[NOS. 316 & 317/2004]

BETWEEN

COLLOONEY PHARMACY LTD
APPLICANT/APPELLANT
AND

THE NORTH WESTERN HEALTH BOARD

RESPONDENTS
AND

BETWEEN

HOLLYHILL PHARMACY LTD
APPLICANT/APPELLANT
AND

SOUTHERN HEALTH BOARD

RESPONDENTS

JUDGMENT of Mr. Justice Kearns delivered on the 6th day of July, 2005

Both these cases challenge the legality of an agreement made on 31st May, 1996, between the Irish Pharmaceutical Union and the health boards. The purpose and intention of the agreement was to provide a foundation for the enhancement of the role of the community pharmacist and the quality of, and accountability arrangements for, services provided in community pharmacies in the context of furthering the aims of the Health Strategy.

By way of background and introduction, the Irish Pharmaceutical Union in 1994 lodged a claim for a substantial increase in dispensing fees paid to community pharmacy contractors under the General Medical Services (G.M.S.) Scheme. Against the background of public pay policy it was agreed that the best way of progressing discussions on the claim would be to establish a group representing the health boards, G.M.S. (Payments) Board, the Department of Health and the Pharmaceutical Contractors Committee of the Irish Pharmaceutical Union. Its terms of reference required the group to examine aspects of the delivery of community pharmacy services which were of concern to either side and to make recommendations which would underpin the role of the community pharmacy in the provision of an accessible, high quality, cost effective and accountable professional service to G.M.S. patients and persons availing of the community drugs schemes. The three key principles of equity, quality of services and accountability outlined in the Health Strategy were the focus of the group’s work.

One of the recommendations of the group was the new contract which was intended, and did, replace the existing contract, which dated from 1972, for the provision of services under the Health Act, 1970. In the summary of agreed recommendations issued by the Department of Health/Irish Pharmaceutical Union following negotiation of the contract, the new contract was referred to in the following manner:-

The many terms of the contract do not require to be set out in detail. However, it provided inter alia new arrangements for the provision of high-tech drugs which would henceforth be dispensed by the community pharmacist, and not in hospitals. It was envisaged that this would result in improved patient care and greater control of these expensive and essential medicines. A capitation payment per patient per month was agreed as part of this arrangement.

The contract contained a further provision whereby a sum of £250,000 was made available for the continuing education of community pharmacists, and further recommended that an annual sum of £500,000 be made available in subsequent years for the same purpose. It further provided that community pharmacists be supported in undertaking any necessary upgrading of their IT equipment for the purpose of improving the service. It also provided for a 3% increase in fees payable to community pharmacists under the G.M.S. Scheme, the Drug Costs Subsidisation Scheme and the Long-Term Illness Scheme.

These were significant and tangible benefits achieved at the end of a long and drawn-out process of negotiation between the Pharmaceutical Contractors Committee and the Department of Health. The negotiations date back as far as 1992, but intensified in early 1995 before ultimately reaching a successful conclusion. As Mr. Padraig Staunton, Chairman of the Pharmaceutical Contractors Committee, wrote to individual pharmacists on the 13th June, 1996:-

Mr. Staunton’s letter went on to recommend acceptance “without reservation” of the new contract to its member pharmacists.

The appellants in the present case were not, however, satisfied with certain aspects of the new contract, although they signed up to its terms and provisions, albeit they claim they did so out of necessity and because they had no alternative.

In the case of Collooney Pharmacy Ltd, its representatives sought a meeting with the deputy administrator of the North Western Health Board in September, 1996, to ventilate their concerns and to suggest a number of amendments. A meeting took place on the 3rd October, 1996, at which it was indicated that the North Western Health Board was unable to make any changes to the agreement.

On the 9th October, 1996, Mr. Patrick Durkin of Collooney Pharmacy wrote to Mr. John Hayes, Deputy Administrator of the General Practice Unit of the North Western Health Board in the following terms:-

1. Clause 6(2) of the new agreement requires that the contractor pharmacy shall ensure that there is a nominated supervising pharmacist of at least 3 years experience in the practice of community pharmacy in charge of the pharmacy. This stipulation is contrary to the terms of section 2 of the Pharmacy Act, 1962, which enables a body corporate to keep open a pharmacy provided it is personally managed by a qualified pharmacist.
2. Clause 19(1) of the agreement provides that it is to terminate automatically where the supervising pharmacist either ceases to be entitled to keep open shop or practice pharmacy. The severity of this clause is irrational and unreasonable in law. We accept, of course, that the pharmacy must at all times be supervised by a qualified pharmacist, but the holder of the agreement must be entitled to provide a replacement.
3. Clause 20(1) provides that where a supervising pharmacist ceases to act in that capacity the agreement terminates one month after that date unless a new statement as specified in this clause is submitted and accepted by a Chief Executive Officer of a Health Board. The said clause is irrational, haphazard and unreasonable in law in that
(i) No guidance is provided with regard to how the Chief Executive Officer will exercise his or her discretion and
(ii) It is unreasonable to expect a permanent pharmacist replacement to be found within one month. A locum will of course have to be put in charge to keep the pharmacy open.
4. Clause 22(6) provides that in the case of the death of the pharmacy contractor, or in the case of a company, the death of the supervising pharmacist, the agreement will only remain in force for a period of one month from the date of death and shall on the expiration of this period terminate. The Chief Executive Officer of a Health Board is given the power to award a new contract to any other party. This provision is irrational, haphazard and unreasonable in law in that:-
(i) No guidance is given to the said officer as to the manner in which his or her discretion will be exercised and
(ii) it is unreasonable not to give the holder of this agreement an opportunity of replacing the deceased pharmacist. This clause is also inconsistent with clause 20(1).
5. Clause 22(3) provides for the automatic termination of the contract in the case, inter alia, of any change in the beneficial ownership of the pharmacy contractor. Thus, it would appear that even the smallest change in the share ownership of the company might result in the automatic cesser of the contract. The said provisions are accordingly uncertain, unreasonable and disproportionate in law. There is no statutory or other objective which could objectively justify the necessity for such a clause.
6. Furthermore, even if (which is denied) clause 6(2) of the Contractor Agreement is not contrary to section 2 of The Pharmacy Act, 1962, the said clause is void as contrary to Articles 6 and 48 of the E.C. Treaty in that they discriminate against pharmacists from other Member States who are less likely to have experience in ‘community pharmacy’ as defined in the Schedule to the Agreement and by reason of the extremely short time limits less likely to be employed as supervising pharmacists.
7. Finally, no valid regulations have been made pursuant to section 59 of the Health Act, 1970, which would justify the unilateral imposition of these terms in the new contractor agreement.Thus it may be seen that while legal proceedings followed, both appellants in this case took and enjoyed the benefits of the new contract from the time they subscribed to same and did not elect, as they could have done, to stick to the terms of the previous contract. There is no suggestion that they at any time objected to the entitlement or authority of the Irish Pharmaceutical Union to negotiate on behalf of its members. The union is the holder of a negotiating license pursuant to the Trade Union Acts and is thus entitled to represent the interests of community pharmacists in this country.

In the circumstances, it would, I feel, be fair to say that this challenge has been brought because certain aspects of the “package” were regarded as unsatisfactory as outlined in Mr. Durkin’s letter.

I gratefully adopt the more detailed account of the background facts set out in the judgment of O’Caoimh J. in the High Court who, with his customary thoroughness, has not only recited all the background history and facts, but has also dealt fully with the correspondence and the legal submissions filed by both sides. He noted in the course of his judgment (delivered on the 14th May, 2004), that it was not being suggested that the Minister or the health boards should have consulted with some other representative body on the applicants’ behalf or that the interests of the applicants were in any material respect different to the interests of other pharmacists. Nor had it been suggested that objection was ever taken by the applicants to the fact that the Minister and the health boards were negotiating with the Irish Pharmaceutical Union. Furthermore, he noted that the supervising pharmacist of Collooney Pharmacy Ltd. was at all times a member of that union. He further noted the submission that it would have been wholly impracticable and indeed undesirable to have a process of individual negotiations or to have a situation where different pharmacies were subject to materially different terms and conditions in respect of the provision of the same services.

At the end of a carefully reasoned judgment, the learned trial judge refused to grant the appellants relief on any of the grounds argued.

In arguing the appeal before this court, Mr.Gerard Hogan, senior counsel on behalf of the appellants, characterised his challenge and appeal in the following manner:-

At the outset Mr. Hogan very candidly accepted that none of the fears or apprehensions of his clients as to the implications or effects of the new contract had materialised. He nonetheless maintained that he had both locus standi to bring this challenge and that he was entitled to invoke the court’s protection against the possible future breach of those rights. I have no difficulty in accepting both of these propositions. Mr Hogan further elected not to pursue the argument that any provision of the EC Treaty was violated by the new agreement.

Without further ado, therefore, I propose to address the two strands of this appeal, commencing with the argument that the arrangements put in place by the new contract are more appropriately the subject matter of ministerial regulation.

Section 59 of the Health Act, 1970, provides as follows:-

(2) When a person with limited eligibility, or a person with full eligibility who does not avail himself of the service under subsection (1), satisfies the chief effective officer of the health board that, in respect of a period and to an amount determined by regulations made by the Minister, he has incurred expenditure on drugs, medicines and medical and surgical appliances which were obtained on the prescription of a registered medical practitioner and were for the treatment of that person or his dependants, the health board shall make arrangements to meet the balance of the cost, or a proportion thereof (as may be prescribed) of the person's being supplied in respect of that period with such drugs, medicines and medical and surgical appliances.
(3) A health board may make arrangements for the supply without charge of drugs, medicines or medical and surgical appliances to persons suffering from a prescribed disease or disability of a permanent or long-term nature.
(4) Regulations relating to the service under this section shall be made with the consent of the Minister for Finance.”
Mr. Hogan noted that the only regulations made under s.59 of the 1970 Act were the Health (Community Pharmacy Contractor Agreement) Regulations, 1996, which have since been revoked. He also noted that s.59 of the Health Act, 1970, had been amended by the Health (Miscellaneous Provisions) Act, 2001, which, however, had not yet been brought into force.

Mr. Hogan submitted that the new agreement, while contractual in form, was in reality a form of quasi-legislation or quasi-statutory instrument, insofar as it contained elements of regulation of the service provided by the respondents. He argued that the health boards are effectively the monopoly purchasers of the services provided under the G.M.S. by pharmacies such as the applicants. Under the terms of the new contract, the health boards had reserved the right to alter its provisions without the formal consent of his clients. The fact that the new contract provided for a three year requirement in terms of the experience of a supervising pharmacist, together with the power of unilateral alteration of the contract, was a clear indication that the contract was designed to regulate the provision of services under s.59(4) of the 1970 Act otherwise than by means of regulations promulgated by the Minister for Health and Children with the consent of the Minister for Finance. The quasi- legislative character of the contract was also highlighted by reference to individual and specific provisions of the contract to which reference had already been made in Mr Durkin’s letter. Indeed, Mr. Hogan suggested that clause 6(2) of the agreement, which requires that any pharmacy taking up the new contract must ensure that the nominated supervising pharmacist has at least 3 years experience in the practice of community pharmacy, could be seen as an attempt to interfere with the rights conferred by s.2 of the Pharmacy Act, 1962, which provides inter alia that an “authorised person” means a registered pharmaceutical chemist. Under s.2 of the 1962 Act, a person may not keep open shop for the dispensing or compounding of medical prescriptions unless the person is an authorised person and the shop and the dispensing and compounding of medical prescriptions therein are personally supervised by an authorised person. The new contract purported to interfere with the right of any qualified pharmacist to operate as a supervising pharmacist by introducing the 3 year requirement. The statute could not be revoked by a regulation; still less could the respondent achieve by means of administrative practice that which would be ultra vires if it were attempted by means of regulations promulgated under s.59(4) of the 1970 Act. Effectively, therefore, the health boards could not, it was submitted, indirectly achieve under the guise of contract that which the Minister could not do directly by regulations under s.59(4) of the 1970 Act. Section 59(4) impliedly precludes arrangements for the service to be made otherwise than by regulations made by the Minister with the intended safeguards provided therein (consent of the Minister for Finance, power of annulment by either House of the Oireachtas).

In making his submissions, Mr. Hogan relied principally upon the judgment of Henchy J. in McCord v. Electricity Supply Board [1980] I.L.R.M. 153 and the decision of this court in O’Neill v. Minister for Agriculture and Food [1998] 1 I.R. 539.

I would be of the view, however, that neither of the authorities relied upon support Mr. Hogan’s contentions, and I am further satisfied that this ground of appeal must fail.

In McCord v. Electricity Supply Board [1980] I.L.R.M. 153, customers of the E.S.B. were required to agree to certain standard terms and conditions which were determined unilaterally by the E.S.B. and which could be altered as the E.S.B. saw fit. In the course of his judgment Henchy J had stated (at 161):-

In this case, however, the contract is the product of detailed discussion and negotiation with the accredited representatives of pharmacists in the State. Furthermore, the undisputed evidence in this case has been that, compared with the contract which it replaced, the new contract provides for a significant level of new and/or additional benefits for participating pharmacists, albeit it also provides for more onerous conditions in certain respects. It is, in other words, a typical product of any negotiating or bargaining process, with both sides making gains, but also having to make concessions.

The Minister and the health boards were not, in my view, obliged to negotiate with every pharmacist and/or pharmacy owner on an individual basis and those parties acted properly and reasonably in negotiating with the I.P.U., which is a registered trade union authorised to negotiate on behalf of its members. Nor were the appellants obliged to sign the new contract which was negotiated, because they could have opted to carry on with the existing contract if they so wished. It was quite different from the “take it or leave it” dilemma which customers were confronted with in McCord v. Electricity Supply Board [1980] I.L.R.M. 153.

Furthermore, valuable precedent exists to suggest that an arrangement such as that eventually arrived at in the present case is a perfectly valid and proper manner of effecting new arrangements. In Association of General Practitioners Ltd. v. Minister for Health [1995] 1 I.R. 382, there had been a complaint by the Association of General Practitioners Ltd - a company formed to promote the interests of doctors in general practice - that the Minister had declined to consult with them when negotiating the terms and conditions applicable to G.P. contracts for the supply of G.M.S. services under s.26 of the 1970 Act. The Minister had, however, consulted with the Irish Medical Association and Medical Union and then with the Irish Medical Organisation (formed by their merger).

The process of determining these terms and conditions was described by the learned judge in the following terms (at page 388):-

An identical process involving “lengthy discussions” took place between the I.P.U. and the Department of Health in the instant case in relation to the terms and conditions of the new contract. Any complaint that the Minister should have consulted with the appellants as well as the I.P.U. was addressed in analogous terms by O’Hanlon J. in Association of General Practitioners Ltd v. Minister for Health [1995] 1 I.R. 382 when he stated (at p.391):-As already noted, it is not suggested that the Minister and the health boards should have consulted with some other representative body on the appellants’ behalf or that the interests of the appellants were in any material respect different to the interest of other pharmacists. Nor is it suggested that objection was ever taken by the appellants to the fact that the Minister and health boards were negotiating with the I.P.U.. Furthermore, it appears that the appellants’ supervising pharmacist was at all times a member of that body. It seems clear to me, therefore, that the observations offered by O’Hanlon J. in the passages cited in the previous paragraphs apply with even greater force to the facts of the present case.

I would be of the view that great value and importance attach to the process of securing uniformity, so far as is possible, in terms and conditions applicable to the supply of drugs and medicines to eligible persons under s.59 of the 1970 Act. It would be both impracticable, and indeed undesirable, to have a process of individual negotiation or to have a situation where different pharmacies were subject to materially different terms and conditions in respect of the provision of the same services. In the circumstances the fact that the health boards were not in a position to negotiate with the appellants in relation to amending the terms of the contract gives rise to no valid complaint on the appellants’ part and still less does it provide any basis for impugning the contract or any of its provisions.

However, this still leaves the point whether such a contract is “permissible” under s.59 of the 1970 Act. The appellants sought to distinguish the case of Association of General Practitioners v. the Minister for Health [1995] 1 I.R. 382 on the basis that the statutory provision at issue there - namely, s.26(1) of the 1979 Act - expressly authorised the health boards to enter into contracts of that kind. However, s.26(1), like s.59, refers to “arrangements” being made by health boards. Secondly, and perhaps more importantly, s.26 (1) is equally applicable to the provision of pharmacy services to eligible persons as it is to the provision of G.P. services. It seems to the court therefore that any supposed distinction is non- existent.

I am of the view that s.59 creates both a power and a duty to make “arrangements” whereby the objective of s.59 is effectively achieved. Once it can be said that any contract made does not go beyond what is reasonably necessary in this regard, or contain conditions which could properly be said to be outside the scope of s.59, it follows that the health boards are entitled to include such terms as may be required to secure the provision of a high quality and reliable service to eligible persons. The fact that certain provisions of the contract, such as clause 6(2), address issues which could also have been addressed in regulations made for the purposes of s.59 is not determinative of the issue. The contract is not expressed to be dependent on the existence of regulations. Nor should s.59 be interpreted in such a way as to circumscribe the health boards in making such arrangements as appear appropriate in order to achieve the statutory objectives of s.59.

Mr. Hogan further relied upon the decision of this court in O’Neill v. Minister for Agriculture and Food [1998] 1 I.R. 539. In that case the applicant sought judicial review of the refusal of the Minister for Agriculture and Food to grant a license for the practice of artificial insemination. He further sought a declaration that the exclusivity scheme adopted by the first respondent was ultra vires the powers of the first respondent pursuant to the Livestock (Artificial Insemination) Act, 1947. In allowing the applicant’s appeal, the Supreme Court held that, whilst the major reason for the introduction of the statutory controls over artificial insemination was the desirability of controlling disease and improving the general quality of the national herd, the statutory control was negative rather than positive and there was nothing in the Act of 1947 to suggest that the Oireachtas had intended that the first respondent should adopt such an exclusivity scheme. Essentially, the Supreme Court held that the scheme was so radical that the Oireachtas could not have envisaged that it could be established by a series of administrative decisions which avoided legislative supervision and accessibility rather than by way of regulations.

I can not accept that the facts of the present case are remotely similar to those which obtained in O’Neill v. Minister for Agriculture and Food [1998] 1 I.R. 539. Firstly, the contract at issue in these proceedings imposes no quantitive restrictions. It does impose some qualitative requirements intended to ensure, and only to ensure, more effective delivery of services for which the health boards are responsible. Clause 6(2) is a good example of such a requirement, which is obviously desirable, if not also essential, to enable the modern pharmacist to take full responsibility for the operation of a community pharmacy, particularly one where high-tech drugs are being dispensed. It does not seem to me that, as purchasers of the services in question, and having regard to their own statutory obligations to eligible persons, health boards are precluded from stipulating such a requirement as a contractual condition.

Nor do I accept that clause 19 reserves to the health boards any exclusively unilateral right to alter the terms of the contract. This is the other major bone of contention advanced by the appellants. As a matter of fact, neither clause 19(3) or 19(5) provide for unilateral alteration. On the contrary, neither the appellants nor the health boards can bring about any change in relation to these clauses other than by the mechanism contained in the new contract which provides that both sides agree to accept changes as may be agreed between the Minister and the Pharmaceutical Committee. Again this does not strike me as some impermissible use of a contract by way of making arrangements in respect of the service provided.

In conclusion on this aspect of the case, I am satisfied that neither the contract as a whole nor the particular provisions identified by the appellants constitute an attempt to achieve by “administrative practice” that which the Minister could not indirectly do by regulations under s.59(4) of the 1970 Act.

I will deal briefly with Mr. Hogan’s second line of appeal, because to a very large degree the findings in relation to his first ground of appeal govern this aspect of the case also.

It almost goes without saying that any nitpicking exercise whereby each and every line of a contract is perused will yield up a term, clause or provision which at first blush appears unreasonable, or even irrational. In my view, the new contract must be approached and interpreted for what it is, namely, a package of agreed measures developed over a lengthy process of negotiation between representatives of the pharmacists and the Department of Health. In any package there are plusses and minuses.

The plusses comprise the increase in fees, the provision of educational grants and ongoing financial and other support. The minuses, if such they may be described, focus on certain particular provisions which might have unfortunate consequences if strictly applied by the health boards. However, as O’Caoimh J. noted, and as has been confirmed to this court, the supposed problems and difficulties are entirely hypothetical in nature insofar as no particular instance has been indicated to this court whereby the applicants, or indeed anyone else, have been adversely affected by any application of the clauses at issue.

Obviously the contract must be construed in a reasonable manner and must be construed strictly and operated fairly. I have already indicated that in my view clause 6(2) is a reasonable provision designed to ensure a high quality of service to eligible persons. Having regard to the fact that high-tech drugs are now being dispensed, I would support the view of the learned High Court judge that it can not be said to have been unreasonable or irrational to stipulate a requirement for 3 years relevant experience in the case of a supervising pharmacist.

Nor do I see this requirement as trenching upon the rights conferred by s.2 of the Pharmacy Act, 1962. It is clear that pharmacists may continue to act under the terms of the Act of 1962 in circumstances where they are not bound by any contractual terms such as those relating to the appellants herein. The contract does not purport in any way, nor could it, interfere with the provisions of the Act of 1962, and in particular s.2 thereof. The purpose of s.2 of the Act of 1962 is to establish a minimum legal and professional requirement of a pharmacist. It does not mean that the respondents in entering into major contracts for the supply of pharmaceutical service to eligible persons are not entitled to seek that that pharmacist be one with primary professional responsibility and having also the appropriate level of experience.

In relation to clauses 19(3) and 19(5) which relate to any proposed changes to the agreement, I do not believe it to be unreasonable that the parties who negotiated the agreement or contract would agree to the possible change in question.

With regard to the provisions for termination of the agreement set out in clauses 19(1), 20(1), 22(3) and 22(6), there is undoubtedly a certain degree of difficulty in reconciling the language of these provisions. However, I am of the view that the learned trial judge was absolutely correct in the conclusions which he reached about these various provisions and am further of the view that this court should not act as a “contract review body” to rewrite that which the parties themselves have agreed. It is not a jurisdiction lightly to be undertaken by the court in the absence of any evidence of significant problems in the operation of the contract over the last 8 years.

In all the circumstances, I would reject all the arguments advanced on behalf of the appellants and confirm the order of the learned High Court judge made herein.