Supreme Court dismisses appeal against Health Board's new pharmacy contract terms as valid under Health Act 1970.

THE SUPREME COURT

Denham J

McGuinness J

Geoghegan J

McCracken J

Kearns J

316/04 & 317/04

Between:

Collooney Pharmacy Ltd

Applicant/ Appellant

AND

North Western Health Board

Respondents

AND

Between:

Holly Hill Pharmacy Ltd

Applicant/ Appellant

AND

Southern Health Board

Respondents

Judgment of McCracken J delivered the 6th day of July 2005

Background

1. These are two appeals raising similar basic points which were heard together both in the High Court and in this Court. They relate

to the status and content of a community pharmacy contractor agreement between individual health boards and individual pharmacies

in relation to the provision of pharmacy services under the Health Act 1970.

2. The Appellants are both subsidiaries of McSweeney Group Limited, which is the holding company for several companies which own a

number of pharmacies in the State. Prior to 1996 both Appellants were parties to a community pharmacy contract with their

respective local health boards and supplied pharmacy services under the provisions of the Health Act 1970, and were reimbursed for

such services from the GMS payments board. In August 1996 the respective respondents sought to oblige the Appellants to enter in

to a new form of contract as a condition of continuing to supply pharmacy services under the Health Act 1970. Ultimately the

Appellants did enter such contracts, but expressly on the basis that their participation was without prejudice to the issues raised in

these proceedings.

3. The reliefs sought by the Appellants in both sets of proceedings were, so far as they affect this appeal, identical, and sought:-

“A An order of certiorari quashing a decision of the respondent made in or about the month of August 1996 to unilaterally

impose the terms of a new community pharmacy contractor agreement (“the agreement”) on the applicant herein as a

condition of the applicant continuing to fully participate in the arrangements made by the respondent pursuant to section 59

of the Health Act 1970 for the supply of drugs medicines and medical and surgical appliances to eligible persons.

B A declaration that in purporting unilaterally to impose all the provisions of the agreement on the applicant the respondent

has acted out of ultra vires section 59 of the Health Act 1970.

C A declaration that the imposition of the provisions of clause 6(2) of the agreement is ultra vires the powers of the

respondent under section 59 of the Health Act 1970 and/ or void as being inconsistent with section 2 of the Pharmacy Act

1962.

D A declaration that in particular clauses 19(1), 19(3), 19(5), 20(1), 22(3) and 22(6) and 23(1) of the agreement are ultra

vires of the powers of the respondent under section 59 of the Health Act 1970.”

The Statutory Provisions

4. Section 59(1) of the Health Act 1970 provides:-

“A health board shall make arrangements for the supply without charge of drugs, medicines and medical and surgical

appliances to persons with full eligibility.”

5. Section 59(4) provides:-

“Regulations relating to the service under this section shall be made with the consent of the Minister for Finance.”

6. It should be noted that this section was amended by s.1 of the Health (Miscellaneous) Provisions Act 2001, but that amendment

has not yet been brought into force and is not relevant to the appeals. It is also relevant that no regulations affecting the issues in

these appeals have been made under s.59(4).

The Agreement

7. Prior to August 1996 negotiations took place between the Department of Health and the Pharmaceutical Contractors Committee

which is a committee of the Irish Pharmaceutical Union, which is a registered trade union representing pharmacists nationwide, and of

which the Appellants’ supervising pharmacists are members. As a result of these negotiations an agreement (hereafter called “the

agreement”) was drawn up which was intended to constitute a contract between individual health boards and individual pharmacists

in each health board area. In August 1996 the Respondents, with the approval of the Irish Pharmaceutical Union, sent copies of the

agreement to the Appellants, requiring them to be returned duly signed. It is accepted by both parties that acceptance of this

agreement was a precondition of continuing to provide pharmacy services under the Health Act 1970.

8. The Appellants challenged the validity of the agreement, for reasons which I will express in detail later in this judgment, but also

took issue with certain specific provisions, which are as follows:-

“6(2) Subject to sub-clause (4) the pharmacy contractor shall ensure that the nominated supervising pharmacist has at least

three years experience in the practice of community pharmacy including up-to-date professional knowledge and experience in

the counselling of patients in their use of medicinal products and, is not acting in a similar capacity in respect of any other

pharmacy.”

“19(1) This agreement shall terminate forthwith on the pharmacy contractor or, in the case of a body corporate, the

supervising pharmacist, ceasing to be entitled to practice as a pharmacist or upon his/ her ceasing to keep open shop for the

compounding and dispensing of medical prescriptions or on the cessation of the said contractors entitlement so to do.”

19(3) This agreement is to be construed as contingent upon the terms agreed or to be agreed between the Minister and the

Pharmaceutical Contractors Committee regarding arrangements for the provision of pharmaceutical services under the

provisions of the Health Act 1970. The pharmacy contractor and the board agree that any changes in the terms of such

arrangements, which may be agreed between the Minister and the Pharmaceutical Contractors Committee, shall be

incorporated into this agreement and the terms of this agreement shall be construed accordingly, following the issue of a

notification of such agreed changes by the Minister.”

19(5) The terms and conditions of this agreement between the Pharmaceutical Contractors Committee and the Minister may

be subject to review after a period of five years. In default of agreement in any such review, the matters of this agreement

shall be subject to mediation and recommendation by a third party appointed by the Minister following consultation with the

Pharmaceutical Contractors Committee. Any alterations to the agreement between the Minister and the Pharmaceutical

Contractors Committee arising from the review provided for in this clause, shall be incorporated into this agreement and the

terms of this agreement shall be construed accordingly, following the issue of a notification of such agreed changes by the

Minister. The terms and conditions of this agreement may also be extended for specified periods with the agreement of the

Minister and the Pharmaceutical Contractors Committee.”

20(1) In the case of a body corporate, the pharmacy contractor shall submit to the Chief Executive Officer a statement in

writing signed by two directors, or by a director and the secretary, on behalf of the said body corporate, specifying the name

of the supervising pharmacist under whose supervision the community pharmacy in respect of which the agreement relates

and the dispensing and compounding of medical prescriptions therein be conducted. This statement shall be submitted in the

format prescribed in the appendix to this schedule and shall also be signed by the supervising pharmacist concerned and

witnessed. Where the aforesaid supervising pharmacist ceases to act in that capacity, this agreement shall terminate one

month after the date he/ she has ceased to so act, unless a new statement as prescribed in this paragraph has been

furnished to and accepted by the Chief Executive Officer.”

22(3) Where the holder of an agreement is a body corporate and a change in the ownership or in the beneficial ownership of

the said body corporate takes place, the agreement shall automatically terminate and a new agreement shall be required by

the said body corporate.”

22(6) In the event of the death of the pharmacy contractor, being an individual, or in the case that the pharmacy contractor

is a body corporate, the death of the supervising pharmacist, such death shall be notified to the Chief Executive Officer as

soon as reasonably possible and the agreement shall, in such event, remain in force for a period of one month from the date

of the death of the pharmacy contractor or supervising pharmacist as the case may be and shall, on the expiration of that

period, terminate. This is without prejudice to the entitlement of the Chief Executive Officer to grant to any other party the

community pharmacy contractor agreement in respect of the premises the subject of this agreement.”

23(1) For the purposes of clauses 21 and 22 the Chief Executive Officer shall, prior to the granting of a contract agreement,

obtain a statutory declaration of the company’s secretary where appropriate or other competent person in order to identify

the ownership or the beneficial ownership, in respect of which the proposed agreement is to relate.”

The Validity of the Agreement

9. The Appellants basic argument is a very simple one. They contend that the agreement, although contractual in form, is in reality a

form of quasi legislation or quasi statutory instrument, in particular having regard to the provisions of clauses 19(3) and 19(5) which

sought to impose future alterations of the agreement on pharmacists and clause 6(2) which require three years experience for a

supervising pharmacist. They further argue that if the agreement is in fact a regulation under another guise, it does not comply with

the provisions of s.59(4) in that the consent of the Minister for Finance was not obtained.

10. The Appellants rely strongly on the decision in McCord v Electricity Supply Board [1980] ILRM 153, which concerned the standard

contract between the Electricity Supply Board and its customers. In particular, the Appellants rely on the following passage from the

judgment of Henchy J at page 161:-

“Where a monopoly supplier of a vital public utility – which is what the Board is – forces on all its consumers a common form

of contract, reserving to itself sweeping powers, including the power to vary the power unilaterally as it may think fit, such an

instrument has less affinity with a freely negotiated interpersonal contract than with a set of by laws or with any form of

autonomic legislation. As such, its terms may have to be construed not simply as contractual elements but as components of

a piece of delegated legislation, the validity of which will depend on whether it has kept within the express or implied confines

of the statutory delegation and, even if it has, whether the delegation granted or assumed is now consistent with the

provisions of the Constitution of 1937.”

11. It should immediately be said that that passage is obiter, in that the validity of the contract in that case was not challenged. In

any event, the background to that contract was totally different to the agreement in the present case. That was a truly imposed

agreement drafted unilaterally by the Electricity Supply Board under a statutory obligation to distribute, sell and promote the use of

electricity and to control, coordinate and improve the supply of electricity generally. Its terms were not negotiated with any of its

customers or with any body representing them. It concerned the supply of an essential commodity, namely electricity, on terms solely

dictated by the Electricity Supply Board.

12. The situation in the present case is radically different. It is not an agreement for the supply of a product to consumers, but is

much more akin to an agreement to appoint agents through whom the Respondents will carry out the statutory functions imposed on

them by s.59(1). That section obliges health boards to “make arrangements” for the supply of certain drugs and appliances to

certain persons. Health boards do not themselves supply the drugs and appliances other than through public hospitals in this area, nor

are they empowered to do so, and thus must enter into something in the nature of agency agreements to ensure that they have

complied with their statutory obligations to provide for the supply of such drugs and appliances.

13. By far the greatest distinction between the present case and the McCord case is, of course, that the agreement at issue in this

appeal was negotiated. Certainly the Appellants as individual pharmacies took no part in the negotiations, nor indeed did the health

boards, but the agreement was negotiated between the Minister for Health, who has the overall obligation to ensure the proper

provision of health services and the proper implementation of the Health Act 1970 on the one hand and the Pharmaceutical

Contractors Committee, which is a committee of a trade union representing the vast majority of pharmacists in the State, including

the Appellants’ supervising pharmacists.

14. A very similar situation arose in relation to contracts between health boards and general practitioners, also under the Health Act

1970. In the Association of General Practitioners Ltd & Ors v The Minister for Health [1995] 1 IR 382 it was held that a standard

contract entered into between health boards and doctors which had been negotiated with the Irish Medical Organisation was validly

imposed on all doctors who wished to be engaged under the general medical service, including those who were members of the first

named plaintiff and not members of the Irish Medical Organisation. O’Hanlon J said at page 393:-

“It is correct to say that in agreeing that health boards were not to negotiate terms and conditions at variance with those

found in the agreement with the IMO, in the case of any of the doctors in the general medical service, save with the consent

of the IMO he was fettering his discretion in another manner, but this also appears to me to be quite defensible having regard

to the importance of securing uniformity in terms and conditions of employment for all doctors participating in the GMS, so far

as it was possible to do so.”

15. In my view this is a correct statement of the law. Standard contracts negotiated with representative bodies are now a frequent

feature of both commercial and administrative law. In the provision of services by the State it is highly desirable that there should be

uniformity, and I am quite satisfied that the imposition of a standard agreement was well within the powers of the Respondents to

make the arrangements referred to in s.59(1). Indeed, it seems to me it was a very proper exercise of their powers and obligations.

16. With regard to the argument that these are in effect regulations, and that the agreement is an attempt to avoid the provisions of

s.59(4), I can see there might be some validity to this argument if the agreement were imposed unilaterally and without negotiation.

However, the fact of negotiation, and particularly with a body of which the Appellants’ supervising pharmacist are members, seems to

me to bring it clearly within the concept of an agreement or contract. The fact that the negotiators were the Department of Health

and the Irish Pharmaceutical Union seems to me to be irrelevant. The health boards have accepted the Department of Health as being

the proper negotiator on their behalf, and there is no suggestion that the Irish Pharmaceutical Union was not authorised or

empowered by its members to enter into these negotiations. Indeed, even if the Appellants’ supervising pharmacists had not been

members, on the authority of the Association of General Practitioners Ltd case the Appellants would have been obliged to accept the

terms of the agreement if they wished to partake in the scheme. The Irish Pharmaceutical Union is clearly the appropriate negotiating

body, and the Appellants are bound by the results of its negotiations. Accordingly, I am quite satisfied that the agreement is an

“arrangement” within the meaning of s.59(1) and is not any form of quasi regulation or quasi statutory instrument.

Clause 6(2) of the Agreement

17. The agreement provides under clause 6(2) quoted above that every participating pharmacy shall have a supervising pharmacist of

at least three years experience. It should be said that the provisions of sub-clause (4) are not relevant to this appeal.

18. It is argued on behalf of the Appellants that this provision is an attempt to interfere with or negate the provisions of s.2 of the

Pharmacy Act 1962. It is submitted that participation in the scheme under the agreement is essential to the commercial viability of

any pharmacy and therefore that the provision of this clause is an attempt to interfere with the rights conferred by the Pharmacy

Act. Section 2 of the pharmacy Act 1970 sets out who may keep open shop for the dispensing or compounding of medical

prescriptions, and provides that such a shop must be personally managed by a person who is a registered pharmaceutical chemist, but

without the requirement of three years experience. On the basis that the agreement is a valid arrangement under s.59(1), it is clearly

within the powers of health boards to ensure that pharmacies through whom they are performing their obligations under that section

are under the charge of an experienced pharmacist. This clause does not affect the right of a pharmacist with under three years

experience to be employed in a pharmacy which is a party to the agreement, so long as such person is not the supervising

pharmacist, nor does it prevent a pharmacist with less than three years from opening a shop for the dispensing or compounding of

medical prescriptions under s.2 of the Pharmacy Act 1962, it only prevents such a person from entering into an agreement with a

health board unless there is a supervising pharmacist in the shop with the requisite experience. On the face of it this is a sensible

provision to ensure the proper provision of services to the public, and is one which was negotiated and agreed between the

Department of Health and a Committee of the Irish Pharmaceutical Union on behalf of pharmacists.

Clauses 19(3) and 19(5)

19. These are the unilateral alteration clauses which seek to impose changes in the agreement upon pharmacists who are a party to

it, provided such changes are agreed between the Department of Health and the Pharmaceutical Contractors Committee. As I have

held that the agreement itself may be imposed on a pharmacist because it was so negotiated, equally it must follow that alterations

or amendments to the agreement so negotiated may also become binding on the parties.

Clauses 19(1) 22(3) and 22(6)

20. These are the clauses which deal with automatic termination of the contract under certain circumstances. The Respondents

concede that there appears to be a certain ambiguity between the provisions of these clauses and that of clause 20(1), which only

provides for automatic termination in the circumstances set out in that sub-clause where a new supervising pharmacist has not been

nominated within one month. Clause 19(1) provides for automatic termination where the supervising pharmacist ceases to be entitled

to practice or ceases to keep open shop. Clause 22(3) provides for automatic termination where there is a change of beneficial

ownership in a body corporate which is the holder of an agreement, but does provide that, on termination, “a new agreement shall be

required by the said body corporate”. Clause 22(6) provides that on the death of a contractor or supervising pharmacist the

agreement remains in force for one month and then automatically terminates. However, it also states that that provision is without

prejudice to the entitlement of the Chief Executive Officer of a health board to grant a new agreement to any other party in respect

of the same premises.

21. This undoubtedly appears to conflict with clause 20(1) in that it could be said in all those circumstances that the supervising

pharmacist had ceased to act in that capacity, in which case, under clause 20(1) a new statement may be provided within the

month. It is strenuously argued on behalf of the Respondent that the reality is that clause 20(1) applies in all cases, and that there

has never been an automatic termination without the right given by clause 20(1). In my view that is a reasonable argument to make,

but it is not one which falls to be decided in these proceedings. It was, rather half-heartedly, argued on behalf of the Respondents

that these entire proceedings were moot, which this Court certainly does not accept, but there is a strong argument that the point

taken in relation to these individual clauses is moot. On one interpretation, there is certainly ambiguity, but it is not an ambiguity

which ahs been the subject matter of any Court proceedings, nor of any complaint by the Appellants. It is also arguable that the

provisions of the agreement are such that a pharmacist, in any of the events covered by these clauses, may opt to use clause 20(1),

but again this Court does not have to determine a dispute of that nature. The Court has held that this is an agreement negotiated

and entered into between parties as a form of contract, and not as a regulation under s.59(4). Were it otherwise, the Court might

certainly be concerned as to the ambiguity in regulatory provisions, but the Court is not prepared to rule on the interpretation or

validity of freely entered into contractual provisions unless the necessity to do so arises in any particular case. If the Respondents

choose to treat all the anticipated events as coming with clause 20(1), then the issue will never arise.

Conclusion

22. For the reasons given above I would hold that the agreement is a contract properly entered into by the Respondents pursuant to

s.59(1) of the Health Act 1970 and that none of the individual clauses which have been challenged could be said to be ultra vires the

powers of the Respondents under that section to enter into an agreement with the Appellants. Accordingly, I would dismiss this

appeal.