PBL Solutions Limited v AFT Pharmaceuticals Limited

[2023] NZHC 881

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-801

[2023] NZHC 881

BETWEEN

PBL SOLUTIONS LIMITED

First Plaintiff

AFT ORPHAN PHARMACEUTICALS LIMITED
Second Plaintiff

AND

AFT PHARMACEUTICALS LIMITED

First Defendant

HARTLEY CAMPBELL ATKINSON

Second Defendant

Hearing:	On the papers (submissions 30 March and 11 April 2023)
Appearances:	JS Cooper KC, TJ Lindsay and CD Brownlee for the Plaintiffs AS Ross KC, MC Smith and Y Lee for the Defendants
Judgment:	21 April 2023

JUDGMENT OF FITZGERALD J

[As to application to file further evidence after closure of case]

This judgment was delivered by me on 21 April 2023 at 2.00pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

Solicitors:      Lindsay & Francis, Auckland

Gilbert Walker, Auckland

To:J Cooper KC, Auckland A Ross KC, Auckland

PBL SOLUTIONS LTD v AFT PHARMACEUTICALS LTD [2023] NZHC 881 [21 April 2023]

Introduction

[1]    In this proceeding, the plaintiffs claim that the first plaintiff and the first defendant were in a joint venture relationship for the purpose of developing and commercialising orphan drugs.1 PBL Solutions Ltd (PBL) says that the joint venture arrangement gave rise to fiduciary obligations owed by AFT Pharmaceuticals Ltd (AFT) to PBL. PBL further says that in breach of those fiduciary obligations, and/or in breach of contract, AFT effectively “stole” from the joint venture an opportunity relating to a drug called “Pascomer”, and has proceeded to develop and commercialise Pascomer for its own benefit.

[2]    The primary relief sought by PBL is its proportionate share of an account of the future profits expected to be earned by AFT from Pascomer – valued and discounted to enable a “lump sum” payment to be made now.2 In the alternative (though very much advanced as a secondary claim), PBL seeks its proportionate share of future profits actually earned by AFT from Pascomer (as and when they are earned).3 The quantum claimed is substantial, though so too is the extent of dispute between the parties about that sum. PBL seeks an account of profits (based on its view as to the net present value of the Pascomer opportunity) of between US$53 million and US$67 million. Conversely, in addition to denying liability, AFT says that the net present value of Pascomer is virtually nil, or is indeed a negative figure.

[3]    The claim is of some complexity, particularly in relation to quantum. The hearing took place over the period 31 October 2022 to 18 November 2022, and then a further two days of closing submissions on 8 and 9 December 2022.

[4]    Part of the alleged value of the Pascomer opportunity turns on the likelihood of the drug receiving regulatory approval for marketing and sale in  two  key  markets — the US and the European Union (the EU). Also relevant to that value is the timing of a competitor’s product (“Hyftor”, developed by Nobelpharma) receiving approval in those markets. This is because once an orphan drug is approved, it will

1      “Orphan drugs” are drugs developed and prescribed for the treatment of rare medical conditions.

2      Representing the risk adjusted net present value of the Pascomer opportunity.

3      There are also alternative claims under various causes of action for contractual and equitable damages.

enjoy a period of market exclusivity, being seven years in the US and 10 years in the EU.

[5]    An exception to this exclusivity is where a competing but “second in time” drug can satisfy the relevant regulator that it is clinically superior to the first in time drug. By the time of the trial, Hyftor had already been approved for marketing and sale in the US. I accordingly heard considerable expert evidence about the prospect of AFT demonstrating to the Food and Drug Administration (FDA) that Pascomer is clinically superior to Hyftor, and thus could break into what would otherwise be Hyftor’s exclusivity in the US market.

[6]    In contrast, by the time of the trial, and despite Hyftor having had an application for approval pending with the EU regulator (the European Medicines Agency (EMA)) since December 2021, a decision on that application remained pending. Pascomer had not, at the conclusion of the hearing, filed its own application for approval with the EMA (however, it was expected that an application would be made in the months following the hearing).4 I accordingly heard expert evidence on the prospects of Pascomer being approved for marketing and sale in the EU, and the potential implications of the EMA granting Hyftor’s application first.

[7]    Another contentious issue in valuing the Pascomer opportunity was the appropriate discount factor to be used, and in particular the weighted average cost of capital (WACC). Again, I heard considerable expert evidence on the appropriate WACC to be employed. In brief, the plaintiffs’ valuation expert adopted a WACC of 7 percent, or a risk adjusted rate of 10 percent, while the defendants’ valuation expert adopted 12.5 percent.

[8]    At the conclusion of the hearing on 9 December 2022, I reserved my decision. As at the date of this judgment, my substantive decision is still under preparation and is not yet complete.

[9]    On 3 March 2023, counsel for the defendants filed a memorandum raising the prospect of updating evidence in relation to the prospects of Pascomer being approved

4      Subject to the resolution of an issue arising at a Pascomer manufacturing plant.

for marketing and sale in the EU and the appropriate WACC rate. The nature of the proposed new evidence is set out in further detail below. In summary, it comprises:

(a)Evidence of the fact that on 23 February 2023, the EMA’s Committee for Medicinal Products for Human Use (the Committee) recommended granting marketing authorisation for Hyftor in the EU. As well as this factual evidence, the defendants propose further expert evidence on the implications of this development for Pascomer’s prospects in the EU, and thus the value of the Pascomer opportunity.

(b)An update to data which the plaintiffs’ valuation expert relied on in arriving at his 7 percent WACC rate, and further expert evidence based on the updated data.

[10]   The defendants also seek leave to make further submissions in light of the proposed new evidence.

[11]   After the exchange of various memoranda between the parties, I directed that if further evidence and submissions were sought to be offered following the close of the hearing, an application ought to be filed. The defendants accordingly filed an application and supporting affidavit on 16 March 2023. By consent, timetable orders were made for the plaintiffs to file a notice of opposition (and any supporting materials), and for the parties to file written submissions. The parties agreed that I determine the application on the papers.

The proposed new evidence – more detail

The EMA update

[12]   Dr Wright gave evidence for the plaintiffs on the prospects of Pascomer obtaining approval in the EU. He assessed that likelihood as being at 70 percent. The plaintiffs’ valuation expert, Dr Walton, then calculated a risk-adjusted net present value of Pascomer, relying in part on Dr Wright’s evidence as to Pascomer’s prospects of success in the EU. Dr Walton attributed a value of US$21.9 million to US$27.7 million to the 70 percent chance for Pascomer in the EU market. That

assessment also accounted for a number of additional (and disputed) assumptions in relation to the EU market, such as patient numbers, product costs, pricing and the like.

[13]   As noted, Dr Wright’s evidence was that Pascomer had a 70 percent chance of being approved for marketing and sale in the EU. Dr Wright confirmed in cross- examination that this assessment assumed that Pascomer’s approval would be granted “first in time”.5 Dr Wright’s brief did not attribute a specific figure to the likelihood of Pascomer obtaining market approval if Hyftor did so first, although he did note that in that scenario, a discussion about Pascomer’s potential clinical superiority would need to be included in the assessment. Dr Wright then addressed, in some detail, what he considered to be Pascomer’s clinical superiority over Hyftor, at least in relation to the US market. He considered there was a better than 50 percent chance of AFT being able to persuade the FDA that Pascomer is clinically superior to Hyftor (which he described as a conservative assessment).

[14]   In cross-examination, the (then) hypothetical scenario that Hyftor obtained “first in time” approval in the EU was to put to Dr Wright. In that scenario, he confirmed that the Court should apply the same conclusion it reaches in relation to AFT’s ability to establish clinical superiority in the US, to the EU determination.6 Based on that view, Dr Wright concluded that the prospects of Pascomer being approved in the EU were 70 percent “or even better”, though said in cross-examination that that was “somewhat less” if Hyftor was already approved.

[15]   The defendants’ expert evidence on this topic was given by Mr Seiden. He said that Pascomer had a 50 percent chance of obtaining first orphan approval in the EU, though he described that as “a judgment call”. His evidence was that if Pascomer did not obtain first approval in the EU, the prospects of it being approved were nil. Turning to the value implications of Pascomer not being approved “first in time” in the EU, Mr Seiden reduced the value of Pascomer from US$6.7 million to a loss of US$2.4 million.

5      Dr Wright stating in cross-examination that the 70 percent assessment was “subject to Hyftor not being approved at the time that Pascomer is being assessed”.

6      Dr Wright’s evidence in chief was that the clinical superiority exception in the EU regulations is “similar” to the US exception.

[16]   As noted earlier, the updating evidence the defendants wish to file and subsequently  make  submissions on is  the final  opinion of the  Committee dated  23 February 2023 regarding Hyftor. A summary of the Committee’s opinion states that:

On 23 February 2023, the Committee for Medicinal Products for Human Use (CHMP) adopted a positive opinion, recommending the granting of a marketing authorisation for the medicinal product Hyftor, intended for the treatment of angiofibroma.

[17]   A footnote to the document states that “summaries of positive opinion are published without prejudice to the Commission’s decision, which will normally be issued 67 days from adoption of the opinion”. A further footnote states:

This product was designated as an orphan medicine during its development. EMA will now review the information available to date to determine if the orphan designation can be maintained.

[18]   Accordingly, the European Commission is yet to decide on the marketing authorisation of Hyftor, though that can be expected in in the coming weeks.

[19]   The Committee’s summary of opinion also states that detailed recommendations for the use of Hyftor will be described in the summary of product characteristics, which will be published in the European public assessment report after the marketing authorisation has been granted by the European Commission. There is no information before the Court as to when this material will be published.

[20]   In terms of the proposed new expert evidence, the defendants say that it is expected that Mr Seiden will confirm his opinion that in the scenario of Pascomer not “winning the race” in the EU, the EU market for Pascomer has no value and Pascomer overall has a negative value. The defendants say that it is expected that Dr Wright will accept that the prospect of Pascomer being approved in the EU  is now  lower than 70 percent, but that it still has a material prospect of demonstrating clinical superiority. The defendants further say that Dr Walton would be expected to update his valuation to represent Dr Wright’s lower percentage, and to reflect that any potential market would be a duopoly and thus less valuable.

The WACC update

[21]   At trial, Dr Walton used a WACC of 7 percent, or a risk adjusted WACC of 10 percent. Mr Seiden adopted one of 12.5 percent. Dr Walton accepted that using a 12.5 percent discount rate in valuation would reduce his value of Pascomer by US$26.8 million.

[22]   In support of his rate of 7 percent, Dr Walton relied on published cost of capital data collected by a Professor Damodaran as at January 2022. Dr Walton adopted Professor Damodaran’s cost of capital figures for three relevant industries, deriving a weighted mean of 6.81 percent, which he rounded to 7 percent.

[23]   Dr Walton was cross-examined on the proposition that by the time of trial Professor Damodaran’s data was out of date. Dr Walton accepted that, given changes in global market conditions in 2022, there would be a change in the figures and data collated by Professor Damodaran as at January 2023.

[24]   Mr Seiden did not use Professor Damodaran’s data in arriving at his WACC rate of 12.5 percent.  In re-examination, however, he commented on having input   Dr Walton’s  10  percent   risk   adjusted   WACC   rate   into   a   page   on   Professor Damodaran’s website, which resulted in a WACC rate of 12.3 percent. No details were presented in evidence about this however, nor was Dr Walton cross- examined on it.

[25]   The defendants seek leave to produce evidence of Professor Damodaran’s updated data, published as of January 2023. On the basis of this data, it is suggested that the proposed new expert evidence will show that Dr Walton’s cost of capital is approximately equal to Mr Seiden’s. Counsel for the defendants submit the proposed new expert evidence would involve Dr Walton updating his WACC calculations with Professor Damodaran’s new data, and evidence in response from Mr Seiden. The defendants say that if Dr Walton does not voluntarily update his figures, Mr Seiden’s evidence may be more substantive.

Legal principles

[26]   The offering of further evidence after the close of a party’s case is governed by s 98 of the Evidence Act 2006 (the Act). Section 98 relevantly provides:

98       Further evidence after closure of case

(1)In any proceeding, a party may not offer further evidence after closing that party’s case, except with the permission of the Judge.

(2)In a civil proceeding, the Judge may not grant permission under subsection (1) if any unfairness caused to any other party by the granting of permission cannot be remedied by an adjournment or an award of costs, or both.

…

(5)The Judge may grant permission under subsection (1),—

(a)if there is a jury, at any time until the jury retires to consider its verdict:

(b)in any other proceeding, at any time until judgment is delivered.

[27]   The parties agree that the decisions in Jackson v Te Rangi,7 Equiticorp Industries Group Ltd (in stat man) v Hawkins,8 Antons Trawling Ltd v Dawson & Associates Ltd,9 and Savill v Chase Holdings (Wellington) Ltd,10 set out the general principles applicable where an application is made under s 98.

[28]   In Jackson v Te Rangi, the Court described the discretion in s 98 as broad and observed that the common law principles for admission of this type of evidence provide helpful guidance.11 Reference was made to Equiticorp v Hawkins as setting out a helpful summary of the relevant common law principles, namely:12

(a)The discretion should be exercised sparingly once the cases on both sides have closed and leave should only be given in exceptional circumstances.

7      Jackson v Te Rangi [2014] NZHC 2981, [2015] 2 NZLR 351.

8      Equiticorp Industries Group Ltd (in stat man) v Hawkins [1996] 2 NZLR 82 (HC).

9      Antons Trawling Ltd v Dawson & Associates Ltd [2016] NZHC 980, (2016) 23 PRNZ 255.

10     Savill v Chase Holdings (Wellington) Ltd [1989] 1 NZLR 257 (HC).

11 At [112].

12     Above n 7.

(b)Only if the failure to call evidence at the proper time is adequately explained should the discretion be exercised.

(c)The justice of the case must require the admission of the additional evidence.

(d)Leave will be refused if the evidence would have been available had due diligence been exercised.

(e)If the party is taken by surprise, leave will be more readily granted.

(f)The difference between a failure to tender evidence, and an election not to, can be important.

[29]   In Savil v Chase Holdings (Wellington) Ltd,13 Tipping J added the following principles to those referred to above:

(a)The Court should consider whether the new evidence could with reasonable diligence have been adduced at the trial or whether the party seeking to adduce the evidence has shown on a reasonable basis that he did not earlier appreciate its significance.

(b)The Court should consider whether the new evidence will either (a) be conclusive of the case or (b) be at least likely to have a substantial bearing on a central issue.

(c)The Court should consider from the nature of the new evidence how credible and reliable it is likely to be.

[30]   While the common law principles articulated above are helpful, I endorse the comments of Associate Judge Osborne (as he then was) in Lindsay v Nobel Investments Ltd in which he stated that:14

13     Savil v Chase Holdings (Wellington) Ltd, above n 10, at 72–73.

14     Lindsay v Nobel Investments Ltd [2014] NZHC 799 (footnotes omitted).

[123] There is a risk in this area of overlooking the principle, as articulated by the Supreme Court, that “resort is not to be had to the common law where statute covers the ground.”

[31]   Accordingly, while helpful, the principles referred to at [28] and [29] above should not be treated as rigid criteria which must be met in the context of an application to offer further evidence under s 98.

[32]   Counsel for the plaintiffs referred me to further authorities which they submit, and I agree, are also relevant in the context of this particular application.15 The first is the House of Lords’ decision in Mulholland v Mitchell, a personal injuries case, in which fresh evidence about the respondent’s mental condition post-trial was admitted on appeal.16 At trial, damages had been fixed on the basis that the respondent could continue to be looked after at home or, if required, at an ordinary nursing home. Post- trial evidence confirmed that he could no longer be looked after at home and needed specialist care at a psychiatric nursing home.

[33]   Leave was granted by the Court of Appeal to admit this new evidence on the appeal, that decision being upheld by the House of Lords. Lord Hobson described the post-trial developments as a “dramatic change of circumstances after the date of the trial”, to the extent that it “falsified” the basis upon which the trial Judge had arrived at his damages award.17 Lord Hobson further observed that the deterioration of the respondent’s mental health had not been foreseen by his treating doctors, and thus had not been referred to in any of the agreed medical reports.18

[34]   The  other  members  of  the  House  expressed  similar  views,19  though  Lord Wilberforce did describe the case for admission of the updating evidence as “near the  borderline”.20  In   addition,   and   having   reviewed   relevant   authorities,  Lord Wilberforce stated:21

15 For completeness, however, I observe that the authorities (which pre-date 2006) concerned the admission of further evidence on an appeal (that is, rather than after the close of the first instance hearing). They were therefore not decided pursuant to s 98 of the Evidence Act 2006.

16 Mulholland v Mitchell [1971] AC 666 (HL).

17     At 309.

18     At 310.
19 Per Viscount Dilhorne, at 311, and Lord Pearson at 314.

20     At 313.

21     At 313.

These cases are useful as instances, but they cannot be generalised into a formula. I do not think that, in the end, much more can usefully be said than, in the words of my noble and learned friend, Lord Pearson, that the matter is one of discretion and degree. Negatively, fresh evidence ought not to be admitted were it bears on matters falling within the field or area or of uncertainty, in which the trial Judge’s estimate has previously been made. Positively, it may be admitted if some basic assumptions, common to both sides, have clearly been falsified by subsequent events, particularly if this has happened by the act of the defendant. Positively, too, it may be expected that courts will allow fresh evidence when to refuse it would affront common sense, or a sense of justice. All these are only non-exhaustive indications; the application of them, and their like, must be left to the Court of Appeal. The exceptional character of cases in which fresh evidence is allowed is fully recognised by that Court.

[35]   The approach adopted in Mulholland v Mitchell was endorsed in this jurisdiction by the Court of Appeal in Stirling v Poulgrain,22 and McElroy Milne v Commercial Electronic Ltd.23 In McElroy Milne, a damages award turned on the Judge’s assessment of the valuation of a property. The Judge heard expert valuation evidence from both parties and arrived at a notional sale price of $5.25 million. Subsequent to the trial (but before the judgment was sealed), two of the three units in the property were sold at lower prices than that adopted by the Judge. This led to an application to recall the judgment, admit further evidence as to the sales and increase the amount of damages. The application was refused. Subsequently, the third unit at the property was sold and the respondent sought leave to admit additional evidence on the appeal to show the actual selling prices, which totalled only $3.6 million.

[36]   On appeal, the application to admit this evidence was declined, and the Court also endorsed the trial Judge’s decision to decline to admit the further evidence in support of the application to recall the (unsealed) judgment. In dealing with this aspect of the argument, McKay J stated:24

In the present case, the events subsequent to trial have not revealed anything that was not foreseen and taken into account at the trial. All that can be said is that the valuers’ evidence relied upon at trial proved optimistic, and the actual realisation was less than the assessments given in evidence. That was a possibility which must have been well within the contemplation of the respondent when it elected to proceed to trial on the basis of valuation evidence, rather than waiting until an actual sale had been completed. The present case cannot be regarded as an exceptional case, or to adopt

22     Stirling v Poulgrain [1980] 2 NZLR 402 (CA) at 416–417 and 420–421.

23     McElroy Milne v Commercial Electronic Ltd [1993] 1 NZLR 39 (CA).

24     At 58.

Lord Wilberforce’s example, one in which to refuse to allow fresh evidence would afront common sense or a sense of justice.

[37]   With these principles in mind, I now turn to whether the proposed further evidence should be admitted. I address the EMA update first, and then the proposed WACC evidence.

The EMA update – should leave be granted to offer and make submissions on the proposed new evidence?

The defendants’ submissions

[38]   The defendants submit that the EMA Hyftor update was not available before the close of the defendants’ case and accordingly the evidence is “fresh”. The defendants further submit that the evidence is relevant and likely to have a substantial bearing on a central issue in the case, namely the value of the Pascomer opportunity.

[39]   The defendants submit that the Committee’s summary opinion is inherently credible and reliable. The defendants say that there is no prejudice to the plaintiffs, because the fact that the updating evidence will have a negative effect on their quantum claim is not qualifying prejudice. On the other hand, the defendants submit there would be obvious prejudice to them and to the administration of justice if the Court were to produce its judgment on the basis of outdated information, material to the outcome, and now known to be wrong. The defendants submit that “the plaintiffs cannot expect the Court to knowingly proceed on a false basis”.

[40]   The defendants acknowledge the need for finality in litigation. However, they submit that this policy concern sits behind the test imposed by s 98 of the Act, and that test can be met where the proposed evidence relates to material post-trial developments that are relevant to central issues.

[41]   The defendants say that the circumstances of this proceeding, concerning a “live drug in development and before regulators” are such that future developments were expected. The defendants submit that further developments between now and judgment cannot be excluded, although they say that the EMA’s decision on Hyftor was a major outstanding matter that was imminent at the conclusion of the trial.

[42]   The defendants reject the suggestion that in resisting the plaintiffs’ application to adjourn the trial they accepted that the case would be determined on the basis of the evidence available as at November 2022. The defendants say that their position was simply that deferring the trial for 12 months or more would not resolve all other uncertainties.

[43]   The defendants therefore say that orders should be made regarding the admission of the proposed evidence, with timetabling for updating valuation evidence to be given by each of Mr Seiden, Dr Wright, and Dr Walton, with provision for cross- examination if either party desires. There would also need to be some further time for submissions on the basis of the updating evidence.

The plaintiffs’ submissions

[44]   A key aspect of the plaintiffs’ submissions is that the EMA’s consideration of Hyftor’s application for approval was a known contingency at trial, which was taken into account and the subject of the expert evidence. Counsel for the plaintiffs emphasise that the relevant issue at trial – as it remains now – is the value of Pascomer at the time of trial, not at an unknown and updated point in time beyond the trial.

[45]   The plaintiffs rely on the Court of Appeal’s decision in McElroy Milne. They submit that decision is analogous to the present case and would be binding on the Court other than the fact that the Court of Appeal was considering the Court’s inherent jurisdiction to admit further evidence on an appeal. The plaintiffs nevertheless submit that like the valuation issue in McElroy Milne, expert evidence has already been given as to the notional or likely prospects of Hyftor and Pascomer being approved for marketing in the EU, including the prospect of Hyftor “winning the race”. Given the prospect of Hyftor being approved first in the EU was a known contingency addressed at trial, including through cross-examination of the plaintiffs’ witnesses, the plaintiffs submit that the defendants had every opportunity to explore the implications of Hyftor obtaining approval first.

[46]   The plaintiffs further submit that it would be unbalanced and inappropriate to admit the defendants’ proposed evidence without evidence of what efforts AFT and its development partners have taken to get Pascomer approved since trial, which would

be to re-open the trial substantially. The plaintiffs say that admitting the evidence would create a new issue to be tried, namely the prospects of Pascomer being approved for marketing and sale in the EU on the grounds of clinical superiority. The plaintiffs further submit that Mr Seiden’s evidence on the prospects of approval in the EU is not admissible in any event, on the basis he is not qualified to opine on matters concerning the EU, not being a suitably qualified expert in that jurisdiction.

[47]   The plaintiffs also submit that, unlike in cases where permitting further evidence to be adduced would not give rise to significant additional time or cost, admitting the evidence in this case will require a number of expert witnesses, and potentially factual witnesses, to give further evidence, to be cross-examined and further submissions to be made. In these circumstances, the plaintiffs submit that the courts should be slow to admit new evidence, and even slower where the applicant proceeded to trial on the basis there would be uncertainties, but post-trial seeks to adopt (“perhaps selectively”) the occurrence of certain events. The plaintiffs add that granting the application will also set a precedent for re-opening the trial in relation to other valuation contingencies, and for other proceedings where valuation issues at trial were determined by future forecasting. The plaintiffs also submit that there may be the need for further discovery in relation to these developments and AFT’s response to them.

EMA update - discussion

[48]   I was initially of the view that this aspect of the defendants’ application ought to be granted. The EMA Hyftor update is “fresh” in that the development post-dates trial. It is therefore not evidence that could have been called by the defendants at trial. It is also likely to be credible and reliable. Further, and unlike in some of the cases referred to, I am yet to release my judgment. Finally, assuming for present purposes that there is a finding for the plaintiffs on liability, and a finding that an “upfront” account of profits or award of damages ought to be made, I accept that the proposed new evidence would be relevant to material issues in relation to quantum.

[49]   On reflection, however, and in particular after considering the Court of Appeal’s approach in McElroy Milne and the evidence given at trial, I have reached

the conclusion that it is not appropriate in this case to grant this aspect of the application.

[50]   First, and primarily, I accept the plaintiffs’ submission that the prospect of Hyftor being approved first in the EU was a prospect contemplated, specifically considered and taken into account at trial. The expert witnesses gave evidence on this topic and each party thus had the opportunity to offer evidence and to cross-examine on that scenario.

[51]   One of the many “unknowns” addressed at trial is now reflected in an actual post-trial development. However, this is no different to the situation which arose in McElroy Milne. In that case, a notional sale price was fixed for the property in question based on valuers’ expert assessments. The respondent in that case chose to proceed on the basis of valuation evidence, rather than waiting until an actual sale had been completed. The Judge made his assessment on the basis of the valuation evidence. In those circumstances, and as set out at [36] above, the events subsequent to trial did not reveal anything that was not foreseen and taken into account at the trial. Rather it simply revealed that the valuers’ evidence at trial proved optimistic. That is also true in this case. The prospect of Hyftor winning the race in the EU was always foreseen as a possibility and was therefore taken into account in the evidence. Ultimately, and of course subject to the European Commission’s actual decision on Hyftor, the most that could be said is that both Mr Seiden’s and Dr Wright’s evidence as to the prospects of Pascomer being approved first in the EU was optimistic. That said, Dr Wright’s evidence as to Pascomer’s prospects in the EU was not materially different irrespective of whether Pascomer or Hyftor “won the race”, given his view as to Pascomer’s clinical superiority over Hyftor.

[52]   This case is also different from the situation arising in Mulholland v Mitchell, in which the respondent’s condition had unexpectedly deteriorated post-trial. As such, the change in circumstances had not been foreseen by the doctors attending him and was not addressed in the evidence. In contrast, the prospect of Hyftor being approved first in the EU was expressly foreseen by the experts and factored into their assessment of Pascomer’s prospects in the EU. There is therefore nothing unexpected or exceptional about this post-trial development, or that ought to come as a surprise to

the defendants. I also note that in the quite different circumstances in Mulholland v Mitchell, Lord Wilberforce nevertheless described the basis for admitting the updated evidence in that case as “near the borderline.”

[53]   Added to this, I am concerned about the real potential of “unravelling” various aspects of the evidence at trial were the application to be granted. I have considerable doubt that this would be a narrow and discrete issue that would only be the subject of brief updating factual and expert evidence. There would likely need to be, in my view, at least a day allocated for the taking of further evidence, proceeding on the highly likely assumption (in the context of this hard fought case), that each expert would provide a not insubstantial updating brief, with the other party wishing to cross- examine the witness on it. There would also need to be further evidence given on the prospect of the European Commission actually endorsing the Committee’s recommendation, assuming that event had not transpired by the time of any further hearing. Presumably the materials underlying the Committee’s opinion, and the Commission’s decision, would need to be available to fully consider the likelihood of the EMA approving Pascomer on the basis of clinical superiority. There would also likely need to be factual evidence as to what steps AFT and its partners are taking in response to these developments. All of these matters persuade me there is likely to be substantial delay and cost in these matters being dealt with. In this context, the prospect of getting a further one or two days of hearing time before me in the next three to four months is slim, even putting aside counsel and witness availability.

[54]   I am also concerned about the potential precedential effect of admitting this evidence in the context of other valuation contingencies that were taken into account at trial. Ultimately, of course, each proposed item of new evidence would need to be considered on its own merits. However, this would need to be considered against the backdrop of the quantum exercise undertaken at trial being a valuation exercise, with the experts having to predict and give evidence on many future potential events. There is some force, in my view, to the plaintiffs’ submission that to “unpick” aspects of the valuation evidence as and when a contingency taken into account at trial either comes to pass or does not come to pass, as the case may be, risks altering the fundamental approach of the valuation exercise.

[55]   I also take into account that it was the defendants who vigorously opposed an adjournment which would have permitted at least some material events to unfold.25 In their submissions in opposition to the adjournment application, the defendants highlighted that there were a range of uncertainties existing in relation to the quantum aspect of the plaintiffs’ claim, irrespective of when the trial would be held. The defendants referred to correspondence between the parties highlighting these uncertainties, including Nobelpharma’s filed application with the EMA  in  December 2021. The defendants’ position as at July 2022 was that uncertainties in relation to the EU market had always been present and “will take years to play out”. The defendants accordingly submitted that there was no impediment to the Court determining the matter on the information (then) presently available to the parties. In his decision declining the application for an adjournment, and albeit in the context of the US market, Venning J also observed that: 26

The possibility of another drug beating the defendants proposed use to the market was always a possibility that would have had to have been factored into any estimate of damages for loss of profit (including future profit).

[56]   I have also considered whether it would be appropriate to defer this aspect of the defendants’ application to after delivery of my judgment. Ultimately, the proposed evidence will only be of any relevance if there is a finding of liability in favour of the plaintiffs and, if so, that an upfront award of an account of profits is appropriate.

[57]   I have concluded that it would be inappropriate to defer consideration of this aspect of the application. There was an earlier application by the plaintiffs for a split trial, in the event their adjournment application was declined. As acknowledged by all parties, however, and by Venning J in declining the application, a split trial would not be in the interests of the parties or the Court. Ultimately, the Court has heard lengthy and detailed evidence, and submissions, on all aspects of liability and quantum, and the parties are entitled to my decision on all those issues now, rather than in a piecemeal fashion. This is reinforced by the points addressed earlier, namely that the valuation contingencies to which the proposed new evidence relate were foreseen and expressly considered at trial in any event.

25     In particular, AFT’s response to Hyftor’s approval in the US, and the position in the EU.

26     PBL Solutions Ltd v AFT Pharmaceuticals Ltd [2022] NZHC 1576, at [36].

[58]   For these reasons, I am satisfied that there would be unfairness to the plaintiffs were the proposed further evidence to be admitted. Plainly that unfairness cannot be remedied by an adjournment, given the hearing has already concluded. Nor do I consider the unfairness can be met with an award of costs.

[59]This aspect of the defendants’ application is declined.

The WACC update – should leave be granted to offer and make submissions on the proposed new evidence?

The defendants’ submissions

[60]   Much of the matters already traversed in relation to the defendants’ submissions on why the EMA Hyftor update should be admitted apply equally to the Damodaran update. Given the update was only available as of January 2023, the defendants submit it is “fresh”, in the sense of not being available at trial. The defendants highlight that, at least on the basis of what they suggest the further expert evidence will show, the updating evidence significantly reduces Dr Walton’s valuation of Pascomer, even assuming all other aspects of Dr Walton’s valuation are accepted. The defendants highlight Dr Walton’s concession at trial that there had been substantial changes in market interest rates between January 2022 and the date of trial, and his (suggested) acceptance that his WACC calculations could be updated on the basis of Professor Damodaran’s January 2023 data. The defendants submit that, given the potential impact of the new evidence on Dr Walton’s valuation, the proposed new evidence is relevant in a material way to a trial issue.

[61]   The defendants accordingly submit that it is in the interests of justice for the Damodaran updated data to be admitted. They submit that the data renders the basis of the current expert evidence on WACC – or at least that of Dr Walton – outdated in material respects. There is no suggestion, in the defendants’ submission, that the Damodaran data is anything other than inherently credible and reliable, and was plainly considered sufficiently reliable to form the basis of Dr Walton’s original evidence. Standing back, the defendants say that it would be unfairly prejudicial to them, and to the administration of justice, if the Court were to produce its judgment on the basis of outdated information.

The plaintiffs’ submissions

[62]   Again, many of the points made above in summarising the plaintiffs’ submissions on the EMA Hyftor update apply equally to the application for leave to admit the Damodaran data. Counsel for the plaintiffs submit that costs of capital issues were explored at length at  trial,  noting  that  neither  of  the  defendants’  experts, Mr Seiden  or  Mr Graham,  advanced  a  cost  of  capital  theory  based   on Professor Damodaran’s research. The plaintiffs submit that the defendants had every opportunity at trial to explore costs of capital issues and the implications of base rate changes over time, and therefore it is inappropriate for them to have “another bite of the cherry” post-trial, including on the basis of Professor Damodaran’s updated data.

[63]   The plaintiffs further submit that the suggestion that the Damodaran data relied on by Dr Walton was out of date was explored in some detail in the cross-examination of Dr Walton. Therefore, the suggestion that the material is out of date is neither new nor a matter that was not addressed at trial. The plaintiffs submit that if the defendants considered that the Damodaran data relied on by Dr Walton was in fact out of date at trial, then it was incumbent on them to produce evidence of that at trial, not to seek to do so following the conclusion of their case. Accordingly, the plaintiffs submit that the relevance of Professor Damodaran’s research was a live issue at trial and it is now too late for the defendants to seek to re-open and re-litigate these issues.

[64]   Further, the plaintiffs’ dispute that Dr Walton effectively agreed to update his calculations on the basis of the January 2023 Damodaran data, or that to do so would be a relatively quick and straightforward exercise. The plaintiffs refer to aspects of Dr Walton’s cross-examination, to the suggested effect that careful consideration would need to be given as to how and on what basis to update the data underlying the WACC calculations. The plaintiffs also emphasise Dr Walton’s evidence of ongoing volatility in the market, and that “you can take a number today and it may change again tomorrow”. The plaintiffs also highlight Dr Walton’s evidence that he was comfortable that his 10 percent WACC rate was a reasonable figure to value Pascomer on as at the date of trial. The plaintiffs highlight in this context the risk that, by the time these matters can be ventilated, it may well be that Professor Damodaran’s

5 January 2023 WACC data will also be out of date and may give rise to a further application to file updating evidence.

[65]   The plaintiffs accordingly submit it would be an afront to justice for a matter expressly considered and taken into account at trial to be re-opened simply on the basis of – not unforeseen – ongoing volatility in the markets. This in turn reinforces the public interest in the finality of litigation.

The WACC update – discussion

[66]   In my view, this aspect of the application is clear cut. It would not be appropriate to grant leave for further evidence to be offered or submissions to be made on the Damodaran data.

[67]   Again, and like the EMA Hyftor update, the appropriateness of Dr Walton relying on Professor Damodaran’s January 2022 data, and that it was outdated by the time of trial, was fully ventilated and the subject of the cross-examination at trial. It is to be expected, and cannot be a surprise to the defendants, that factors influencing WACC calculations will vary over time. Indeed, the defendants’ current contention that some of the evidence relied on at trial by Dr Walton is out of date is the very same position they took at trial. Nor is it fanciful to suggest that by the time these matters can be the subject of further factual and expert evidence, and then submissions, Professor Damodaran’s January 2023 data might also be said to be out of date.

[68]   Permitting updating evidence on this topic raises the real issue of a perpetual need to update the evidence before the Court. For example, if judgment were to be issued in favour of the plaintiffs, the defendants might then seek leave to admit on any appeal further and later updating evidence of Professor Damodaran; for example, his January 2024 WACC data. This aspect of the application highlights that in the context of a discounted cashflow analysis, expert judgments will need to be made as at the time of trial as to the likelihood of future events and risks coming to pass. It would be inconsistent with this exercise to, in the intervening period between trial and judgment, and then judgment and appeal, to incrementally pick away at uncertainties or contingencies which were the subject of express consideration at trial. This would undermine the principle of the finality of litigation.

[69]   Accordingly, and for much the same reasons given as to the EMA Hyftor update, there would be unfairness were this aspect of the application to be granted, which cannot be cured by an adjournment or an award of costs. There are no exceptional circumstances which warrant the proposed new evidence (and submissions on it) being admitted.

[70]This aspect of the application is also dismissed.

Result

[71]   The defendants’ application for leave to offer further factual and expert evidence, and to make additional submissions on it, is declined.

[72]   My preliminary but non-binding view is that the plaintiffs are entitled to costs, on a 3B basis, on the application. The parties are to seek to agree costs. If they cannot agree, a party seeking costs may file a memorandum within 15 working days of this judgment, with any memorandum in response to be filed within a further five working days. No memorandum is to be longer than three pages in length. I will thereafter determine costs on the papers.

Fitzgerald J