Supreme Court allows appeal finding Minister breached no contract terms as 1971 Memorandum not incorporated into 1996 agreement.

THE SUPREME COURT

Chief Justice [S.C. No. 298 of 2007]

Denham, J.

Hardiman, J.

Geoghegan, J.

Macken, J.

BETWEEN

THE IRISH PHARMACEUTICAL UNION, MARK GOULDSON, GOULDSON PHARMACY LIMITED, HUNTERS PHARMACY WINDY

ARBOUR LIMITED, BELMIRE LIMITED TRADING AS BRITTON’S PHARMACY, CORR’S PHARMACY (CLONSHAUGH LIMITED)

PLAINTIFFS/RESPONDENTS

AND

MINISTER FOR HEALTH & CHILDREN, IRELAND AND THE ATTORNEY GENERAL

DEFENDANTS/APPELLANTS

JUDGMENT delivered on the 29th day of April, 2010 by Macken, J.

This is an appeal from the judgment of the High Court (Clarke, J.) delivered on 29th June, 2007. Within the context of the

several claims originally made by the plaintiffs, but which were limited during the oral hearing, the High Court was called

upon to examine the nature of several agreements between the IPU and the Minister, and between the individual

pharmacists and Health Boards, in relation to the operation of a scheme providing for payments to pharmacists for the

dispensing of medicines to members of the public. By his judgment the learned High Court judge found that under the

terms of their contracts the second to sixth named plaintiffs were entitled to advance payments in respect of those

services, and that the Minister had, by unilaterally withdrawing these, breached the terms of the plaintiffs’ contracts with

the Health Boards. Declaratory orders were made in consequence thereof. I will return to the nature of those orders in

due course. The learned High Court judge also found that no contractual relationship existed between the IPU and the

Minister under the 1996 agreement entered into between them, and dismissed that claim on the part of the IPU.

The Background to the Claim

There is a very clear and detailed exposé of the background facts in the High Court judgment. It is, however, essential for

a proper understanding of this appeal to set out a brief recital of the relevant facts which are as follows;

(a) A particular type of pharmacy service was introduced as far back as 1971 through the General Medical Services

Scheme (“the GMS Scheme”). The initial standard contract for the provision of those services was entitled

“Agreement with Pharmacists for Provision of Services under Section 59(1) of the Health Act 1970”. This agreement

(“the 1971 pharmacy contract”) was made between each individual pharmacist interested in being involved in

providing the service, and the individual Health Board in whose Health Board area a pharmacist operated at the

time. That agreement made no reference to the provision of advance payments to pharmacists in respect of

services being provided.

(b) Separate from and in advance of the execution of those individual contracts, a Memorandum of Agreement was

drawn up, the content of which was agreed between the first named plaintiff (“the IPU”) on the one hand, and the

Minister on the other hand, which memorandum was entitled “Proposed Arrangements” (“the 1971 Memorandum”).

There is a reference in the 1971 Memorandum to the making of advance payments, which I will return to in due

course.

(c) In 1996, in place of the existing 1971 pharmacy contract as then operating between individual pharmacists and

the Health Boards, a new Community Pharmacy Contract Agreement (“the 1996 pharmacy contract”) was entered

into by pharmacists with the Health Boards. The functions of the Health Boards have since been taken over by the

Health Service Executive (“the HSE”). Neither the Health Boards nor the HSE is a party to the proceedings.

(d) This 1996 pharmacy contract was also preceded by a Memorandum of Agreement (“the 1996 Memorandum”)

negotiated between the IPU and the Minister, to which the new standard form 1996 pharmacy contract was

exhibited.

Neither 1996 document expressly refers to any advance payments. Evidence was given in the High Court that it was

intended that both the 1996 pharmacy contract and the 1996 Memorandum would replace the 1971 pharmacy contract

and the 1971 Memorandum.

It is against that background, combined with the legal effects of the foregoing documents, that the learned High Court

judge made his decision, and from whose judgment of the 29th June, 2007 and the Order made thereon the appellants

appeal.

The Proceedings

In essence, the individual plaintiffs in the proceedings contended that advance payments formed a term in the pharmacy

contracts entered into between them and the Health Boards, because they constituted arrangements entered into

between the IPU and the Minister, “arrangements” which were referred to in the 1971 Memorandum and, by reason of the

terms of Clause 19(3) of the 1996 pharmacy contract, those arrangements had continued to exist and were part of the

1996 pharmacy contract.

The appellants (as defendants in the proceedings) contended that while provision had been made in 1971 for advance

payments, and these were paid, they were administrative arrangements, which could be terminated by the Minister at any

time, as the Minister lawfully did in 2002. They argued, and it was conceded by the respondents, that neither the 1971

pharmacy contract, nor the subsequent 1996 pharmacy contract which replaced it, contained any express reference to

any advance payments. They also argued that, leaving aside the nature of any advance payment arrangements, the only

reference to them was in the 1971 Memorandum. Such arrangements referred to in the 1971 Memorandum had never

formed any part of the terms and conditions of either the 1971 pharmacy contract or the 1996 pharmacy contract which

replaced it, and was not introduced into the 1996 Memorandum. There was, moreover, no privity of contract between the

Minister and the individual plaintiff pharmacists. Finally, it was submitted that since the decision of the Minister was a

matter of policy for him or her to determine, judicial review was the appropriate remedy, but the plaintiffs had delayed

unduly in commencing any proceedings and were also, for that reason, disentitled to relief.

The Judgment

In his judgment, with much of which I am in agreement, the learned High Court judge approached the matter of advance

payments by considering the four separate agreements or contracts mentioned above. He found that while originally the

legal entitlement of both the IPU and the individual pharmacists was pleaded on a number of bases, at the hearing it had

been made clear, in particular by the plaintiffs/respondents, that the only claim being pursued was a contractual one. It

was necessary, therefore, to analyse the nature and extent of the relevant contractual relations between the parties,

and construe the relevant documentation, any claim based on legitimate expectations having been expressly abandoned.

The learned High Court judge identified four contractual issues which required to be considered, which, in substance, are:

(1) Whether the 1996 Memorandum constitutes a legal contract.

(2) If the 1996 Memorandum is found to create contractual relations, questions of construction arise as to the

terms of that agreement.

(3) Some of those issues of construction involve the interaction between the Memorandum and the pharmacy

contract.

(4) Questions of construction arise in relation to the pharmacy contracts themselves.

The first of the various arrangements entered into was the 1971 Memorandum. That agreement, he found, provided an

express basis on which pharmacists would be paid an advance fee for the provision of free medicine by the relevant

Health Board.

Shortly after that arrangement was entered into, the 1971 pharmacy contract was entered into between each individual

pharmacist and the relevant Health Board at the time. As mentioned earlier, the functions originally exercised by Health

Boards, were subsequently taken over by the Health Service Executive (“the HSE”). The learned High Court judge found

no express reference to advance payments in the 1971 pharmacy contract. He found, however, that in the period

subsequent to the aforesaid 1971 Memorandum and during the existence of the 1971 pharmacy contracts, advance

payments were, in fact, made to the pharmacists by the Health Boards.

The 1996 Memorandum between the IPU and the Minister was then considered. Attached to the 1996 Memorandum was

the proposed 1996 pharmacy contract to be entered into between the individual pharmacists and the relevant Health

Boards. The learned High Court judge found no reference in the 1996 Memorandum to advance payments or to any

agreement or arrangement in respect of the same.

The 1996 pharmacy contract was thereafter entered into by individual pharmacists and the Health Boards. The learned

High Court judge found that the new 1996 pharmacy contract “replaced the original 1971 version and is a more detailed

document”. As with its 1971 predecessor, the 1996 pharmacy contract made no express reference to advance payments.

In the 1996 pharmacy contract, however, the following Clause 19(3) was included:

“This agreement is to be construed as contingent upon the terms agreed or to be agreed between the Minister

and the Pharmaceutical Contractors’ Committee (which operated within the Irish Pharmaceutical Union) 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”.

In deciding the nature of the various agreements between the various parties, the learned High Court judge first

addressed the two IPU/Minister Memoranda of 1971 and 1996. He likened these general agreements to those entered into

at the end of a collective bargaining process by a trade union on behalf of its members, finding that the IPU was “acting

in a way closely analogous to a trade union negotiating on behalf of its members”. He went on to find as follows:

“… In those circumstances it will not normally be the case that a contract between the trade union and the

employer concerned will come into existence. Rather the trade union will enter into an agreement on behalf of its

members which may, if appropriate, become incorporated into the terms and conditions of the individual contracts

of employment of those members.”

It followed, therefore, he found, that although the 1971 Memorandum mentioned an advance payments scheme, it was an

agreement which did not either create contractual relations or give rise to contractual obligations as between the IPU and

the Minister. The same he found was true of the 1996 Memorandum. He considered, however, that notwithstanding the

absence of any contractual relationship, it was nevertheless necessary to consider how the terms of the pharmacy

contracts between the individual pharmacists and the Health Boards were affected, if at all, by the content of those two

Memoranda.

The learned High Court judge then turned to consider the 1971 and 1996 pharmacy contracts, having regard to his

findings in relation to the two general Memoranda. Given that the 1971 pharmacy contract was no longer operative, as he

had found it was replaced by that of 1996, focus concentrated on the 1996 pharmacy contract. The learned High Court

judge noted that Clause 19(3) of the 1996 pharmacy contract, the terms of which have been set out above, provide that

the contract between the Health Board and the individual pharmacist was “to be construed as contingent upon the terms

agreed or to be agreed between the Minster and the Pharmaceutical Contractors’ Committee (operating within the IPU)

regarding arrangements for the provision of pharmaceutical services under the provisions of the Health Act, 1970.” He

concluded that the making of advance payments fell within the meaning of “an arrangement for the provision of

pharmaceutical services”. The learned High Court judge further found that while the central purpose of Clause 19(3)

appeared to be designed to ensure that “any future agreement” entered into between the Minister and the PCC should be

automatically incorporated into the individual contracts, it was, nevertheless, necessary to give some meaning to the

phrase “terms agreed” in addition to “terms to be agreed”. Having considered the appropriate meaning to be attached to

the phrase “terms to be agreed” he then stated:

“It seems to me that clause 19(3) therefore, as a matter of construction, necessarily imports into the individual

contractual relations between individual pharmacists and Health Boards, all previous agreements entered into

between the Minister and the PCC, at least to the extent that those agreements continued to subsist as of 1996.

Those agreements included the original arrangements entered into in 1971 in respect of advance payments as

modified over the years by subsequent agreements.” (emphasis added)

The learned High Court judge considered that he was reinforced in his view of the meaning of “terms agreed” by the fact

that:

“Both before and after the adoption of the 1996 form of individual agreement, the evidence suggests that it was

common practice for Health Boards to issue documentation which seems to me to be only consistent with a

recognition that the making of advance payments was part of the contractual arrangements between those

parties.”

The learned High Court judge also outlined what he considered to be a unique feature of the pharmacy contracts. This

was that, although these had been concluded between individual pharmacists and the respective Health Boards, it was

the Minister who had decided to cease operation of the advance payments scheme. According to the learned High Court

judge, the Minister had a special role under the pharmacy contracts which he found was clear from the language of

Clause 19(5) of the 1996 pharmacy contract, which reads as follows:

“The terms and conditions of this agreement between the Pharmaceutical Contractors’ Committee (operating

within the Pharmaceutical Union) and the Minister may be subject to review after a period of five years. In default

of agreement on any such review, the matters of disagreement 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.”

Reference to the “this agreement” in the first sentence of this Clause was found by the learned High Court judge to apply

to the 1996 Memorandum between the Minister and the IPU and not to the pharmacy contract itself in which Clause 19(5)

is contained. This led, he found, to the unusual situation where the Minister was the person who had the power, on the

State side, to vary terms in the pharmacy contracts. In the present proceedings the Minister had sought, unilaterally, to

remove the advance payment scheme from the individual contracts, a scheme which the learned High Court judge found

constituted one of the entitlements of the individual pharmacists pursuant to the terms of the 1996 pharmacy contract.

In consequence, the learned High Court judge found that under the 1996 pharmacy contract, the individual plaintiff

pharmacists were entitled to an advance payment in accordance with “terms agreed” between the Minister and the IPU,

including those concerning advance payments found in the 1971 Memorandum, in the format operating as of 1996. For the

reasons given, the individual pharmacists were contractually entitled to monies paid under the advance payments scheme,

the terms of which the Minister could not unilaterally alter.

The learned High Court judge confined his orders to the declarations mentioned above and made a declaration

accordingly. He reiterated that neither general agreement between the IPU and the Minister was enforceable

contractually.

The Notice of Appeal

By a Notice of Appeal dated the 30th October, 2007, the appellants appealed from the judgment of the High Court

delivered on the 29th June, 2007 and the Order of the 26th July, 2007 (as perfected on the 11th October, 2007). By that

appeal the appellants claimed that the learned High Court judge had, in substance, misdirected himself in law in the

following respects:

1. In concluding that the terms of agreements between the IPU and the Minister, which did not have contractual

effect, became incorporated into contractually binding agreements between individual pharmacists and the Health

Boards.

2. In concluding that the Minister’s decision to terminate advance payments constituted a unilateral and unlawful

variation of the terms of contracts made between the individual pharmacists and the Health Boards in

circumstances where the court had concluded that the 1971 Memorandum, which had provided for the making of

advance payments, did not have contractual force.

3. In holding that the individual plaintiffs were entitled to seek, in proceedings against the Minister, orders relating

to the status of agreements reached between the IPU and the Minister, where:

(a) the learned trial judge had acknowledged in his judgment that “the only claim being pursued (by

each of the plaintiffs) was one based in contract”;

(b) the IPU is not a party to the pharmacy contracts concluded by the individual pharmacists with

Health Boards; and

(c) the HSE was not a party to the proceedings.

4. In holding that the agreements between the IPU and the Minister, which the learned High Court judge held were

imported to the 1996 pharmacy contracts (by virtue of Clause 19(3) of the 1996 Standard Agreement), included

“the original arrangements entered into in 1971 in respect of advance payments as modified over the years by

subsequent agreements”.

5. In concluding that the individual plaintiffs were entitled to rely on the terms of their 1996 pharmacy contracts, as

against the Minister, when the Minister was not a party to those contracts.

6. In finding, on the one hand, that neither the 1971 nor 1996 Memorandum amounted to a legally enforceable

contract, while, on the other hand, holding that a term in the 1971 Memorandum became incorporated into the 1996

pharmacy contract between the individual plaintiffs and the HSE.

7. In concluding that the provisions for advance payments contained in the 1971 Memorandum constituted a “term

agreed” within the meaning of Clause 19(3) of the 1996 pharmacy contract.

8. In concluding that Clause 19(3) of the 1996 pharmacy contract “necessarily imports” all previous agreements

entered into between the IPU and the Minister, to the extent that the same continued to subsist as of 1996,

where:

(i) Neither the 1971 nor the 1996 Memorandum constituted legally enforceable contracts or gave rise to

contractual obligations for either the IPU or the Minister;

(ii) Neither the 1971 nor the 1996 pharmacy contract made any express reference to advance

payments;

(iii) Although the 1971 Memorandum contained a reference to advance payments, the 1996

Memorandum between the same parties contained no such reference.

9. In concluding that advance payments remained a “term agreed” between the Minister and the IPU as of 1996

where:

(i) The 1996 Memorandum followed a complete renegotiation of the 1971 arrangement;

(ii) The 1996 Memorandum was intended to replace the 1971 Memorandum; and

(iii) The 1996 Memorandum made no reference whatsoever to advance payments.

10. In concluding that individual pharmacists are entitled to raise issues concerning their contractual relations with

the HSE in proceedings against the Minister.

11. In concluding that the 1996 Memorandum contains an “indirect reference to advance payments”, by virtue of

the reference therein to the 1996 pharmacy contract, in circumstances where the pharmacy contract does not

contain any direct reference to advance payments.

12. In finding that the plaintiffs were not guilty of delay in bringing the within proceedings in circumstances where

the learned trial judge accepted that “from a very early stage, the Minister made it clear that in her view the

decision was a Government decision and could not be changed”.

13. In failing to award costs against the IPU, that plaintiff having been wholly unsuccessful in its claim, and instead

awarding costs to that plaintiff against the defendants.

Written submissions were filed on behalf of the appellants and on behalf of the respondents, which have been of

considerable assistance in the appeal.

The Appeal

At the outset it should be noted that the appeal is brought on behalf of the Minister. No appeal is brought on behalf of

the IPU against the finding of the High Court judge on its claim, the IPU having been unsuccessful in its claim contract

against the appellants.

The Argument of the Parties

Having regard to the judgment and the issues as identified by the learned High Court judge, the parties divide their

submissions, both written and oral, into certain discrete areas covering: the contract law issue, the privity of contract

issue and the public law issue. I propose in this judgment to follow the same approach by commencing with the contract

law issue.

The Contract Law Issue

While the appellants are clearly in agreement with some of the judgment and with the legal findings of the learned High

Court judge flowing therefrom, they nevertheless challenge the application of his conclusions, both factual and legal, to

the particular facts of the present case.

As to his conclusions on the nature and legal effect of the 1971 and 1996 Memoranda, in his judgment the learned High

Court judge found:

“In those circumstances I am not satisfied that the 1971 memorandum of agreement, read as a whole, and having

regard to the sort of matters agreed in it, can be said amount to the type of arrangement which can create

contractual relations.

For the same reasons I am not satisfied that the 1996 agreement can be construed as giving rise to contractual

obligations.”

According to the appellants, the basis for these findings was that the learned High Court judge found that, in negotiating

with the Minister, the IPU was engaged in a process akin to collective bargaining by a trade union. He stated:

“(IPU) was, in my view, acting in a way closely analogous to a trade union negotiating on behalf of its members. In

those circumstances it will not normally be the case that a contract between the trade union and the employer

concerned will come into existence. Rather the trade union will enter into an agreement on behalf of its members

which may, if appropriate, become incorporated into the terms and conditions of the individual contracts of

employment of those members.”

Mr. Sreenan, senior counsel for the appellants submit that the learned High Court judge was correct in finding that no

contractual relations were, or could be, created by the Memoranda of 1971 and 1996. However, he argues that the

learned High Court judge was incorrect in law in proceeding nevertheless to conclude, as he did, that, although no

contractual relations were created, the terms of the 1971 Memorandum, nevertheless, became incorporated into the 1996

individual pharmacy contracts.

The appellants argue that having found – correctly - that neither the 1971 Memorandum nor the 1996 Memorandum

created any contractual relations or imposed any contractual obligations, the learned High Court judge had been

nevertheless motivated, incorrectly and erroneously in law, from the collective bargaining type process he found to exist,

to conclude that the terms of the 1971 Memorandum became incorporated into the pharmacy contracts, and that this

was without any basis in law.

The appellants invoked a range of case law in support of its contention that the learned High Court judge was wrong in

finding that the outcome of the process leading to the 1996 Memorandum, even if that process was analogous to

collective bargaining, could in any way bind the parties to the individual contracts. They point out that no authority was

cited on behalf of the respondents to support the proposition that it could. Further, they submit that the far reaching

proposition that the terms of the 1971 Memorandum could bind third parties, that is to say the individual pharmacists and

the Health Boards, is also unsupported by any authority. They rely, in particular, on authority in this jurisdiction, that

positive steps to achieve such an objective would have to be taken by the parties to the pharmacy contracts in order for

any such objective to be met. They submit that no support, of the type invoked by the learned High Court judge, could

as a matter of proper construction be found in the phrase “terms agreed or to be agreed between the Minister and the

Pharmacy Contractors Committee” in Clause 19(3) of the 1996 pharmacy contract, so as to incorporate into that

contract, any terms of the 1971 Memorandum. It will be recalled that the learned High Court judge stated:

“It seems to me that clause 19(3) therefore, as a matter of construction, necessarily imports into the individual

contractual relations between individual pharmacists and Health Boards, all previous agreements entered into

between the Minister and the PCC, at least to the extent that those agreements continued to subsist as of 1996.”

(emphasis added)

The appellants contend that this statement overlooks several important matters, including the following:

(a) The fact that a new Memorandum had been entered into in 1996 between the Minister and the IPU

that was clearly intended by the parties to vary, or replace, the pre-existing 1971 Memorandum. This

was supported by evidence before the Court. This evidence of the parties’ intention to terminate the

1971 Memorandum and replace it with a 1996 Memorandum was disregarded by the learned High Court

judge.

(b) During the course of the negotiations leading up to the conclusion of the 1996 Memorandum, the

evidence established that it was always referred to as being a “new contract” and this was, again

according to the evidence, recognised by representatives of the IPU by the use of appropriate

terminology.

(c) The renegotiation of or intention to conclude a fresh or a new agreement in 1996 was at all times

referred to in the minutes of meetings between the parties, and neither this evidence nor the evidence

that the 1996 Memorandum had the effect of replacing the totality of the 1971 arrangement was ever

queried on the part of the IPU.

(d) As early as the mid-1980’s the Minister’s officials had notified the IPU that advance payments did

not enjoy any contractual status but rather mentioned the possibility that advance payment provision

might be included in a future revision of the contract with the IPU. This position was not objected to or

opposed by any representative of the IPU.

(e) The IPU had itself obtained counsel’s opinion in 1985 which concluded unambiguously that the terms

of the 1971 Memorandum did not form part of the individual pharmacy contracts.

Notwithstanding the foregoing, at no stage did the IPU seek to have the legal status of advance payments incorporated

into or copper-fastened in the pharmacy contract in any way.

Finally, the appellants contend that the words “terms agreed” in Clause 19(3) of the 1996 Memorandum, against the

above background, should properly be construed as referring only to the terms appearing in the 1996 Memorandum, which

did not mention any advance payments. While the learned High Court judge had suggested it was “necessary to give

some meaning to the phrase terms agreed” in addition to the phrase “terms to be agreed” the learned High Court judge

simply concluded that it referred also to the 1971 Memorandum, without giving any legal or other basis for that

conclusion.

On behalf of the respondents, senior counsel Mr. McDonald, argues from a diametrically opposite view to that of counsel

for the appellants. He points to the following factors as being important in appreciating the view taken by the learned

High Court judge on what the respondents contend was the correct analysis of the very intimate relationship between the

various agreements. First, each of the individual pharmacists executed the standard form pharmacy contract, the terms

of which were arrived at following the agreement which led to the 1996 Memorandum. He drew the Court’s attention to

the fact that the 1996 Memorandum expressly states that the 1996 pharmacy contract is to be in accordance with the

terms and conditions of the agreement attached as Appendix 1 to that Memorandum. Further, he points to the fact that

the arrangements reached between the Minister and the IPU leading to the 1996 Memorandum replaced the previous

arrangements put in place in 1971. The 1971 Memorandum provided for the making of an advance payment. He submits

that the conclusion of the learned High Court judge that the advance payment scheme which, although in theory implied a

new advance payment each month, in practice operated on the basis that the advance payment was rolled over from

month to month, was correct. A pharmacist received an initial advance payment with an entitlement to retain that so long

as the pharmacist participated in the General Medical Service (GMS). The advance payment was readjusted annually in

light of the volume of the GMS prescription business conducted by the individual pharmacist. When an individual

pharmacist ceased to operate within the GMS, the entirety of the advance payment had to be repaid. Secondly, counsel

contends that, subsequent to the negotiation of the 1996 Memorandum and the execution of the 1996 pharmacy

contracts, advance payments as previously made under the old arrangement continued to be made to individual

pharmacists. Evidence had been given in that regard and in relation to the practical administration of the scheme from an

individual pharmacist’s point of view. The respondents argue that, in line with the evidence given in the course of the High

Court proceedings, the learned trial judge was entitled to find, as he did, that both before and after the adoption of the

1996 pharmacy contract, it was common practice for Health Boards to issue documentation which “seems to me to be

only consistent with the recognition that the making of advance payments was part of the contractual arrangements

between those parties”.

Thirdly, while the respondents acknowledge that there is no express reference to advance payments in either the 1971

pharmacy contract, in the 1996 pharmacy contract or in the 1996 Memorandum, counsel submits that the learned High

Court judge was entitled to find that the provisions of the 1971 Memorandum, under which the Minister agreed with the

IPU that an advance payment of the type in question would be made, was properly covered by the words “terms agreed”

in Clause 19(3) of the 1996 pharmacy contract which the learned High Court judge had correctly interpreted. In that

regard the respondents rely also on the terms of Clause 19(5), both of which have been set out previously in this

judgment.

The respondents next contend that Clause 19(3) of the 1996 agreement is, in reality, the key to a correct understanding

of the learned High Court judge’s judgment, because it expressly states that the pharmacy contract is to be construed as

contingent upon “terms agreed or to be agreed between the Minister and the Pharmaceutical Contractors Committee

regarding arrangements for the provision of pharmaceutical services under the Health Act, 1970”. Accordingly, the terms

of the two Memoranda reached in 1971 and 1996 became incorporated into the individual contracts held by the individual

pharmacists. Since they are thus incorporated, it is irrelevant that the arrangements may not be contractually

enforceable as between the Minister and the IPU. The 1971 Memoranda provided for arrangements agreed at a collective

level, which have been incorporated specifically in the terms of the 1996 pharmacy contract, and which is contractually

binding.

Finally, as to the meaning of “terms agreed”, the respondents rely on Hay v. O’Grady [1992] 1 I.R. 210 in support of their

argument that the learned High Court judge, having considered all of the evidence relating to the factual matrix against

which the 1996 Memorandum was put in place, found as a fact, or drew the correct inferences from the factual evidence

adduced in respect of the same, that advance payments were an entitlement of the plaintiffs under the 1996 pharmacy

contract. The appellants are not entitled to any relief on the basis that the learned High Court judge had misdirected

himself in relation to the words “terms agreed”.

Conclusion

I am in agreement with the learned High Court judge, and indeed with the parties to this appeal that he was correct in

identifying the several issues which required to be considered for the purposes of resolving the High Court proceedings. I

have set out earlier in this judgment the reference which the learned High Court judge made to the only relief sought by

the plaintiff, being relief directed towards declarations that the Minister had “acted in breach of contract in implementing

the Government decision to freeze advance payments in December, 2002”. The actual declarations made were in the

following terms:

“(a) By virtue of Clause 19(3) of the Community Pharmacy Contractor Agreement for provision of services under

the Health Act 1970, the second to sixth named plaintiffs (the individual pharmacists) are entitled to the benefit of

such agreements relating to advance payments as may have been made between the first named plaintiff (the

IPU) and the first named defendant (Minister) as long as any such community pharmacy contract remains in

force;

(b) The decision of the first named defendant (the Minister) to discontinue advance payments constituted a

unilateral and unlawful variation in the terms of the individual community pharmacy contracts.”

Prior to making any decision as to whether the learned High Court judge was correct in the conclusions drawn from the

arrangements or agreements entered into between the different parties, it is important to draw attention to the following

matters which the learned trial judge considered to be of particular relevance in setting the framework for his decision. He

stated:

“… As I have pointed out, the case, as it evolved, concerns the alleged existence of contractual entitlements.

Whether the Minister might have, or might not have, a reasonable basis “on the merits” for seeking a change in

the system is not, in those circumstances, relevant. If the Minister has a binding contractual obligation, then he

must comply with his contract irrespective of whether he might have a legitimate basis for seeking to have it

changed. On the other hand, if the Minister does not have a binding contractual obligation, then the plaintiffs have

no case in law. In the latter case, even if the plaintiffs could persuade the court that there was “on the merits” a

justification for the retention of the advance payment scheme, that would be a case that could only be made in

contractual negotiations with the Minister, rather than in court.

In those circumstances it does not seem to me that it is part of the function of a court to form a view (in a case

involving only a dispute about contractual entitlements) as to whether there might be, or not be, objective

reasons for changing the scheme. … For those reasons it seems to me that the issues in this case are, subject to

the delay point, confined to a consideration of the contended for contractual obligations. I now turn to those

issues. …

In the order in which it appears to me to be appropriate to deal with the questions which have arisen, the issues

seem to be as follows:

(a) Whether the 1996 agreement between the IPU and the Minister constitutes a legal contract. The

Minister contends that the agreement does not amount to a contract.

(b) If the agreement between the Minister and the IPU is found to create contractual relations, certain

questions of construction arise as to the terms of that agreement.

(c) Some of those issues of construction involve the interaction between the agreement entered into

between the IPU and the Minister, on the one hand, and the standard form contract which was

entered into between all pharmacists participating in the scheme (including the individual pharmacists)

and, initially, the Health Boards, on the other hand. The form of that agreement was itself agreed

between the IPU and the Minister. There is no doubt but that there are contractual relations between

the individual pharmacists and, in the events that have happened, the HSE. However the HSE is not a

party to these proceedings. In those circumstances, the Minister contends that the individual

pharmacists are not entitled to rely, as against her, on the individual contracts.

(d) In addition there are questions of construction in relation to the individual contracts.” (emphasis

added)

One of the first and major issues for consideration is the status of the 1971 and 1996 Memoranda. These are similar

Memoranda in the sense that they are Memoranda negotiated between the IPU (or one of its committees) on the one

hand and the Minister on the other hand, and as the learned High Court judge pointed out, correctly in my view, they are,

if not collective bargaining arrangements or agreements, analogous to such collective bargaining agreements or

arrangements.

Clause 29 of the 1971 Memorandum provided for advance payments in the following terms:

“On the submission of the first claim by a pharmacist participating in the scheme, an advance payment within

three weeks will be made to him on the basis of 55p for each of the estimated number of prescription items in his

claim. The claim will be paid in full within a further 30 days but the pharmacist will continue to retain the original

advance payment as an advance for subsequent claims. In the event of the pharmacist leaving the scheme, this

advance payment will be repayable by him.”

The terms of the 1971 Memorandum also included Clause 45 which states:

“Payment to the pharmacist will normally be made in full during the second half of the month following that in

which the prescriptions were submitted. Thus, prescriptions dispensed in April will be submitted for payment in the

first week of May and will be paid during the latter half of June. It is intended that the advance payment already

referred to will compensate pharmacists for the delay in payment of the full amount. Prescription bundles not

submitted before the specified date shall have to await payment with the following months bundle”. (emphasis

added)

Both parties have accepted that collective bargaining agreements are not, generally speaking binding contracts inter

partes and impose no contractual obligations on the parties thereto. This is clear, it is said, from the case law of our

Courts (see Kenny v. An Post [1988] I.R. 285). So far as I can ascertain, however, the question as to whether a

collective bargaining type arrangement, however it is defined, is legally enforceable, even inter partes, has not been

definitively determined in this jurisdiction. Nevertheless, the dominant view appears to be that both parties to a collective

bargaining type arrangement do not intend to create legal relations (see decision of Barrington, J. in O’Rourke v. Talbot

Ireland Limited [1984] I.L.R.M. 587, a case which does not appear to be very different from the decision in Transport

Salaried Staffs’ Association and Others v. Coras Iompair Eireann [1965] I.R. 180). Both parties accept that the 1971 and

1996 Memoranda are not legally binding or enforceable, inter partes, the legal basis for this position appearing to be the

fact that the parties did not so intend. I do not think it necessary, for the reasons next dealt with, to make any definitive

ruling on this issue generally, as it is not the basis for the appeal.

As the learned High Court judge in this case found, correctly in my view, this is not, however, the end of the matter,

because the real issue in the present case, and more relevant than the issue as to whether or not collective bargaining

arrangements, or those analogous to them, are themselves contractual in nature or give rise to contractual obligations,

inter partes, is the question of law as to whether terms in a collective bargaining type agreement, such as in the 1971

and/or 1996 Memoranda, were in this case incorporated into individual contracts between other parties.

The legal issues which arise, therefore, are the following: first, in circumstances where collective bargaining type

agreements are not binding in the sense that they do not establish contractual relations and do not impose contractual

obligations on the parties to them, as the learned High Court judge found, in what circumstances, if at all, or by what

legal means, do the terms of such agreements become incorporated into contracts made between other parties in order

for terms of the collective bargaining type arrangements to create contractual relations or impose contractual obligations,

pursuant to those other contracts. Secondly, if they do not require to be expressly incorporated in such contracts, in

what circumstances do they create binding contractual obligations under the contracts, and on whom are those

obligations placed?

The starting point for determining the terms of any contract, including the 1996 pharmacy contract, are the words used

in the contract itself. Both parties agree there is no express reference to advance payments in the 1996 Memorandum,

nor in the 1996 pharmacy contract, nor indeed was there any such reference in the 1971 pharmacy contract. Absent,

therefore, a clause by which advance payments can be found, by correct interpretation, to be clearly incorporated in the

contract between the individual pharmacists and the Health Boards, that is to say, the 1996 pharmacy contract, it seems

to me such a term cannot be invoked, it not being part of the bargain struck between the parties. It is probably

unnecessary to add that if the Government or a Minister, or an emanation of either, enters into an arrangement which is

in the nature of a contract with a citizen or citizens, this arrangement will be binding on both parties, unless and until

discharged in accordance with law. There is no question of any State party having a general inherent or residual power to

alter or terminate binding contractual terms unless some unilateral power is agreed between the parties to such an

arrangement, as was also properly remarked upon by the learned High Court judge, when he stated:

“However, it does not seem to me that any of these matters are really relevant. As I have pointed out, the case,

as it evolved, concerns the alleged existence of contractual entitlements. Whether the Minister might have, or

might not have, a reasonable basis “on the merits” for seeking a change in the system is not, in those

circumstances, relevant. If the Minister has a binding contractual obligation, then he must comply with his

contract irrespective of whether he might have a legitimate basis for seeking to have it changed. On the other

hand, if the Minister does not have a binding contractual obligation, then the plaintiffs have no case in law.”

(emphasis added)

The key basis for the decision by the learned High Court judge that the plaintiffs were entitled to succeed in their claim,

and that the Minister had breached the terms of the plaintiffs’ contracts with the Health Boards, is the learned High Court

judge’s interpretation and application of the phrase “terms agreed” in Clause 19(3) of the 1996 pharmacy contract. It is,

however, unclear to me the legal mechanism or route which the learned High Court judge adopted, in finding that the

“terms agreed”, by which the plaintiffs were entitled to invoke a right to advance payments pursuant to the 1971

Memorandum, arrived into or was incorporated into the 1996 pharmacy contract. It is worth drawing attention again to

what he stated in relation to clause 19(3), having dealt with the phrase “terms to be agreed”, which was:

“It seems to me that clause 19(3) therefore, as a matter of construction, necessarily imports into the individual

contractual relations between individual pharmacists and Health Boards, all previous agreements entered into

between the Minister and the PCC, at least to the extent that those agreements continued to subsist as of 1996.

Those agreements included the original arrangements entered into in 1971 in respect of advance payments as

modified over the years by subsequent agreements.” (emphasis added)

Logically this statement must have as its consequence that all the terms of the 1971 Memorandum were imported into the

1996 pharmacy contract. If not all terms were so imported, pursuant to the above finding of the learned High Court judge,

there appears to be no reason why, isolated from all of the terms thereby imported, terms relating to advance payments

were “necessarily” imported into the 1996 pharmacy contract.

Nor is it evident to me by what route, legally speaking, the terms were “necessarily” imported into the 1996 pharmacy

contract, as no clear legal basis is given in the judgment. Did it consist of the transfer or adoption into the 1996

Memorandum between the same parties, of all terms, or terms concerning advance payments, which originally appeared in

the 1971 Memorandum, and from there were transferred or imported into the 1996 pharmacy contract? Alternatively, did

the learned High Court judge consider that all terms in the 1971 Memorandum, or terms relating to advance payments,

were “necessarily” imported from it firstly into the 1971 pharmacy contract, and from there into the replacement 1996

pharmacy contract upon the negotiation of the latter?. The judgment is silent on whether the terms of the 1971

Memorandum, although it referred to advance payments, had become a term of the 1971 pharmacy contract, or was

incorporated into the 1996 Memorandum.

Nor is it clear to me how a term relating to advance payments, having regard to the matters which I mention below, were,

in effect, resurrected from the 1971 Memorandum without any suggestion in the 1996 Memorandum between the same

parties that any terms of the original 1971 Memorandum were retained and/or transferred into the 1996 Memorandum,

which is itself wholly silent on the question of advance payments and to which was exhibited the standard form 1996

pharmacy contract. It is clear from the evidence that the 1971 Memorandum was replaced by the 1996 Memorandum, the

latter of which the learned High Court judge found was “brief” and the full content of which was set out in his judgment.

It was the evidence, and was found as a matter of fact by the learned High Court judge, that the 1971 pharmacy

contract was replaced by the 1996 pharmacy contract, the latter of which he found to be “a more detailed document”.

There is, as the appellants point out, clear support for the finding of the learned High Court judge that the 1996

arrangements, both the 1996 Memorandum and the 1996 pharmacy contract, constituted replacements for the earlier

1971 Memorandum and 1971 pharmacy contract, such that, correctly in my view, the earlier 1971 Memorandum and

pharmacy contract no longer existed, or the terms thereof were no longer operative, save those specifically or expressly

repeated in any new agreements or arrangements. The appellants point to several matters, already set out, as supporting

the contention that the 1996 arrangements were in substitution for the earlier arrangements. This evidence includes the

parties’ intention to terminate the earlier arrangements and replace them with the 1996 arrangements, and the fact that

the 1996 Memorandum was referred to and accepted by the respondents as being a new contract or arrangement. This

status was at all times referred to in minutes of meetings between the parties and was never challenged or queried on the

part of the respondents. Other evidence to like effect as set out above. All of this, they argue, the learned High Court

judge failed to take into account. It seems clear from the evidence, that there is no express support in any of the

documents, or from any of the evidence given, that it was the intention of the parties that all of the terms of the 1971

Memorandum, or even the terms relating to advance payments, would be imported into the 1996 Memorandum, or into the

1996 pharmacy contract, by whatever legal route might be contended for. Nor is there any support in any of the legal

authorities for the contention that the terms of the 1971 Memorandum, which were replaced, could be resurrected from or

imported into the 1996 Memorandum – and the respondents did not claim they were – without the agreement of the

parties. Indeed, the parties agree there is no reference at all to them in the 1996 Memorandum.

There are, moreover, two other factual matters which I consider to be of particular importance, referred to by the

appellants, and which also do not appear to have been considered by the learned High Court judge from a perusal of his,

in all other respects, impeccably clear judgment. The first of these is that as early as the middle of the 1980’s the

Minister, through his officials, had notified the IPU that advance payments did not enjoy any contractual status between

the parties, but rather suggested the possibility that an advance payments provision might be included in a future revision

of the contract, which position was not demurred from by the representatives of the IPU. The second matter which

appears to me to be relevant is that the IPU had itself obtained counsel’s opinion in the mid 1980’s to the effect that the

terms of the 1971 Memorandum did not form part of the individual pharmacy contracts. It is, of course, true that these

are not conclusive pieces of evidence. The legal advice may not have been correct, or may have been given against a

different background different, or factual matrix. The Minister may have been incorrect in his view that advance payments

did not enjoy contractual status. It is, however, inconceivable that against that factual background, and particularly if it

was the belief of the parties that that factual background was correct, the issue of guaranteeing the status of advance

payments was not to the forefront of the IPU’s negotiations with the Minister. It is equally inconceivable that the first

named respondent did not insist on an express clause being included in the 1996 Memorandum and also in the 1996

standard form pharmacy contract exhibited to the 1996 Memorandum to deal with this precise point which was the

subject of contention or controversy between the parties, and thereby overcome any question about or uncertainty

concerning the status of advance payments, as indicated in the legal advice given to it.

Instead, although the parties were negotiating against that factual background, it is contended on the part of the

respondents that the learned High Court judge was correct to find that some only of the terms of a Memorandum made in

1971, replaced by a 1996 Memorandum which did not mention those terms, were nevertheless imported into the provisions

of the 1996 pharmacy contract exhibited to the 1996 Memorandum, and by a legal mechanism which is not explained by

the learned High Court judge, and not covered by legal submission in the case of the respondents, save by the argument

that the arrangements in the several agreements were all “intimately related”. This is undoubtedly true, but it does not,

however, deal with the legal route by which terms in a defunct 1971 Memorandum were nevertheless found by the learned

High Court judge to be “necessarily” incorporated into the 1996 pharmacy contract by the mere inclusion in that contract

of the words “terms agreed” in Clause 19(3).

Although it is possible, in law, to have a term of a contract imported into another contract, provided the intention to do

so is clearly found, it seems to me that, having regard to the background and the context in which the arrangements

were negotiated, and having regard to the content of Clause 19(3), this intention is not borne out by a proper or

reasonable interpretation of any of the terms in either of the agreements reached in 1996. I do not find that the “terms

agreed” appearing in Clause 19(3) of the 1996 pharmacy contract can only, necessarily or reasonably be understood to

mean those terms agreed, in the replaced or no longer extant 1971 Memorandum, itself replaced by a 1996 Memorandum

in which such term did not appear at all. I am not either convinced that the finding which the learned High Court judge

made can reasonably be considered to be reinforced by the fact that “both before and after the adoption of the 1996

form of individual agreement, the evidence suggests that it was common practice for Health Boards to issue

documentation which seems to me to be only consistent with a recognition that the making of advance payments was

part of the contractual arrangements between those parties” (emphasis added). This phrase raises two issues. The first

is the finding that it is only consistent with a recognition that the advance payments were part of the contractual

agreement between the individual plaintiffs and the Health Boards. It is, however, the case that such advance

arrangements are equally consistent with an administrative scheme for advance payments. Nowhere in the judgment is it

explained by the learned High Court judge the reasoning behind his finding that the payments, which it is accepted by all

parties were made, are “only consistent with” contractual arrangements. Secondly, it is not evident to me that payments

which occurred before the adoption of the 1996 pharmacy contract, whatever their nature, necessarily continued as

contractual arrangements after 1996 in the absence of clear evidence by way of express term or necessarily implied term

of the 1996 Memorandum, or the 1996 pharmacy contract. As concerns Clause 19(3) of the 1996 pharmacy contract, it is

useful to set it out again. It reads as follows:

“This agreement is to be construed as contingent upon the terms agreed or to be agreed between the Minister

and the Pharmaceutical Contractors’ Committee (which operated within the Irish Pharmaceutical Union) 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”. (emphasis added)

The learned High Court judge found that the words “terms agreed” in Clause 19(3) referred back as far as the 1971

Memorandum. Terms had, of course, been agreed in the 1996 Memorandum. In that very Memorandum was found the

model 1996 pharmacy contract to be entered into subsequently by the third parties, namely the individual pharmacists

and the Health Boards. That contract was not a term of the 1996 Memorandum itself, but rather an exhibit to the

contract, in the shape of a pro forma standard pharmacy contract to be entered into in the future, by a pharmacist willing

to do so. That occasion might never, in theory at least, arise, although this was unlikely. The point is, however, it was

directed towards a future contract to be entered into between third parties, the terms of which were to be concluded by

reference to the exhibit in the 1996 Memorandum, and never by any express reference to the 1971 Memorandum. It is not

a question of the learned judge having two options, either of which being reasonable, and being entitled therefore to

choose one or the other. On the one hand, there is nothing inconsistent with a finding, which the appellants contend for,

that the phrase “terms agreed” in the 1996 pharmacy contract are only those found, in fact, in the 1996 Memorandum.

On the other hand, it is almost impossible, legally and indeed logically, to find an appropriate legal route by which the

same phrase refers “necessarily” to terms found in the 1971 Memorandum, as the learned High Court judge found.

Although the learned High Court judge would ordinarily have been entitled to reach a conclusion based on two alternative

hypotheses, or on factual findings made in the course of the hearing, I conclude that the learned High Court judge was

incorrect in law in finding that “terms agreed” in Clause 19((3) of the 1996 pharmacy contract incorporated any terms, or

any advance payment terms, of the 1971 Memorandum into the 1996 pharmacy contracts, this not being a conclusion

which he could, in law, properly reach, having regard to all of the evidence adduced in the course of the hearing, and on

the status of the two replacement agreements reach in 1996. I disagree with the contention on the part of the

respondents that the finding of the learned High Court judge is such as to be protected by the judgment of this Court in

Hay v O’Grady, supra. The determination of the learned High Court judge is not a primary finding of fact. Rather it is a

question of considering the correct legal interpretation of a particular phrase in a contractual arrangement of an unusual,

though not unknown, group of agreements, which is a finding in law, although within a particular factual context.

Further, the learned High Court judge considered that Article 19(5) could properly be invoked in support of a finding that

the Minister had breached the terms of the pharmacy contract, although not a party to it. Article 19(5) it will be recalled

reads as follows:

“The terms and conditions of this agreement between the Pharmaceutical Contractors’ Committee (operating

within the Pharmaceutical Union) and the Minister may be subject to review after a period of five years. In default

of agreement on any such review, the matters of disagreement 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.”

All parties agree that “this agreement” refers to the 1996 Memorandum. I think this must be correct, although poorly

worded. In fact it is clear from the judgment that this clause is identical to one of the clauses in the 1996 Memorandum

itself, being the fifth of the six clauses comprised in that Memorandum, and as cited in full in the judgment. It is little

wonder therefore that its mere transposition into the 1996 pharmacy contract without appropriate modification renders it

unclear, when it should have been amended to have regard to the fact that a clause referring to “this agreement …

between the Pharmaceutical Contractors’ Committee and the Minister” could not have reflected the intention of the

parties to the 1996 pharmacy contract. Leaving that inapt wording aside, however, it will be seen that the clause has

several components:

(a) the 1996 Memorandum will be reviewed in 5 years.

(b) in default of agreement – matters in issue will go to mediation.

(c) if any changes arise upon review they will be incorporated in the 1996 pharmacy contract.

(d) such incorporation is dependent upon the changes being notified by the Minister in writing.

Whereas I am in agreement with the learned High Court judge that the Minister is, by the terms of this clause, in a

position, on the State side, to vary the terms of the pharmacy contracts, this does not place the Minister in a position in

any way superior to the IPU in terms of such change. The only term in Clause 19(5) which is peculiar to the Minister is

that concerning notification in writing of any change to the 1996 pharmacy agreement, which arises either by agreement

or pursuant to mediation. No such agreed new term in the 1996 Memorandum can be applied until the Minister notifies the

agreed change in writing. I do not find therefore that this clause - which clearly vests in the Minister the power to

negotiate, on the State side, with the IPU in respect of any term which may be agreed, and which may, after agreement,

become, pursuant to Clause 19(3) of the 1996 pharmacy contract, a future term of that amended pharmacy contract -

adds anything to the respondent’s case, or that by virtue of Clause 19(5) the “Minister retained full control over any

agreement to vary the terms of the individual contract”, since equally the IPU retained the same full control, on behalf of

its members, over any agreement to vary the terms of the same.

For the above reasons I am satisfied that in respect of the contract law issue the learned High Court judge misdirected

himself in law in finding that the terms of the 1971 Memorandum were necessarily or at all incorporated or imported into

the 1996 pharmacy contract, by virtue of Clause 19(3) of the latter. The Minister could not, therefore, have breached the

terms of those contracts on the grounds contended for.

Having regard to this finding, neither the issue of privity of contract nor the public law issue requires further detailed

consideration.

I would allow the appeal and set aside the judgment and Order of the High Court.