Smithkline Beecham Plc & Ors v Apotex Europe Ltd. & Ors

This is an application for directions in an inquiry on a cross-undertaking in a patent action in which the defendants, who are conveniently referred to as the Apotex parties, were ultimately held not to infringe a patent belonging to one of the claimants whom for this purpose I can refer to as SKB.

The patent was for a pharmaceutical active ingredient called paroxetine hydrochloride anhydrate and the title of the patent was paroxetine hydrochloride anhydrate substantially free of bound organic solvent.

The proceedings were started by the Apotex parties, in effect, and the first of the Apotex parties (Apotex Europe Limited) is the holder of the marketing authorisation for this material as made by other members of the group, of which it itself is a member, in Canada.

Waymade Healthcare plc, the third defendant, and Neolab limited, the second defendant, can perhaps best be described as intending purchasers and distributors within this jurisdiction.

The history of the action in brief is as follows. The first round was letters from SKB sent respectively to Neolab and Apotex Europe in November 2001 and August 2002. These letters, as I understand it, sought undertakings in respect, inter alia, of the patent in suit.

On 9th October 2002 Apotex Europe, Neolab and Waymade, that is to say the Apotex parties, gave three weeks' notice to SKB of a launch by them of a paroxetine hydrochloride product and on the same day they started an action against SKB to revoke the patent in suit. On 22nd October 2002 SKB started this action against the Apotex parties alleging infringement and on the same day sought interlocutory relief. The application for interlocutory relief was heard for the first time on 29th October 2002 and was stood over to be heard on 21st November 2002 upon undertakings by the claimants and by the defendants.

The undertaking that was offered and accepted on 29th October 2002 by the defendants was that they would not until determination of the claimants’ application or further order in the meantime, whether acting by themselves or through their employees, directors, agents or howsoever, dispose or offer to dispose of any pharmaceutical preparation containing paroxetine hydrochloride in the United Kingdom.

The claimants’ cross-undertaking was in more or less usual form, being an undertaking by their counsel to comply with any order the court might make if the court later finds that the undertaking recorded in the following paragraph (that is to say, the undertaking by the defendants) has caused loss to the defendants and decides that the defendants should be compensated for that loss.

Jacob J heard the application for an interlocutory injunction on 21st and 22nd October and granted an interlocutory injunction on Thursday, 28th November 2002. The cross-undertaking was in standard form and is set out in the order as follows: “Upon the Claimants agreeing to comply with any order this court may make if the court later finds that this order for an injunction has caused loss to the Defendants and decides that the Defendants should be compensated for that loss.” The substantial injunctive part of the relief restrains the defendants and each of them from disposing of, or offering to dispose of, any pharmaceutical preparation containing paroxetine hydrochloride anhydrate in the United Kingdom.

The action eventually came to trial. It was dismissed by me and the patent was revoked. The Court of Appeal dismissed an appeal from the dismissal of the action, but reversed the order that the patent should be revoked. The cross-undertakings set out in the two orders, which I have set out, have therefore become enforceable. They are sought to be enforced by five parties, not by three. No dispute arises in respect of Apotex Europe, Waymade or Neolab. However, two other companies, Apotex Incorporated, which is a Canadian company, and Apotex Pharmachem Incorporated (“API”), also a Canadian company, which was referred to from time to time in the judgment at first instance as Brantford Chemicals Incorporated, seek also to recover what they say is their loss by reason of the grant of the injunction.

API is the manufacturer of the active pharmaceutical ingredient and claims manufacturers’ profits. Apotex Incorporated is the tabletter and claims its profit element from the tabletting operation and also claims as an alternative channel of supply between API, Waymade and Neolab. In paragraph 46 of Confidential Amended Points of Claim, its case as a tabletter is set out concisely as follows: “All paroxetine hydrochloride anhydrate supplied by Apotex Europe or Apotex Inc. to Neolab and Waymade is, was and would have been made by API and then processed and tabletted by Apotex Inc. for supply to Apotex Europe and/or Neolab and Waymade”.

The case on being an alternative channel of supply is pleaded in paragraph 32 of this document as follows: "The paroxetine hydrochloride anhydrate which would have been sold by Neolab and Waymade but for the [the particulars of claim are in a slightly unhappy formulation] Wrongful Injunctions would have been supplied by Apotex Europe or Apotex Inc.”

The slightly unusual form of this allegation is due in part to the contention that it is not clear whether Apotex Europe would have been supplied and supplied Waymade and Neolab during the whole of the currency of the injunctions. It is apparently accepted that Apotex Inc. is an alternative channel of supply and since for that purpose it would stand in the same position as Apotex Europe, it too should be in a position to recover its loss.

Procedurally the matter stands in this way in consequence of an order which I made on 18th December 2003 while the appeal was still pending. I ordered that there be an inquiry on the cross-undertakings given by SmithKline Beecham parties in these proceedings, directions for the enquiry being: (a) the Apotex parties shall serve points of claim within 28 days; (b) the SmithKline Beecham parties shall serve points in answer 28 days thereafter; and (c) there shall be a case management conference on further directions to be heard on the enquiry, to be heard on the first convenient date 14 days after the date of service of the points in answer.

Rather remarkably, notwithstanding the fact that the Court of Appeal delivered judgment in November of last year, there has still been no case management conference in relation to the pleadings since the pleadings are still incomplete. The reason they are still incomplete is in part due to the proviso to paragraph 6 of my order, which was that all the times set out in this paragraph shall be suspended pending the determination of the application to join Brantford Chemicals Inc. and Apotex Inc. The result is therefore, so far as the parties to this are concerned, that until the application to join these two parties has been dealt with, there is no timescale for pleadings.

I regret the effect that paragraph 6 of the order has had. It seems to me that in fact what should have happened is this. Once the Court of Appeal had given judgment and the order of the Court of Appeal had been made, the matter should have come back before me straightaway for directions as to how to resolve the question of who was to claim in the cross-undertaking and how. As it is, the order as it is drawn enables the parties, I suppose with some plausibility, to suggest that everything is to be left hanging until both of them pull the lever together. This is obviously wrong. However that may be, I find myself in this position. I am now confronted by an application by the SKB parties (i) to restore the application to join Brantford Chemicals and Apotex Inc. (ii) to determine as a preliminary issue whether there is any liability on the part of the SKB parties in respect of either of these companies and (iii) to dismiss the application to join them.

As I understand the law, leave was in the past, and probably still is, required to proceed upon a cross-undertaking. I do not believe that paragraph 6 of my order of the 18th December 2003 was intended to grant that leave, but that would appear to be what it has done in relation to the three existing defendants to the action, and since there is no real challenge to their entitlement to pursue the cross-undertaking, as a practical matter it does not matter.

So far as the two other parties are concerned, who we can conveniently refer to as the Canadian parties, the position is quite different. In the draft amended points of claim upon the inquiry, a series of grounds are set out upon which it is contended that they are entitled to take the benefit of the cross-undertaking in damages, although they are not expressly its beneficiaries.

Both parties were anxious to ensure that I did not decide any of these questions today. Mr. Waugh QC, appearing on behalf of the SKB parties, urged upon me that I should direct a preliminary issue effectively as to whether the Canadian parties had an entitlement to proceed upon this cross-undertaking. It is perfectly possible to formulate a preliminary issue which generally is a preliminary issue of law only. The difficulties of formulating preliminary issues of law only at an early stage in an action are notorious and one can repeat many warnings from the cases. The clearest one that was drawn to my attention is that of the Court of Appeal in McLoughlin v. Jones and others [2002] 2 WLR 279, [2001] EWCA Civ 1743 where David Steel J, sitting in the Court of Appeal, said:

That is a clear warning against the taking of complex points, which are fact-sensitive to any serious degree, on anything other than agreed or assumed and agreed facts.

The issues which I am asked to order are set out in detail as follows. The issues of: (a) whether Apotex Inc. and/or Apotex Pharmachem Inc. can recover any sums on the inquiry of the cross-undertaking ordered by myself (including any sum by way of restitution) and then it says (the basis upon which recovery is claimed having been identified in paragraphs 11-13, 16-17, 32-36, 39-40, 46-49 and 50-56 of the points of claim dated 11th March 2005; and (a) whether Apotex Europe can recover any sums in respect of any loss suffered by Apotex Inc. and/or Apotex Pharmachem Inc. by reason of the interim injunctions granted in these proceedings (as referred to in paragraph 38 of the points of claim dated 11th March 2005; and (c) whether Neolab, Apotex Europe or Apotex Inc. can recover any sums in respect of any payments which would have been payable under clause 2.6(1) of the Neolab Supply Agreement (as pleaded in paragraphs 41 to 45 of the points of claim dated 11th March 2005).

The assumption upon which the issue is said to be triable is that it be assumed that Apotex Inc. and Apotex Pharmachem Inc. have lost sales by reason of the interim injunctions as pleaded in paragraphs 33, 46 and 47 of the points of claim.

As will be apparent even from consideration of the paragraph numbers to which I have referred in the particulars of claim, the issues which are sought to be resolved effectively traverse every matter relating to the standing of Apotex Canada to participate in the inquiry and, as perhaps a subordinate point from this perspective, though of course of huge importance in the inquiry itself, whether there is a possibility of indirect recovery through Apotex Europe of sums which would in fact have been lost by one of the Apotex Canada parties.

Mr. Waugh QC submits that if one examines the relevant paragraphs of the draft pleading, it can be seen that they do not raise issues which are fact sensitive. So paragraphs 11 to 13 relate purely to the question whether the cross-undertaking should be rectified under the slip rule so as to confer a benefit upon the Apotex Canada parties, and this is a matter to which Mr. Waugh says can be dealt with straightforwardly on a preliminary issue. Then so far as paragraph 16 to 17 are concern, the same point, but in relation to the order itself for an interlocutory injunction as opposed to the cross-undertaking given on the receipt of undertakings.

The substantial issues begin in paragraph 32, skipping over the claims made by Neolab and Waymade which are uncontroversial, save no doubt as to quantum. This is the question whether, and to what extent, Apotex Inc. can claim in the alternative to Apotex Europe in relation to the injuncted supply of the pharmaceutical in question. The contention is that notwithstanding the extensive particulars under this paragraph, the matter is not fact-sensitive in the sense that the outcome at trial will be independent of any evidence given at trial. I cannot believe that this is correct. It seems to me that the precise manner in which Apotex propose to carry on their business, whether or not Apotex Inc. have any cause of action, is a matter which necessarily requires investigation at trial if it cannot be agreed. Paragraph 38 is a claim by a third party for loss which raises points of interest and difficulty, which both parties are agreed I should not embark upon during this hearing. The rectification claim, as I have indicated, is straightforward. By paragraph 40 Apotex Inc. will place their claim upon a further basis, which is that there is an estoppel in the nature of an estoppel by convention, I think, entitling them to rely upon the common understanding between the parties that the injunction actually obtained was effective for all practical purposes against the whole of the Apotex group of companies, and if the common understanding, they say, was that it was good against all the Apotex group of companies, so the common understanding they say ought to be that the cross-undertaking is in the same case.

In paragraphs 46 to 49 of the pleading an alternative claim by Brantford chemicals and by Apotex Inc., which I have indicated, is put forward essentially upon the same bases, third party loss, the estoppel and the slip rule, as I have indicated in relation to the foregoing claims.

At the moment the issues are defined only really by implication. SmithKline Beecham do not accept any of the claims advanced on the part of the Apotex Canadian parties. I consider that in a case such as the present it is essential to proceed to refine the issues in a structured manner. I was more satisfied of the undesirability of ordering a preliminary issue at this stage when I was informed by Mr. Waugh QC that if I failed to order a preliminary issue, his clients would, none the less, apply to strike out the claim by each of the Apotex Canadian parties.

In those circumstances, it seems to me that the matter should be dealt with in the usual way. Whether this is viewed as an application to join the Apotex Canada parties or whether it is viewed as an application to strike out seems to me to be a matter of form only. The question whether the claims as advanced can survive a challenge under CPR 3.4 and CPR 24 seems to me to be the threshold question. That is the question which has to be resolved first without any attempt actually to resolve the extent of their entitlement which would be appropriate upon a preliminary issue. Only if the pleaded material can support the claims so that they will survive the usual criteria under CPR 3.4 and CPR 24 will it be appropriate to identify any issues which in truth are fact insensitive and which are suitable for resolution as preliminary issues.

I am very sympathetic to Mr. Waugh's basic contention that removal of the Apotex Canada parties from the action will have the effect of a substantial saving of costs. I am much less happy about removing them on any other basis than what one can conveniently refer to as a “strike out” basis. The reason is as follows. All the grounds upon which the Apotex parties rely as entitling the Apotex Canadian parties to claim, are novel. Their importance is such that if they are right, it will have major impact in many other cases upon the practice relating to the seeking and grant of interlocutory injunctions. The points of law involved are complex and difficult and, I say this without prejudice to any application that is made to strike them out, would in principle require resolution by the House of Lords, at least in relation to certain of them.

If they survive a strike out, then the need for a preliminary issue seems to me to be much less clear. I do not wish at this stage to exercise any discretion which any other judge or myself may have at a later stage to direct preliminary issues in this case. However, it does seem to me that if the claims survive striking-out, it is probably more desirable that their correctness is finally determined on all the material available, including the material as to loss. In other words, a strike out will have the effect of saving a substantial amount of time and money, but I am far from persuaded that a subsequent preliminary issue will do so. I am particularly concerned to ensure that there is no confusion between the criteria for striking out on the one hand and the criteria for the determination of preliminary issues on the other. Preliminary issues are issues in the action. They are decided once and once only and they are decided finally. A strike out is, as we all know, a convenient way of removing forever unarguable contentions. The approach to the two has to be basically different, and I think that a great deal of problem has been caused in this case by not appreciating that fact.

What I wish to ensure is that a proper analysis legally is carried out of the pleaded case upon which the Apotex Canada parties rely as constituting their entitlement to claim upon this cross-undertaking. That should be done in the context of an application according to the criteria of CPR 3 and CPR 24, and I understand that we have three days pre-booked for some purpose that can conveniently be used for that purpose. I am quite satisfied that the purely legal argument that will have to be advanced on the basis that all the facts pleaded are true will take three days.

I wish to leave over until after the determination of that issue the pleading of the defendants’ defence and proper consideration of the case and, if necessary, further case management directions before I decide if this is a case in which any preliminary issues ought to be ordered. In taking this course, I am following what I take to be the usual course for the ordering of preliminary issues where there are also strike out contentions, and I am, for the reasons I have given, particularly anxious to ensure that the two are kept separate.

For those reasons, which are not precisely the reasons advanced by Mr. Watson QC, on behalf of the Apotex parties but traverse much the same ground, I am going to refuse this application for preliminary issues. I am going to direct that the question whether the case as pleaded in the draft amended points of claim on the inquiry raises a triable issue in relation to the two Canadian companies to be determined, according to the criteria of CPR 3.4 and CPR 24, at the hearing for which an appointment has already been obtained. All other directions will await the resolution of that issue including if necessary, directions as to how to accommodate appeals from any determination on that day.