The undertaking as to damages: Cth v Sanofi
The High Court (by 3:2) has dismissed the Commonwealth’s attempt to claim $325 million from Sanofi on the undertaking as to damages Sanofi gave when granted an interlocutory injunction against Apotex’ introduction of generic clopidogrel.
In the High Court, the main point was when it is appropriate for the High Court to overturn concurrent findings of fact by the primary (trial) judge and the intermediate court of appeal (here, the Full Federal Court). Apart from that (somewhat rarefied) issue, there are two more generally applicable points to consider.
Some background
Sanofi had a patent in Australia (amongst other places) for the drug clopidogrel which Sanofi marketed as Plavix and was used for the treatment of heart attacks and stroke.
Around the time Apotex obtained registration of its generic clopidogrel in the Australian Register of Therapeutic Goods (ARTG), it began Court proceedings against Sanofi seeking revocation of Sanofi’s patent. Sanofi cross-claimed for infringement and sought an interlocutory injunction.
On 25 September 2007, Gyles J granted Sanofi the interlocutory injunction restraining Apotex from infringing the patent pending trial on Sanofi giving “the usual undertaking as to damages”.[1] Earlier, in the course of the hearing on the interlocutory injunction application, Apotex in effect gave an undertaking not to apply to register its clopidogrel in the Pharmaceutical Benefits Scheme (PBS) if Sanofi was granted the interlocutory injunction against infringement.
After the trial on substantive issues, Gyles J found Sanofi’s patent valid and infringed. In August 2008, therefore, Gyles J granted a final injunction against Apotex infringing the patent.
On appeal, however, the Full Court found Sanofi’s patent invalid so it was revoked and the injunction was rescinded.
First, Apotex claimed damages on the undertaking on the basis that it had lost sales as a result of the interlocutory injunction. Sanofi and Apotex reached agreement compromising that claim without a Court determination.
Secondly, although it was not a party to the litigation, the Commonwealth also brought a claim under the undertaking. The basis of its claim was that Sanofi’s clopidogrel was listed in the PBS. Therefore, the Commonwealth paid pharmacists a subsidy for each prescription of clopidogrel.
When the first generic product was listed in the PBS, however, that would automatically trigger a 12.5% reduction in the subsidy payable for prescriptions of the drug.[2]
Because Apotex did not apply to list its generic clopidogrel in the PBS, those price reductions were not triggered. Accordingly, the Commonwealth claimed that it had suffered loss by reason of the granting of the interlocutory injunction amounting to (for present purposes) the 12.5% price reduction that did not occur multiplied by the volume of Sanofi’s sales between the date of the interlocutory injunction and the patent being declared invalid. Something like:
$ = (P – 0.875P[3]) x Q
where:
P = the price payable by the Commonwealth to phatmacies by subsidy through the PBS; and
Q = the volume or number of units sold by Sanofi between 1 April 2008 and 1 April 2010 when Apotex was finally granted a listing in the PBS. (1 April 2008 was the earliest date, but for the interlocutory injunction, Apotex could have been listed in the timings of these things.)
The Courts below
Both Nicholas J and the Full Federal Court dismissed the Commonwealth’s application.
The Commonwealth’s claim was dismissed because Nicholas J found that the Commonwealth did not prove Apotex would have sought PBS listing and commenced selling its generic clopidogrel if the interlocutory injunction had not been granted.
The Commonwealth failed on this point because as the claimant it had the onus of proving that it had actually suffered loss. However, it failed to discharge that onus because it did not call as a witness, Dr Sherman, who was the founder and CEO of the Apotex group of companies and, the evidence showed, it would have been his decision whether or not Apotex would launch “at risk” of being sued for infringement.[4] There was some evidence in February 2007 Dr Sherman had directed Apotex proceed with launching its product in Australia. There was some further evidence from June / July 2007, however, suggesting some doubt whether Apotex would in fact launch especially in light of litigation between the parties in the USA and Canada (which Apotex eventually lost).
The High Court
The decisive issue in the High Court was whether or not the circumstances warranted the High Court intervening to overturn concurrent findings of fact made by the primary judge and not disturbed by the Full Federal Court on appeal.
At [1], the plurality (Gordon A-CJ, Edelman and Steward JJ) summarised the principle:
The principled approach taken by this Court, reaffirmed in these reasons, is common to many ultimate appellate courts in the common law tradition. That principle is that, absent special or exceptional circumstances such as plain injustice or clear error, this Court will not engage in a detailed review of concurrent factual findings of lower courts.
Their Honours went on to find that the appeal did “not concern any individual rights, nor expose any plain injustice or clear error.” At [44] – [123], their Honours reviewed the findings and concluded at [124] that the facts found in the lower courts were “not only open and free from clear error but also are compelling.”
On the other hand, both Jagot J and Beech-Jones J considered there had been such an error.
Some observations of significance
Although the Court’s conclusions meant it was unnecessary to deal with Sanofi’s notice of contention, all Judges expressed views on some aspects “because it is important to do so”.
The Commonwealth was entitled to claim under the undertaking as to damages
The first significant point is that all judges considered the Commonwealth was a “person” which could legitimately claim the losses it claimed to have suffered on the undertaking as to damages even though it was not a party to the litigation.
Sanofi had argued that the losses claimed by the Commonwealth did not “directly flow” from the grant of the interlocutory injunction and so were outside the scope of the undertaking.
All judges were concerned that the test for who could claim on the undertaking not be rigidly confined to a formulaic approach. As the plurality explained at [169], the losses claimed by the Commonwealth (if they had been proved) fell plainly within the scope of the undertaking as to damages:
…. If, absent the interlocutory injunction, Apotex would have applied for listing of its clopidogrel products on the PBS (which the concurrent findings below were that it would not have) then it was common ground at the time of the hearing of the interlocutory injunction that it would have been inevitable that Apotex’s products would have been listed and that, consequently, there would have been a 12.5% price reduction for clopidogrel products listed on the PBS and subsidised by the Commonwealth. As Sanofi accepted in this Court, Sanofi, Apotex and Gyles J knew that a loss that the Commonwealth might suffer as a result of the interlocutory injunction would be loss arising from this price reduction. This was therefore the very loss to third parties “adversely affected” that was reasonably contemplated at the time the interlocutory injunction was granted and therefore within the scope of the undertaking. ….
How much could the Commonwealth have claimed for
The second point of has wider ramifications as applies to any interlocutory injunction and does not turn on the Commonwealth’s role in subsidising the price payable for medicines.
While the Commonwealth claimed $358 million, the plurality explained that if the Commonwealth had proved Apotex would have launched “at risk”, the Commonwealth’s losses would have been $11 million only.
This was because the undertaking as to damages applied only to losses flowing from the grant of the interlocutory injunction. In this case, however, the interlocutory injunction was extinguished by the grant of the final injunction in August 2008. So the Commonwealth could not claim damages after the final injunction was granted and the undertaking as to damages released.
David Shavin KC points out that in Sigma v Wyeth (No 3), the Full Court (Bennett, Nicholas and Yates JJ) explained that any release from the undertaking as to damages should be stayed pending the outcome of any appeal. In response to the primary Judge and a subsequent single Judge sitting in the appellate jurisdiction on an interlocutory basis, their Honours said at [10]:
The effect of the primary judge’s orders was to release the respondents from the undertakings as to damages even though the appellants made clear an appeal would be brought and there existed the possibility that the injunctive relief granted by the primary judge might be set aside on appeal. In such circumstances we think it would seldom, if ever, be appropriate to order that a party be released from an undertaking as to damages. The preferable course is for the undertaking to be left in place to operate in accordance with its terms.
Wyeth argued that the supersession of the interlocutory injunction by the final injunction and the release from the undertaking as to damages followed as a result of the primary judge’s findings that the patent was valid and infringe. At [13], Bennett, Yates and Nicholas JJ rejected this bluntly:
The respondents were unable to point to any authority in support of this submission. In our opinion it must be rejected. The respondents’ submission seeks to give the usual undertaking as to damages an operation that has the potential to cause substantial injustice in circumstances where an interlocutory injunction is obtained on the basis of a case which cannot be sustained on appeal. In the present case, the primary judge released the respondents from the undertakings as to damages on the basis that they had in each case established an entitlement to injunctive relief on a final basis. Once it was determined, as it was on appeal, that the respondents were not entitled to such relief then there can be no basis for not setting aside the primary judge’s order releasing the respondents from their undertaking as to damages.
Subsequently, Nicholas J refused to release an undertaking as to damages pending any appeal. In a different proceeding, Yates J specifically ordered that the undertaking as to damages remain in place “until further order”.
If you have the benefit of an undertaking as to damages and lose the trial but may be appealing at the very least therefore seek to preserve the undertaking as to damages until further order.
Commonwealth of Australia v Sanofi [2024] HCA 47
- GPN-UNDR: the applicant undertakes 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 that person is a party), affected by the operation of the order or undertaking or any continuation (with or without variation) of the order or undertaking” and to pay the compensation so assessed. ?
- Further reductions could and would be triggered when other events happened. ?
- The 12.5% was just the initial reduction on the listing of the first generic product in the PBS. A cascading series of reductions came into play as other events occurred. ?
- Dr Sherman and his wife appear to have died in suspicious circumstances but that was in December 2017 some months after the hearing on the Commonwealth’s claim and well after deadlines for filing evidence. ?
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