra told Dr Adil that he would accept responsibility. Mr Jobanputra apparently was very angry with Dr Adil, who felt intimidated.

18. The false certificate was sent to the customer, who required a certificate of analysis.

19. On 4 January 2005, Dr Adil signed a check list of ‘release for supply bulk of batch 9993 of AB Isobone’ which falsely stated that quality control tests had been taken and passed. At the time Dr Adil knew that the only test result was a fail result.

20. On the same day, the second purported sample of batch 9993 of AB Isobone was sent to the laboratory for retesting. In fact, this sample was taken from batch 9903. The Crown case is that Dr Shahid organised this at the direction of Mr Jobanputra. On 10 January 2005, the laboratory faxed to Comax a new certificate of sample indicating that the sample had passed. It was false because the sample was, in fact, from a different batch. The batch was exported to Vietnam, but subsequently repatriated and returned to Comax. No part of it reached any consumer.

Offence in relation to Red Grape Seed

21. Genesis MFG Australia Pty Ltd was the sponsor for Lior Red Grape Seed. On 16 November 2004, it placed an order initially for 200,000 capsules with a delivery date before 20 January 2005. This was subsequently increased to 300,000 capsules on or before 17 January 2005. The capsules for batch 10121 were made by Comax on 11 January. On the same day a sample was sent to the laboratory for microbial testing. On 17 January, the laboratory faxed a certificate indicating that the sample had failed to meet specifications because the enterobacteriaceae count was too high (220 cfu/g). The next day a second purported sample for batch 10121 was sent to the laboratory. In fact, this sample came from batch 9981 of Homart grape seed. This happened because a junior employee of Comax, Mr Choudhari, was instructed to obtain samples from batch 9981 and change the label to show batch 10121. The dispatch record produced for Comax falsely represented that the sample was from batch 10121. On 24 January, the laboratory faxed a new certificate of analysis to Comax, indicating that the sample had met the specifications and passed. This certificate was false because the sample was from a different batch.

22. This product was never finally packaged in the intended form because, when it became aware of what had happened, the customer cancelled the order. Some of it was repackaged under Comax's own label, but was never sold.

The seriousness of the offence

23. Offences of this nature are particularly serious because of the potential risk to human life and health. The statutory regime for the control and manufacture of therapeutic goods is strict because, if stringent requirements are not complied with, there is a risk that the products will be unsafe. I emphasise that, in this case, there is no evidence that any product manufactured by Comax actually caused a risk of harm to anyone. However, unless the requirements for testing and marketing of therapeutic products are enforced strictly, there is a danger to health generally.

24. The falsification of the testing process in respect of both products was carried out because Comax and its senior officers, particularly Mr Jobanputra, were anxious that the customers should receive the products on time. They appeared to act with reckless disregard of the potential risk, for example, of the presence of salmonella or E coli organisms in the capsules. If the deceitful activities had resulted in death or injury to a consumer, the company and its officers might well be facing more serious charges. The only possible motive for Comax to commit the offences was that it would lead to profitable trade.

The appropriate penalty

25. In the circumstances, in the case of an individual offender, it is possible, indeed likely, that the only appropriate penalty would be a sentence of full-time custody. The offence is so serious that the penalty must be substantial.

26. The persons responsible for these offences, Mr Jobanputra, Dr Adil and Dr Shahid, were senior officers of the company.

27. Because the company is in liquidation, what, in respect of individuals, is referred to as ‘personal deterrence’ is not relevant here.

28. What is important is the message these sentences send to the community, and in particular to the therapeutic goods industry. General deterrence is important, both for corporations who might otherwise be tempted to commit similar offences, and to the employees and officers of such corporations, who must be aware that their careers, and indeed their very employment, will be at risk if such conduct is allowed to continue unpunished. The financial penalties may reasonably be such as would force corporations out of business, in sufficiently serious cases. The message should be that every director, officer and employee of a business engaged in the production of therapeutic goods, should be vigilant to ensure that offences are not committed. In this case, the offences were detected before any possible harm could have ensued, because of the vigilance of a diligent employee.

29. The statutory regime established by the Therapeutic Goods Act depends very largely on self-regulation. That means that every business in this industry is required to put aside the profit motive, if profitability might conflict with the requirements of the regime. This is not an undue interference with the operations of the market, or with the obligations of directors and officers of a corporation, because Parliament has determined, in the interest of public safety, to establish a regime of self-regulation which requires a great deal of commercial self-control. That policy overrides the obligations to make profits, and must be enforced by severe punishment of those who do not exercise the necessary measure of commercial self-restraint.

30. The Crimes Act 1914, s 16A, provides a checklist, which is less applicable in the case of corporate offenders than it is in the case of individuals, but I have considered each of the relevant matters specified in that section. Neither Comax, nor any of the individual officers concerned, has any previous convictions.

31. In this case, there appeared to be an attitude within Comax that it was acceptable to falsify test results, and to issue false certificates in respect of therapeutic goods. In respect of both the products giving rise to these charges, the unlawful activities were undertaken by senior officers of the company, acting deliberately if not for profit, by inference from their own desire to be seen in a favourable corporate light. The ignorance of the director is absolutely no excuse. It was his responsibility to be vigilant to ensure compliance with the law. The two offences were discovered due to the prompt action of a ‘whistleblower’. This suggests that there was a culture of non-compliance with the regulatory regime which, if it had not been stopped, might well have resulted in further offences. That does not suggest that I should do anything other than impose a penalty for those offences of which the offender is guilty.

32. The plea of guilty was entered at, or shortly before, the date fixed for trial of both the offender and of the individuals who have been charged. However, there was a contested committal hearing, so any discount for the plea of guilty will be less than if it had been entered at the earliest opportunity, because the Crown has been relieved, only partly, of the need to prepare a complicated case. I propose to reduce the fines that I will impose by 10% to represent a discount for the value of the plea of guilty, in reducing the need for a long and costly trial.

33. I have been provided with some remarks on the sentencing of other persons charged with offences under the same statutory provision.

34. Of those, only the remarks of his Honour Judge Charteris SC in Pan Pharmaceuticals Ltd (12 December 2005) really provide me with any guidance. In that case, a company was convicted of a much larger number of offences and also of some offences under State law. In that case, the company had actually manufactured and sold therapeutic products to members of the public, some of whom had suffered illness as a result. There was, undoubtedly, within the company, a culture of non-compliance with the regulatory regime. However, I regard the fines as imposed by his Honour as being reduced substantially because of the principles of totality, in view of the overall number of offences. The principle of totality applies here because there are two offences, but, because there are only two offences, the effect of the principle is to effect a smaller reduction in the individual fines for each offence. I accept his Honour's starting point of a fine of $500,000 as being appropriate in general terms. In my view, the offences committed by Comax are not as serious as those committed by the offender in the Pan case, because no harm was actually caused. The culture of non-compliance had not developed in Comax to the same degree as it had in Pan. Nevertheless, there was a reckless disregard for the law, and for community safety at the highest levels of management, and a preparedness on the part of senior managers to disregard safety and the law, in the pursuit of profit.

35. In other respects, I respectfully adopt and apply what Judge Charteris said in the Pan case.

36. It was submitted before me, as it was before Judge Charteris, that the interests of unsecured creditors must be considered. That is undoubtedly true, but, in my view, the public interest in sending a message to the industry and the community must outweigh the interests of any particular creditors.

37. The offender, having pleaded guilty, is convicted.

38. In this case, I have had regard to the principle of totality. On the first count, taking into account the offence on the form tendered in accordance with the Crimes Act section 16BA, but for the plea of guilty, I would have imposed a fine of $300,000. That will be reduced to $270,000. On the second count, making a similar discount, there will be a fine of $252,000. The total fine will therefore be $522,000.

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