Collooney Pharmacy (appellant) v North Western Health Board (respondent); Holly Hill Pharmacy Ltd (appellant) v Southern Health Board (respondent).
Judicial Review - Appeal - Certiorari - Whether particular agreement is in nature of standard form contract or quasi-legislation - Power of statutory body to enter agreement in nature of standard form contract - Imposition of agreement on individual not directly involved in negotiation of that agreement - Health Act, 1970 section 59 - Pharmacy Act, 1962 section 2
The Supreme Court (Ms Justice Denham, Ms Justice McGuinness, Mr Justice Geoghegan, Mr Justice McCracken and Mr Justice Kearns); judgment delivered July 6th, 2005.
Section 59 creates both a power and a duty to make arrangements whereby the objective of section 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 section 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 address issues which could also have been addressed in regulations made for the purpose of section 59 is not determinative of the issue.
The Supreme Court so held in refusing the appellants' appeals against orders of the High Court refusing the appellants' applications for an order of certiorari and various declarations.
Gerard Hogan SC with David Barniville BL (for the appellants); Maurice Gerard Collins SC with Emily Egan BL (for the respondents).
Mr Justice McCracken began his judgment by saying that these were two appeals raising similar basic points which were heard together. They related 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 1970 Act.
The appellants were both subsidiaries of a 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 1970 Act and were reimbursed for such services from the GMS payments board. In August, 1996, the respective respondents sought to oblige the appellants to enter into a new form of contract as a condition of continuing to supply pharmacy services under the 1970 Act. 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.
The reliefs sought by the appellants in both sets of proceedings were, so far as they affected this appeal, identical, and sought (a) an order of certiorari quashing a decision of the respondent to unilaterally impose the terms of a new community pharmacy contractor agreement ("the agreement") as a condition of the applicant continuing to fully participate in the arrangements made by the respondent pursuant to section 59 of the 1970 Act; (b) a declaration that in purporting unilaterally to impose all the provisions of the agreement on the applicant, the respondent had acted ultra vires of section 59 of the 1970 Act; as well as declarations that certain specified clauses of the agreement were ultra vires the powers of the respondent under either section 59 of the 1970 Act or section 2 of the 1962 Act.
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."
Section 59(4) provides:
"Regulations relating to the service under this section shall be made with the consent of the Minister for Finance."
Mr Justice McCracken said that no regulations affecting the issues in these appeals had been made under section 59(4).
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, a registered trade union representing pharmacists nationwide, and of which the appellants' supervising pharmacists were 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 was accepted by both parties that acceptance of this agreement was a precondition of continuing to provide pharmacy services under the 1970 Act.
The appellants challenged the validity of the agreement but also took issue with certain specific provisions. The appellants' basic argument was a very simple one. They contended that the agreement, although contractual in form, was 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 required three years experience for a supervising pharmacist.
They further argued that if the agreement was in fact a regulation under another guise, it did not comply with the provisions of section 59(4) in that the consent of the Minister for Finance was not obtained.
The appellants relied strongly on the decision in McCord v Electricity Supply Board ILRM 153, which concerned the standard contract between the ESB and its customers. In particular, the appellants relied on the following passage from the judgment of Henchy J at p.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 bylaws 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."
Mr Justice Mc Cracken said that the passage was 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 ESB under a statutory obligation for the supply of electricity. Its terms were not negotiated with any of its customers or with any body representing them.
Mr Justice McCracken said that the situation in the present case was radically different. It was not an agreement for the supply of a product to consumers, but was much more akin to an agreement to appoint agents through whom the respondents would carry out the statutory functions imposed on them by section 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. Mr Justice McCracken said that by far the greatest distinction between the present case and the McCord case was, of course, that the agreement at issue was negotiated. While neither the appellants or respondents took any part in the negotiations, it was negotiated between the Minister who has the overall obligation under the 1970 Act, and a committee of a trade union representing the vast majority of pharmacists, including the appellant's supervising pharmacists. A very similar situation arose in relation to contracts between health boards and general practitioners, also under the 1970 Act. In the Association of General Practitioners Ltd & Ors v The Minister for Health 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. Mr Justice McCracken said that standard contracts negotiated with representative bodies were 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 the imposition of a standard agreement was well within the powers of the respondents to make the arrangements referred to in section 59(1). It was a very proper exercise of their powers and obligations. With regard to the argument that these are in effect regulations, and that the agreement was an attempt to avoid the provisions of section 59(4), Mr Justice McCracken said 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 were members, seemed to bring it clearly within the concept of an agreement or contract.
The agreement provided under clause 6(2) that every participating pharmacy shall have a supervising pharmacist of at least three years experience. The appellants argued that this provision was an attempt to interfere with, or negate, the provisions of section 2 of the1962 Act. It was 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 was an attempt to interfere with the rights conferred by the 1962 Act. Section 2 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. Mr Justice McCracken said that on the basis that the agreement was a valid arrangement under section 59(1), it was 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 section 2 of the 1962 Act. It only prevented such a person from entering into an agreement with a health board unless there was a supervising pharmacist in the shop with the requisite experience. On the face of it this was a sensible provision to ensure the proper provision of services to the public, and was one which was negotiated and agreed between the Department of Health and a Committee of the Irish Pharmaceutical Union on behalf of pharmacists.
Mr Justice McCracken said that clauses 19 (3) and (5) were unilateral alteration clauses which sought to impose changes in the agreement upon pharmacists who were a party to it, provided such changes were agreed between the Department of Health and the Pharmaceutical Contractors Committee. Mr Justice McCracken said that as he had held that the agreement itself might be imposed on a pharmacist because it was so negotiated, equally it must follow that alterations or amendments to the agreement so negotiated might also become binding on the parties. The remaining clauses objected to were clauses which dealt with automatic termination of the contract under certain circumstances. The respondents conceded that there appeared 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. It was strenuously argued on behalf of the respondent that the reality was that clause 20(1) applied in all cases, and that there had never been an automatic termination without the right given by clause 20(1). Mr Justice McCracken said that on one interpretation, there was certainly ambiguity, but it was not an ambiguity which had been the subject matter of any court proceedings, nor of any complaint by the appellants.
The court had held that this was an agreement negotiated and entered into between parties as a form of contract, and not as a regulation under section 59(4). Were it otherwise, the court might certainly be concerned as to the ambiguity in regulatory provisions, but the court was not prepared to rule on the interpretation or validity of freely entered into contractual provisions unless the necessity to do so arose in any particular case.
Mr Justice McCracken said that for the reasons given above he would hold that the agreement was a contract properly entered into by the respondents pursuant to section 59(1) of the Health Act 1970 and that none of the individual clauses which had 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, he dismissed the appeal.
In a separate judgment, Mr Justice Kearns, referring to the agreement of 1996, said that it might be seen that while legal proceedings followed, both appellants in the 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 was 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. In the circumstances, the court said it would be fair to say that this challenge had been brought because certain aspects of the "package" were regarded as unsatisfactory.
For the appellants, it was 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. Under the terms of the new contract, the health boards had reserved the right to alter its provisions without the formal consent of the appellants. 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 section 59(4) of the 1970 Act otherwise than by means of regulations. The quasi-legislative character of the contract was also highlighted by reference to individual and specific provisions of the contract. Under section 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 three-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 section 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 section 59(4) of the 1970 Act.
In the McCord case (cited earlier), customers of the ESB were required to agree to certain standard terms and conditions which were determined unilaterally by the ESB and which could be altered as the ESB saw fit. Mr Justice Kearns then cited Henchy J. at p.161 (see earlier) but said that in the instant case, however, the contract was the product of detailed discussion and negotiation with the accredited representatives of pharmacists in the State.
Furthermore, the undisputed evidence in the instant case had been that, compared with the contract which it replaced, the new contract provided for a significant level of new and/or additional benefits for participating pharmacists, albeit it also provided for more onerous conditions in certain respects. It was, in other words, a typical product of any negotiating or bargaining process, with both sides making gains, but also having to make concessions. Mr Justice Kearns said that in his view, the Minister and the health boards were not obliged to negotiate with every individual pharmacist/pharmacy owner and those parties acted properly and reasonably in negotiating with the registered trade union. 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 the McCord case. Furthermore, valuable precedent existed to suggest that an arrangement, such as that eventually arrived at in the present case, was a perfectly valid and proper manner of effecting new arrangements. In the Association of General Practitioners Ltd case (cited earlier), 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 GP contracts for the supply of GMS services under section 26 of the 1970 Act. The Minister had, however, consulted with the Irish Medical Association and the Medical Union and then with the Irish Medical Organisation (formed by their merger). An identical process (to that in the Association of General Practitioners case) involving "lengthy discussions" took place between the IPU and the Department of Health in the instant case in relation to the terms and conditions of the new contract.
Mr Justice Kearns said he was 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 section 59 of the 1970 Act. It would be both impracticable and 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.
Mr Justice Kearns said he was of the view that section 59 creates both a power and a duty to make "arrangements" whereby the objective of section 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 section 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 section 59 is not determinative of the issue. The contract is not expressed to be dependent on the existence of regulations. Nor should section 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 section 59.
On this aspect of the case, Mr Justice Kearns said he was satisfied that neither the contract as a whole, nor the particular provisions identified by the appellants, constituted an attempt to achieve by "administrative practice" that which the Minister could not indirectly do by regulations under section 59(4) of the 1970 Act.
Mr Justice Kearns said 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 the court's 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. 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, the supposed problems and difficulties were entirely hypothetical in nature insofar as no particular instance had been indicated to the court whereby the applicants, or indeed anyone else, had been adversely affected by any application of the clauses at issue. Mr Justice Kearns said that obviously the contract must be construed in a reasonable manner and must be construed strictly and operated fairly. Having regard to the fact that high-tech drugs are now being dispensed, the court would support the view of the learned High Court judge that it could not be said to have been unreasonable or irrational to stipulate a requirement for three years relevant experience in the case of a supervising pharmacist.
Nor did this requirement trench upon the rights conferred by section 2 of the 1962 Act. It was clear that pharmacists may continue to act under the terms of the 1962 Act in circumstances where they are not bound by any contractual terms such as those relating to the appellants herein. The contract did not purport in any way, nor could it, to interfere with the provisions of the 1962 Act, and in particular section 2 thereof. The purpose of section 2 of the 1962 Act 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 the clauses providing for any proposed changes to the agreement, Mr Justice Kearns said he did 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 there was undoubtedly a certain degree of difficulty in reconciling the language of those provisions.
However, the court was of the view that the learned trial judge was absolutely correct in the conclusions which he reached about these various provisions and Mr Justice Kearns was further of the view that the court should not act as a "contract review body" to rewrite that which the parties themselves had agreed. It was 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 eight years.
In all the circumstances, Mr Justice Kearns said he would reject all the arguments advanced on behalf of the appellants and affirm the order of the learned High Court judge.
Ms Justice Denham, Ms Justice Mc Guinness and Mr Justice Geoghegan concurred with the judgments of both Mr Justice Mc Cracken and Mr Justice Kearns.
Solicitors: Dundon Callanan (Limerick) for the appellants; BCM Hanby Wallace (Dublin) for the respondents.
P.J. Breen, barrister
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