High Court allows plaintiffs damages for breach of contract regarding pharmacy reimbursement rates.

Neutral Citation Number [2008] IEHC 373

THE HIGH COURT

2007 8432 P

2007 180 COM

BETWEEN

PATRICK HICKEY, DRISHLAWN LIMITED, HICKEY’S PHARMACY LTD., WHEATON PHARMACY LTD., GLEESON’S PHARMACY LTD.,

PHILIP DILLON LTD., ESTHERFIELD LTD., DGM PHARMACIES LTD., T/A HICKEY’S PHARMACY

PLAINTIFFS

AND

THE HEALTH SERVICE EXECUTIVE

DEFENDANT

Judgment on Damages of Ms. Justice Finlay Geoghegan delivered on the 19th day of December, 2008

1. On 11th September, 2008, I gave judgment on all issues in the above entitled proceedings other than the plaintiffs’ claim for

damages for breach of contract. It had been agreed that all issues in relation both to the liability of the defendant for damages and

quantification of any such damages would be left over until after the determination by the Court as to whether the defendant was or

was not in breach of contract in making two decisions taken in September 2006 and September 2007, and implemented in September

2006 and March 2008, respectively.

2. In my judgment of 11th September, 2008, I determined that the plaintiffs were entitled to the following declarations: -

(i) Each of the third to eighth named plaintiffs was entitled in September 2006 and September 2007, pursuant to clause

12 (1) of its CPC agreement with the defendant, to a payment which included reimbursement of the ingredient cost of

medicines and other items supplied under the GMS and other drugs schemes at the rate of the ex-factory price prevailing

in the month in which the item was dispensed plus 17.66%.

(ii) The defendant’s decisions of September 2006 and September 2007, reducing the price at which it would reimburse the

plaintiffs the ingredient cost of medicines and other items supplied by them under the GMS and other drugs schemes,

were in breach of contract, being in breach of clause 12(1) of the CPC agreement with each of the third to eighth named

plaintiffs.

3. Since the date of judgment, the plaintiffs and defendant have exchanged points of claim and points of defence on the plaintiffs’

claim for damages. The defendant first contends that the plaintiffs are only entitled to an award of nominal damages. It was agreed

between the parties that I should hear and determine the issue as to the plaintiffs’ entitlement to a substantive award of damages

and submissions as to the basis upon which that award should be made without hearing evidence of the detailed quantification of the

plaintiffs’ claim. It is anticipated that if the Court determines the issue identified and does determine that the plaintiffs are entitled to

a substantive award, and sets out the basis of same, that the detailed quantification may be capable of agreement between the

parties.

4. At the hearing on the damages issue on 5th December, 2008, no further evidence was adduced by either the plaintiffs or the

defendant. Counsel informed the Court of two matters which occurred since the date of judgment which, it was agreed between the

parties, could be taken into account by the Court if it considered those facts relevant to the issues in dispute. These are: -

(i) The defendant as of 1st October, 2008, recommenced making payments pursuant to clause 12(1) of the CPC

agreement, on what I propose referring to as “the old reimbursement rate” i.e. on a basis which included reimbursement of

the ingredient cost of medicines and other items supplied under the GMS and other drugs schemes at the rate of the ex-

factory price prevailing in the month in which the item was dispensed plus 17.66%.

(ii) On 4th December, 2008, the Minister for Health and Children informed the sub-committee on health of the Oireachtas

that, having considered the legal, financial and other implications of the ruling of this Court last September, it is her

intention to shortly begin an appropriate consultation process pursuant to clause 12 with a view, at the end of that

process, to consider making changes which would lead to significant savings in the annual health estimate.

5. The defendant determined some time ago not to appeal the substantive judgment given in September 2008 and the Court was so

informed. There is an appeal against the order for costs which is not relevant to the issues now to be decided.

6. Notwithstanding the wider claim to damages pleaded by the plaintiffs, at the date of the hearing, they confined their claim to

damages for the breaches of contract found by this Court to: -

(i) The difference between the old reimbursement rate and the new reimbursement rate, implemented in September 2006,

on new medicines and other new items supplied between September 2006 and 1st March, 2008; and

(ii) The difference between the old reimbursement rate and the new reimbursement rate implemented on 1st March, 2008,

in respect of medicines and other items supplied under the GMS and other relevant drugs schemes between 1st March,

2008 and 30th September, 2008;

(iii) Interest on the amounts claimed at paragraph (i) above pursuant to s. 22 of the Courts Act 1981 from the later of the

date of commencement of proceedings i.e. 13th November, 2007, and the date the relevant reduced payment was made

by the defendant to the relevant plaintiff; and

(iv) Interest pursuant to s. 22 of the Courts Act, 1981 on the amounts claimed at paragraph (ii) above from the date

upon which the relevant reduced payment was made by the defendant to the relevant plaintiff.

The law and submissions

7. There is no dispute between the parties as to the principles to be applied by the Court in determining the liability, if any, of the

defendant to the plaintiffs for damages for breach of contract and, if necessary, the proper basis of such damages.

8. Counsel for both parties are in agreement that the basic principle to be applied by the Court remains that stated by Parke B. in

Robinson v. Harman (1848) 1 Ex. 850 at 855: -

“The rule of the common law is that where a party sustains a loss by reason of a breach of contract, he is, so far as

money can do it, to be placed in the same situation, with respect to damages, as if the contract had been performed.”

9. The same principle is sometimes stated in the negative. Counsel for the defendant referred to the equally succinct statement of

what is, in substance, the same principle, by Geoghegan J. in Doran v. Delaney [1999] 1 I.R. 303 at 308: -

“If a party to a contract breaks that contract the other party is entitled to be compensated on the basis of what he has

lost by reason of the contract not being performed.”

10. The defendant also relied upon the slightly amplified explanation of the principle in McDermott, Contract Law, (Tottel, 2001) at

paragraph 22.08, where he states: -

“A party who breaches a contract is liable to pay such damages as will put the plaintiff in as good a position as he would

have occupied had the defendant performed his promise. This is known as the expectation interest. Such damages are

forward looking in that they seek to give the plaintiff something that he never had but expected to obtain. It is the

normal measure of damages for a breach of contract and is generally calculated as the difference between the position

that the plaintiff would have occupied had the contract been performed and the position that the plaintiff is actually in as

a result of the breach or non-performance of the contract.”

11. There is no factual dispute between the parties as to the position of the plaintiffs following the breaches of contract already

found by the Court. They have received payment from the defendant at the new lower reimbursement rates. The essence of the

dispute between the parties is the position in which the plaintiffs would have been if their respective CPC agreements had been

performed by the defendant between September 2006 or March 2008, and 30th September, 2008. This dispute turns on clause 12(1)

of the CPC agreement which provides: -

“12. (1) The board shall in consideration of the service provided by the pharmacy contractor in accordance with these

terms and conditions and on foot of claims made in the form and at the times directed by the Minister, make payments or

arrange for payments to be made to the pharmacy contractor for prescriptions dispensed at his/her contracted

community pharmacy in accordance with such rates as may be approved or directed by the Minister from time to time

after consultation with the Pharmaceutical Contractors’ Committee.”

12. Mr. Hogan S.C., on behalf of the plaintiffs, submits that, if, in September 2006 and March 2008, the defendant had performed the

payment obligations specified in clause 12(1) of the CPC agreement, then it must have continued making the reimbursement payments

at the old reimbursement rate until such time as the Minister, following consultation with the Pharmaceutical Contractors’ Committee

(PCC), approved a variation in the reimbursement rate or directed a new reimbursement rate. He further submits that as no such

approval or determination by the Minister occurred prior to 30th September, 2008, the plaintiffs are entitled to damages in accordance

with the claims identified at paragraphs 6 (i) and (ii) above, as this is what they would have received if the contract had been

performed or is what they have lost by reason of the contract not being performed.

13. Mr. Gordon S.C., for the defendant, submits that the breach of contract of the defendant was a procedural failure i.e. its failure

to obtain the approval of the Minister, following a consultation with the PCC, to the change in the reimbursement rates implemented in

September 2006 and of March 2008. He submits that the Court should now find, on the evidence adduced at the hearing of the

action, as a matter of probability, if the Minister had conducted a consultation with the PCC that the Minister would have approved of

the reduction in rates determined by the defendant.

14. In the alternative, Mr. Gordon submits that, if the Court is not willing to make the above finding as proposed, the Court should

only award the plaintiffs damages on the basis claimed for such period as the Court considers may have been the additional time

required for the Minister to conduct the consultation process with the PCC. He relies upon the decision of the Court of Appeal in

Gunton v. Richmond-upon-Thames London Borough Council [1981] Ch. 448 in support of such alternative submission.

Conclusion

15. I have concluded that the application of the agreed principles to the facts already found in the judgment of 11th September,

2008, and the additional facts referred to above, entitle the plaintiffs to damages upon the bases claimed and set out at paragraph 6

(i) and (ii). Prima facie, the plaintiffs were entitled, pursuant to clause 12(1) of the CPC agreement, to continue receiving payments

from the defendant at the old reimbursement rate until such time as the Minister, following consultation with the PCC, approved or

directed a new rate.

16. There is no evidence before the Court that the Minister has yet conducted the required consultation with the PCC and thereafter

approved of the defendant’s new rate or determined a different rate. There is no evidence in the proceedings upon which the Court

could conclude that, as a matter of probability, the Minister, following consultation with the PCC, will approve of the reduction

determined by the defendant. Mr. Gordon, in submission, relied upon the public consultation conducted by the HSE and the assent of

the Minister given at a meeting in September 2007 to the proposed decision of the HSE of which evidence was given at the trial. At

paragraphs 87 and 88 of my judgment of 11th September, 2008, I summarised my relevant findings as follows: -

“87. As already indicated, there is no evidence that the Minister approved or directed any change in the rate at which

ingredient cost would be reimbursed prior to the decision made by the defendant in September 2006. In relation to 2007,

whilst there was evidence of information given to the Minister in relation to the proposed decision and her assent to it

being implemented, there is no evidence of any consultation by the Minister with the Pharmaceutical Contractors’

Committee in advance of the meeting at which she is contended to have approved the reduction proposed by the

defendant.

88. Whilst not strictly relevant, as it was not conducted by the Minister, I think I should add that I am not satisfied that

the public consultation undertaken by the defendant could amount to consultation with the PCC for the purposes of

clause 12 (1) of the CPC agreement in relation a change of a rate at which a payment is to be made to pharmacy

contractors under the CPC agreement. That consultation, as appears from the public advertisement and briefing

document, was a consultation in the context of a review by the defendant of ‘the provision of pharmaceutical wholesale

and distribution services to both community pharmacy contractors and other healthcare locations . . .’ While such a

consultation may have relevance to the determination of a change in the rate at which pharmacy contractors might be

reimbursed the ingredient cost of medicines and other items supplied to eligible persons, it is not the type of consultation

which appears to me envisaged by the express terms of clause 12 (1). That must be a consultation which relates to a

potential change in the rate, or rates, of payments or elements of payments to pharmacy contractors, under the CPC

agreement. The evidence suggests that there are many and differing issues which might arise in such a consultation,

having regard to developments in the pharmacy market since 1971, the differences between pharmacies, the differing

commercial arrangements with wholesalers and the connection between the rate at which cost is reimbursed and the fee

structure for the various schemes.”

17. Having regard to what I said above, notwithstanding the evidence of assent by the Minister (without consultation with the PCC)

to the proposed decision of the HSE in September 2007, it does not appear to me that there is any evidential basis upon which I

could now conclude that, as a matter of probability, the Minister, following consultation with the PCC, will approve of the rate

reduction proposed by the HSE.

18. I have also considered carefully the judgments of the Court of Appeal in Gunton v. Richmond-upon-Thames London Borough

Council. It does not appear to me that the approach, in particular of Buckley L.J. to how damages should be assessed on the facts of

that case, assists the defendant on the facts of this case. It appears to me that the approach taken by the majority of the Court of

Appeal turned on the interrelationship between the contractual rights of the Council and the disciplinary procedures. The alternative

submission made by Mr. Gordon, on behalf of the defendant, also requires this Court to take a view on the probable outcome of the

consultation process which the Minister has announced will commence shortly with the PCC. The Court could only limit the period

during which the plaintiffs are entitled to the damages claimed if it had evidence of the Minister’s decision following the consultation

process already announced.

19. I wish to make clear that I accept the general principle that a Court may have regard to limiting events which occur subsequent

to the breach of contract and prior to the assessment of damages in determining the quantum of the plaintiffs’ claim for damages.

The parties referred to a recent application of those principles by the House of Lords in Golden Strait Corporation v. Nippon Yusen

Kubishika Kaisha [2007] 2 A.C. 353; [2007] U.K.H.L. 12. However, on the facts of this case, if the Minister has not, following a

consultation with the PCC, approved or directed a new reimbursement rate, there is no relevant limiting fact which the Court can take

into account.

20. I have also concluded that the plaintiffs are entitled to interest pursuant to s. 22 of the Courts Act, 1981 in accordance with the

claims set out at paragraph 6 (iii) and (iv). This particular formulation of the interest claim, commencing only with the issue of

proceeding, follows exchanges in the course of the hearing. The plaintiffs were deprived of these payments on the due dates or since

the commencement of the proceedings by reason of the defendant’s breach of contract. In such circumstances, in the absence of

the defendant establishing special circumstances, it appears to me that the Court should exercise its discretion under s. 22 of the

Courts Act 1981, in favour of the plaintiffs.

21. In this judgment, I have referred to the claims of the plaintiffs for simplicity. The only plaintiffs with claims for damages on the

basis set out are those with CPC Agreements i.e. third to eighth named plaintiffs.