GG Plc, R v (No.2)

On the 3^rd December 2008, we heard and refused an application by the prosecution for leave to appeal against a decision of Pitchford J of the 11^th July 2008. We now give our reasons, which in deference to the significance to the case, and the quality of the submissions that have been placed before us, will be fuller than would normally be the case when disposing of an application.

The case has an important procedural history. The respondents originally faced an indictment containing two counts. The first count read as follows:

“[The defendants] between the 1st day of April 1998 and the 30^th day of September 2000 conspired together and with others to defraud the Secretary of State for Health and others concerned with the provision of medicinal products by dishonestly fixing and maintaining the price, and manipulating the supply of penicillin based antibiotics to wholesale and retail suppliers of the said medicines.”

The second count of the indictment read:

“[The defendants] between the 1^st day of November 1996 and the 31^st day of October 1999 conspired together and with others to defraud the Secretary of State for Health and others engaged in the provision of medicinal products by dishonestly fixing and maintaining the price, and manipulating the supply, of Warfarin and Marevan to NHS hospitals and wholesale and retail suppliers of the said medicines.”

The indictment was accordingly based fairly and squarely on the proposition that the respondents had engaged in a cartel which was, in itself, sufficient to found a charge of conspiracy to defraud if it was dishonestly entered into. During the course of a preliminary hearing ordered by the judge pursuant to the provisions of s. 9 of the Criminal Justice Act 1987, the judge ruled against a motion to quash the indictment. That ruling was upheld by the Court of Appeal. On the 12^th March 2008, the Appellate Committee of the House of Lords allowed the respondents’ appeal in the following terms:

“18…it is readily apparent from the terms of the indictment and the summaries in the Prosecution Case Statement from which we have quoted that the thrust of the case, as so charged, is that of price fixing. It goes on the incorrect assumption that price fixing, when carried out in circumstances of secretive and deceptive behaviour, is dishonest in itself and is a sufficient basis for conspiracy to defraud. It does not isolate and charge any specific aggravating elements which would elevate price fixing into an indictable conspiracy to defraud. For that reason we must regard the indictment as defective as it stands. ”

The House therefore remitted the matter to the judge for him to consider any application that the prosecution might make for amendment of the indictment. This application arises out of the judge’s refusal to give leave to amend the indictment in terms to which we will return. The first question, however, is whether there is any jurisdiction in this court to hear an application for leave to appeal against such an order.

S.9 of the 1987 Act provides:

“(1)

At the preparatory hearing the judge may exercise any of the powers specified in this section.

(2)

The judge may adjourn a preparatory hearing from time to time.

(3)

He may determine –

…

(b)

Any question as to the admissibility of evidence; and

(c)

Any other question of law relating to the case; and

(d)

Any question as to the severance or joinder of charges.

…

(11)

An appeal shall lie to the Court of Appeal from any order or ruling of a judge under sub section (3) (b) (c) or (d) above, but only with the leave of the judge or of the Court of Appeal.

…”

What is capable of being “a question of law relating to the case” is a question which has given rise to a number of conflicting and unsatisfactory answers. Ultimately the House of Lords considered the issue in R v H [2007] 2 AC 270. Although not unanimous on all the questions raised, their Lordships, generally, held that if any matter capable of being an issue at a preparatory hearing involved dealing with a question of law relating to the case, that was sufficient for the purposes of s.9 (11). In the present case, we have no doubt that the judge’s ruling is capable of being appealed. The original motion to quash the indictment was clearly treated as a ruling made in the course of a preparatory hearing and raising the question of law relating to the case, otherwise there would have been no right of appeal from it. The judge’s ruling with which we are concerned must, in logic, fall into the same category to the extent that it raises a question of law.

Returning to the merits of the application, the factual background to the charges was helpfully summarised by Moses LJ in paragraphs 11 and 12 of his judgment in this case in the Court of Appeal:

“11 In relation to count 1 it is alleged that the defendants sought to induce the Department to make grossly inflated payments for the antibiotics. They held secret meetings to exchange confidential information on pricing and sales in order to devise and implement the scheme and to control prices and manipulate supply. There were alleged to have been some fifteen meetings, the true purpose of which was disguised under the pretext that they were connected with packaging. False minutes were created retrospectively. The defendants pre-determined allocations of the supply of antibiotics between themselves. They increased the prices in concert on five separate occasions. They disseminated false reasons for stock shortages and price increases in accordance with the script. They lied when questioned by the Department about price increases across the market. They falsely asserted that the generic market was competitive and identified a number of bogus reasons for the price increases. They paid competitive companies with the capacity to supply antibiotics to stay out of the market and concealed the purpose of the payments. They withheld stock and policed agreed prices and market allocations by auditing each other and imposing penalties on those undertakings which exceeded the agreed allocation. They published price lists with a 2% variation of the agreed prices to disguise the fact that they were the product of collusions. Prosecution witnesses say that some of the conspirators acknowledged that they were behaving dishonestly and ran the risk of imprisonment.

12.

In short, the allegation is that the defendants entered into agreements dishonestly to fix and maintain the price of the drugs and manipulate their supply. They thereby agreed dishonestly to prejudice the economic rights or interests of the Department by inducing them to pay a higher price than would have otherwise been set by the drug tariff. They dishonestly induced the Department to believe that the drug tariff had been calculated by reference to the operation of competitive market ...”

Although expressed in that passage to relate to count 1 only, similar allegations were made in relation to count 2. In paragraph 10 of the Opinion of the Appellate Committee, reported as R v GG plc and others [2008] UKHL 17, the Committee said this:

“The voluminous details in the Prosecution Case Statement set out a long narrative of an elaborate arrangement between the defendants and others to keep up the prices of the drugs concerned, carefully arranged to ensure its effectiveness by the maintenance of secrecy, the masking of the true position by the adoption of false documents and active misrepresentation and lying to the Department. It is claimed that the defendants carried this agreement into effect by a number of devices over a period and in the course of this lies were told and misrepresentations made to the Department.”

The issue between the parties was identified in paragraph 12 of the Opinion:

“It may be seen from the summaries of the Prosecution Case which we have quoted that its essence is that price fixing, when accompanied by secretive misleading behaviour of the kind alleged, is dishonest by the standards of the ordinary citizen and is sufficient without more to found a prosecution for conspiracy to defraud. The contrary submission advanced by counsel for the appellants is that price fixing agreements, which he described as “cartel behaviour”, are not in themselves criminal, even if made secretly with an element of deception which may be widely regarded as dishonest. Conspiracy to defraud would require proof of agreement to make false or misleading statements or other actively fraudulent behaviour.”

The Committee answered the question posed by those respective arguments by reference to its Opinion in Norris v The Government of the United States of America and Others [2008] UKHL 16, an appeal which had been argued concurrently with the argument in the present case. In that appeal the Committee had considered in some detail the question of whether or not a price fixing agreement was in itself capable of amounting to a criminal offence. Its conclusion, in paragraph 17 that Opinion, was expressed in the following terms:

“The common law recognised that an agreement in restraint of trade might be unreasonable in the public interest, that in such cases the agreement would be held to be void and unenforceable. But unless there were aggravating features such as fraud, misrepresentation or violence, intimidation or inducement of a breach of contract, such agreements were not actionable or indictable.”

Applying that principle to the present case, the Committee’s conclusions were in the following terms:

“18.

The voluminous material in the Prosecution Case Statement contained quite sufficient notice of aggravating elements, consisting of allegations of lies and positive deception. The appellants could not possibly maintain that they were left without notice of the acts of this nature on which the prosecution could rely on putting forward a case of conspiracy to defraud on the basis of agreement to commit such acts. The difficulty which faces the prosecution is that although they could very well charge the appellants with conspiracy to defraud so based they have not done so as the indictment stands. It is necessary that the particulars should make clear to the defence the case which it should meet: see R v K [2005] 1Cr App R 408 and the authorities cited there. It is readily apparent from the terms of the indictment and the summaries in the Prosecution Case Statement which we have quoted that the thrust of the case so charged, is that of price fixing. It goes on the incorrect assumption that price fixing, when carried out in circumstances of secretive and deceptive behaviour, is dishonest in itself and is a sufficient basis for conspiracy to defraud. It does not isolate and charge any specific aggravating elements which would elevate price fixing in to indictable conspiracy to defraud. For that reason we must regard the indictment as defective as it stands.”

It was against that background that the prosecution applied to amend this indictment. The power to amend is contained in the Indictments Act 1915, s. 5 which provides:

“(1)

Where, before trial, or at any stage of a trial, it appears to the court that the indictment is defective, the court shall make such order before the amendment of the indictment as the court thinks necessary to meet the circumstances of the case, unless, having regard to the merits of the case, the required amendments cannot be made without injustice.”

The prosecution propose that there should be two indictments, the first relating to the antibiotic market and the second to Warfarin and Marevan. As far as the antibiotic concerned, the single count proposed was in the following terms:

“[The defendants] between the 1^st day of April 1998 and the 30^th day of September 2000 conspired together and with others to defraud the Secretary of State for Health and Community Pharmacists by dishonestly agreeing, in the knowledge that at all material times the Secretary of State operated a Drug Tariff reimbursement system based on the belief, which was shared by the market, that the prices of generic penicillin based antibiotics (preparations of Amoxicillin, Flucloxacillin, Ampicillin and Phenoxymethylpenicillin) [the Medicines] were the product of competition, to:-

1.

secretly (i) increase prices in concert and (ii) manipulate the supply of Medicines to wholesale and retail suppliers;

2.

deceive the market into believing that the increased prices for the Medicines were the product of competition by disseminating to wholesale and retail suppliers prices which were varied by plus/minus 2% to disguise the fact that they were the product of collusion;

3.

deceive the Secretary of State for Health into reimbursing the increased cost of the Medicines by causing collusive prices to be reflected in price lists submitted to the Prescription Pricing Authority for the purpose of calculating the Drug Tariff;

4.

induce the Secretary of State for Health to continue to reimburse the costs of the Medicines by reference to the Drug Tariff by misrepresenting that the prices upon which it was based were the product of competition;

5.

attribute as and when necessary, false reasons for apparent shortages in the supply of Medicines. ”

As far as the second indictment was concerned that related to the supply of Warfarin and Marevan. Count one was in similar terms to the above, save that particular 2 was not alleged in relation to this conspiracy. There were then eight separate substantive counts making allegations against individuals and companies with which we are not concerned. The prosecution does not seek leave to appeal the judge’s refusal to add those counts to the indictment.

The judge’s decision to refuse leave to amend in relation to the two counts with which we are concerned was essentially an exercise of discretion. He concluded that it would be unjust to permit the prosecution to proceed on those counts. He did so against a background which is instructive. The prosecution, until it made the application for leave to amend the indictment, had steadfastly held to the view that it was entitled to ask a jury to convict on the basis of the original counts so long as the dishonesty could be established. As we understand it, it declined invitations to provide further particulars of matters which, as the Committee ultimately put it, could amount to “any specific aggravating elements which would elevate price fixing into an indictable conspiracy to defraud”. As we understand it, the prosecution had taken the view that if it failed to persuade the House that the indictment as originally framed was a sufficient allegation of criminal conspiracy, then the case could not proceed. We do not suggest that those were matters which could, in themselves, justify refusing to amend the indictment. But they entitled the judge to look with some care at the particulars ultimately provided to determine whether or not they, in truth, justified the conclusion that the undoubted price fixing had been “elevated” to a criminal conspiracy in the way envisaged by the Committee. It seems to us that it is also significant that the Committee considered that the matter should be remitted because it was of the view that there were indeed aggravating elements, that is the “allegations of lies and positive deception” referred to in paragraph 18 of the Opinion.

The prosecution accepts, in these circumstances, that it has to persuade us that the judge misdirected himself as to the law. They say he did so in three separate respects. First, it is said that he appeared to approach the matter on the basis that the price fixing could not of itself form part of the particulars, whereas a proper reading of the Opinion of the Committee shows that, by using the word “elevates”, the price fixing agreement could form part of the dishonest scheme which the aggravating features then elevate into an indictable conspiracy. Secondly, it was submitted that the judge wrongly concluded that a matter which could be said to be an “adjunct” to a price fixing agreement could not amount to an aggravating feature. Thirdly, it was submitted that the judge failed to consider properly the argument that conduct could amount to a representation which, in the particular circumstances of this special market, was of critical importance.

These criticisms are not, in our view, made out. It is correct to say that the judge concentrated his attention on, in relation to the penicillin indictment, particulars 2 and 5, and in the Warfarin and Marevan indictment particular 4. That was not because the other particulars were irrelevant. It was because those other particulars simply could not, in themselves, amount to aggravating factors. In relation to particular 2 in the antibiotic count, the judge clearly had in mind a comment made in argument by Lord Bingham that this was “absolutely classic cartel behaviour, is it not, so far”. Clearly that was not part of the Opinion, nor reiterated in the Opinion, but it nonetheless exemplifies one of the critical problems in this case and one which was identified clearly by Moses LJ in the Court of Appeal when he said:

“22.

We do not accept that such an instruction can be made. The allegations in the instant case of what Mr Pannick QC described as positive deception are no more than that the defendants took steps to maintain the deception which the secrecy of the agreement was designed to achieve. There seems to us to be no satisfactory point at which a boundary can be drawn between such secrecy in cases of positive deception. In the instant appeal secrecy of the agreement was essential to the purpose of the agreement, deception of the Department. To maintain secrecy it may well have been necessary to provide false information but, as Auld LJ remarked in Norris (paragraph 66) the distinction is merely one of degree.”

Whilst particular 2 is not, strictly, concerned with secrecy, the same conceptual difficulty arises in determining the extent to which it could sensibly be described as a positive deception beyond the deception inherent in price fixing. This is the same problem as that which the judge identified when he used the word “adjunct” about which the prosecution now complain. The critical passage in the judge’s ruling in this respect is in paragraph 37 where he said:

“Where the point at which the line to be drawn is so obscure that no jury should be expected to identify it the interests of justice cannot be served.”

He repeats the point again at paragraph 50 in relation to particular 5, having indicated that he did not consider that it was properly pleaded:

“If the allegation was properly pleaded in the indictment, the issue for the jury would be whether the defendants agreed to give false reasons with the intention of defrauding the ultimate paymaster, the Department of Health, or as a mere adjunct of their cartel activity intended to defraud the Department of Health. I regard the line between the two as so obscure that it would not be in the interest of justice, on this ground also, to permit the amendments”

As far as particular 5 is concerned, and particular 4 in the Warfarin and Marevan indictment, the judge in any event concluded that there was insufficient evidence to justify the conclusion that the giving of false reasons for price rises was part of the conspiracy as such. In our judgment, he was fully entitled to come to that conclusion on the material before him. That was entirely a matter of assessment for him, and raises no issue of law.

Finally, in so far as the prosecution argument is based upon the fact that the particular “market” in which this price fixing agreement operated differed from a price fixing agreement in the open market so that implied representations could constitute aggravating features, the problem for the prosecution is that the Committee nowhere suggested in its Opinion that there was a distinction to be drawn between the approach in the present case and the approach in Norris; on the contrary, in paragraph 18, the Committee specifically referred to “lies and positive deception” as being the only basis upon which they considered that the prosecution could proceed. Whatever we think of the ultimate result, we cannot see how the judge could be faulted for determining that that was what he had to look for if he was to give leave to amend this indictment.