Astrazeneca Ltd v Commerce Commission [2008] NZCA 479; (2008) 12 TCLR 302 (11 November 2008)

Last Updated: 5 January 2012

IN THE COURT OF APPEAL OF NEW ZEALAND

CA241/2008

[2008] NZCA 479

BETWEEN ASTRAZENECA LIMITED
Appellant

AND COMMERCE COMMISSION
First Respondent

AND PHARMACEUTICAL MANAGEMENT AGENCY
Second Respondent

Hearing: 21 August 2008

Court: Glazebrook, Fogarty and MacKenzie JJ

Counsel: M N Dunning and T P Mullins for Appellant
K L Clark QC and M M Davie for First Respondent
M G Colson and R E Brown for Second Respondent

Judgment: 11 November 2008 at 4.00 pm

JUDGMENT OF THE COURT

1. The appeal is dismissed.
2. The appellant must pay each of the respondents costs for a standard appeal on a band A basis and usual disbursements. We certify for second counsel for the first respondent only.

____________________________________________________________________

REASONS

Glazebrook J [1]
Fogarty J (dissenting) [19]
MacKenzie J [79]

GLAZEBROOK J

Introduction

[1] AstraZeneca Limited (AstraZeneca”) appeals against a judgment of Panckhurst J (HC WN CIV 2007-485-002580 16 April 2008) which upheld the validity of a notice given to it by the Commerce Commission under s 98 of the Commerce Act 1986. AstraZeneca argues that s 53 of the New Zealand Public Health and Disability Act 2000 (NZPHD Act) provides it with a total exemption from the Commerce Act in the circumstances of this case.
[2] I agree with Panckhurst J that it would be premature to make a definitive ruling on the scope of s 53 of the NZPHD Act at this stage. This can and should be done only in light of the full factual background as it may be ascertained after the Commission’s investigation. This means that I would uphold the validity of the s 98 notice.
[3] The background to this appeal, including relevant extracts from Panckhurst J’s judgment, and the issues, are set out at [19] - [31] of Fogarty J’s judgment.

Panckhurst J’s reasoning

[4] Panckhurst J’s main reason for finding in favour of the respondents was that it was not clear at this stage whether there had been any anti-competitive behaviour on the part of AstraZeneca and, if there had, whether it took place in the context of contractual negotiations and was for the purpose of securing an agreement. As such, the Commission was entitled to take the view that it was necessary and desirable to investigate further and thus to issue a s 98 notice.
[5] Panckhurst J’s secondary (and confirming) reason was that the scope of the exemption from the operation of Part 2 of the Commerce Act provided by s 53 of the NZPHD Act must be interpreted in line with its purpose, as ascertained from an examination of the statutory context and the legislative history.
[6] Panckhurst J referred to ss 47 and 48 of the NZPHD Act, which set out the objectives and functions of Pharmaceutical Management Agency (Pharmac). He characterised the statutory purpose of Pharmac as being to secure “pharmaceuticals which promote the best health outcomes achievable within the budget provided”: at [71]. Against that background, he considered it clear that the exemption in s 53 had been provided so that Pharmac could structure agreements in ways that might otherwise be open to challenge under the Commerce Act. Panckhurst J accepted Ms Clark QC’s submission that the purpose of s 53 is to protect Pharmac in its role of concluding pharmaceutical arrangements that are in the public interest and for the public benefit. It does not exist to enable a supplier with market power to engage in anti-competitive behaviour as that would prevent Pharmac from obtaining the best possible deal.
[7] Panckhurst J saw his view of the statutory purpose as confirmed by the legislative history, relying on the speech of the Hon Jenny Shipley, the then Minister of Health, and the concurring speech of the Hon Michael Cullen of the then Labour Opposition on the introduction of the statutory predecessor to s 53 of the NZPHD Act. Panckhurst J considered that these speeches clearly demonstrated that the purpose of s 53 was to enable Pharmac to operate with increased market power but only so that it could negotiate better terms for the supply of pharmaceuticals. In the Judge’s view, the extension of the exemption to pharmaceutical suppliers was a necessary incident of that purpose. It was required to ensure that Pharmac was free to enter into collusive purchasing arrangements in the public interest. It was not inserted for the protection of pharmaceutical suppliers.

Evaluation

[8] The first reason given by Panckhurst J for not setting aside the s 98 notice (see at [4] above) is not particularly strong, in my view, for the reasons set out at [62] - [65] of Fogarty J’s judgment.
[9] It is possible that conduct such as that alleged in this case could have an anti-competitive purpose while being designed to achieve an aim of something other than securing an agreement with Pharmac. For example, as pointed out by Mr Colson on behalf of Pharmac, the aim could be to cause sufficient delay to put competitors out of business. However, there seems no suggestion that AstraZeneca did not wish to secure a replacement agreement in relation to Betaloc CR, although it does not seem to have been its aim to secure any agreement in relation to Betaloc IV.
[10] Like Fogarty J, I would reject Ms Clark’s implicit submission that a mixed purpose on behalf of a pharmaceutical supplier would automatically remove the benefit of the exemption. If a pharmaceutical supplier accedes to an arrangement proposed by Pharmac that might otherwise be open to challenge under the Commerce Act, it is likely that at least one of the purposes of the supplier would be anti-competitive. It would defeat the purpose of s 53 if the pharmaceutical supplier was at risk under the Commerce Act in such circumstances.
[11] However, I consider that Panckhurst J’s second reason cannot be so easily dismissed. I acknowledge that the exemption provided in s 53(2)(b) uses very inclusive and general language. However, it must be read in the context of the NZPHD Act as a whole. Further, it may be legitimate to read general language down in order to accord with the purpose of an enactment: see the discussion in Evans “Reading Down Statutes” in Bigwood (ed) The Statute: Making and Meaning (2004) at 123 – 152 and Burrows Statute Law in New Zealand (3ed 2003) at 139.
[12] It is (at least) a credible argument that, taking into account the statutory context, the purpose of the NZPHD Act and the legislative history, the s 53 exemption protects anti-competitive conduct only to the extent that it generates the requisite public benefit and that it is not designed to exempt anti-competitive behaviour that thwarts this purpose. If that argument is accepted, then s 53 does not give pharmaceutical companies carte blanche to engage in anti-competitive conduct at Pharmac’s expense, contrary to the statutory purpose of securing pharmaceutical arrangements that are for the public benefit.
[13] Further, there may also be a credible argument that s 53 does not protect all types of anti-competitive behaviour on the part of either Pharmac or pharmaceutical companies. For example, there may be a reasonableness requirement. It may also be that unilateral action to withdraw a product may not be covered if the purpose is anti-competitive. In this case, there may be some relevance in the fact that AstraZeneca seemingly had no desire to achieve an agreement with regard to Betaloc IV, even if a new replacement agreement for Betaloc CR was sought.
[14] Panckhurst J prefaced his findings on the interpretation of s 53 with a comment (at [64] of his judgment) that he considered it a surprising proposition that an investigative body should be prevented from even investigating a case because the availability of a statutory exemption can be assumed without further inquiry. He considered that there may be cases where that is so but he thought that they would be very rare. I agree with this comment.
[15] I would add that the limits of the s 53 exemption, insofar as it applies to pharmaceutical suppliers, have not been the subject of any decision to which we have been referred. The scope of the statutory exemption is therefore not so clearly defined for it to be said with certainty that any given factual situation will fall within it. Further, in this case we do not even have an agreed statement of facts and what factual material there is (and the preliminary interpretation of that material by the Commission) is disputed by AstraZeneca.
[16] Whether s 53(2)(b) should be “read down” in light of its purpose is not a question that can or should, in my view, be decided in a factual vacuum. It follows that the Commission should be free to continue its investigation to ascertain the facts. Any decision on the scope of s 53 will then be made not hypothetically, but in light of those facts as ascertained (assuming that the Commission’s investigation uncovers any anti-competitive behaviour, which of course AstraZeneca denies).

Result

[17] For the above reasons, I agree with Panckhurst J that it would be premature to set aside the s 98 notice.
[18] In accordance with the decision of the majority, the appeal is dismissed with costs in favour of the respondents for a standard appeal on a band A basis plus usual disbursements. We certify for second counsel for the first respondent only.

FOGARTY J

Introduction

[19] In New Zealand the Government subsidises pharmaceuticals used as prescribed by general practitioners and in the hospitals. The Pharmaceutical Management Agency’s (Pharmac) role is to manage the Government’s expenditure on the subsidised pharmaceuticals. Pharmac determines which pharmaceuticals should be listed, which subsidies are payable for each and negotiates the terms upon which the subsidised pharmaceuticals are supplied. In short, Pharmac has a substantial degree of power in the markets for the supply of subsidised pharmaceuticals in New Zealand. As a monopsonist, Pharmac has the ability to control the entry of different pharmaceuticals onto the pharmaceutical schedule.
[20] AstraZeneca is a supplier of two beta-blockers, drugs that alleviate certain heart conditions. They are Betaloc IV and Betaloc CR. Betaloc IV is a beta-blocker given as an injection to people soon after having a heart attack. Betaloc CR is a tablet prescribed to prevent heart attacks in at risk patients. Pharmac and AstraZeneca have had listing agreements for the supply of Betaloc CR at various times since 1994 and there is a listing agreement for Betaloc CR currently in force. There have been no agreements between Pharmac and AstraZeneca for the supply of Betaloc IV as this has been purchased directly by the District Health Boards.
[21] AstraZeneca’s patent for Betaloc CR was about to expire and Pharmac wanted to secure the supply of a cheaper generic beta-blocker, either by direct negotiation with another supplier or by a tender process. AstraZeneca responded to this development by seeking to negotiate a new long term supply of its Betaloc CR tablets (together with a number of other products, but not including Betaloc IV). Pharmac declined the Betaloc CR proposal.
[22] AstraZeneca decided to withdraw supply of Betaloc IV. AstraZeneca said that continued supply of Betaloc IV in small quantities was not commercial and gave formal notice to that effect on 30 July 2007. It had earlier (on 23 May 2007) signalled its intention to Pharmac to withdraw Betaloc IV in the following terms:

[I]f we are unsuccessful in securing long-term commercial certainty for Betaloc CR then we will be forced to also review the commercial viability of Betaloc IV, which we currently distribute to DHB hospitals as a service line.

[23] Pharmac had limited options. It negotiated an alternative supply of a similar product to Betaloc IV from Novartis. When AstraZeneca learned of this it recommenced supply of Betaloc IV on a month by month basis.
[24] The Commerce Commission staff thought that AstraZeneca may have market power for the supply of intravenous injection beta-blockers and may have taken advantage of that market power for the anti-competitive purpose of preventing sales of generic beta-blockers, in breach of the Commerce Act 1986.
[25] To investigate it issued a demand for information from AstraZeneca relying on a notice pursuant to s 98 of the Commerce Act. In the covering letter that went with that notice the Commerce Commission said:

4. The Commission is conducting an investigation into allegations that during negotiations with PHARMAC, AstraZeneca Limited may have illegally tied the proposed provision of Betaloc CR tablet pharmaceuticals to the continued supply of Betaloc IV intravenous injection pharmaceuticals in breach of section 36 of the Commerce Act 1986.

(Emphasis added)

[26] Section 98 provides:

98 Commission may require person to supply information or documents or give evidence

Where the Commission considers it necessary or desirable for the purposes of carrying out its functions and exercising its powers under this Act, the Commission may, by notice in writing served on any person, require that person—

(a) to furnish to the Commission, by writing signed by that person or, in the case of a body corporate, by a director or competent servant or agent of the body corporate, within the time and in the manner specified in the notice, any information or class of information specified in the notice; or

(b) to produce to the Commission, or to a person specified in the notice acting on its behalf in accordance with the notice, any document or class of documents specified in the notice; or

(c) to appear before the Commission at a time and place specified in the notice to give evidence, either orally or in writing, and produce any document or class of documents specified in the notice.

[27] Section 36(2) provides:

36 Taking advantage of market power

...

(2) A person that has a substantial degree of power in a market must not take advantage of that power for the purpose of—

(a) restricting the entry of a person into that or any other market; or

(b) preventing or deterring a person from engaging in competitive conduct in that or any other market; or

(c) eliminating a person from that or any other market.

[28] In these proceedings AstraZeneca seeks a judicial review of that decision arguing the Commission did not have the power to issue the notice for whatever the detail of the facts are, and however they are framed, AstraZeneca has an exemption from Part 2 of the Commerce Act, of which s 36 is part.
[29] Pharmac and anyone who deals with Pharmac has a wide exemption from Part 2 of the Commerce Act. This is provided not in the Commerce Act but by s 53 of the New Zealand Public Health and Disability Act 2000 (NZPHD Act). Section 53 provides:

53 Exemption from Part 2 of Commerce Act 1986

(1) In this section, unless the context otherwise requires,—

agreement–

(a) includes any agreement, arrangement, contract, covenant, deed, or understanding, whether oral or written, whether express or implied, and whether or not enforceable at law; and

(b) without limiting the generality of paragraph (a), includes any contract of service and any agreement, arrangement, contract, covenant, or deed, creating or evidencing a trust

pharmaceuticals means substances or things that are medicines, therapeutic medical devices, or products or things related to pharmaceuticals.

(2) It is declared that nothing in Part 2 of the Commerce Act 1986 applies to—

(a) any agreement to which Pharmac is a party and that relates to pharmaceuticals for which full or part-payments may be made from money appropriated under the Public Finance Act 1989; or

(b) any act, matter, or thing, done by any person for the purposes of entering into such an agreement; or

(c) any act, matter, or thing, done by any person to give effect to such an agreement.

The judgment of the High Court

[30] In the High Court Panckhurst J held that it was premature to decide whether the exemption applied and so allowed the s 98 procedures to continue (HC WN CIV 2007-485-002580 16 April 2008). He agreed with the Commission’s argument that the exemption was limited. The core of his reasoning is in paragraphs [62], [63], [66] and [67]. These reasons are also supported by [71], [72] and [76]. I set out these paragraphs:

[62] The effect of the argument for AstraZeneca was that the preconditions for the availability of the exemption are described in s53 and that the factual situation of this case was sufficiently clear, such that it was self-evident that the exemption availed the company. It necessarily followed that the Commission could not consider it necessary or desirable for the purposes of carrying out its functions to issue a s98 notice. The notice was simply redundant because, self-evidently, the exemption from the operation of Part 2 of the Commerce Act applied in the circumstances of this case.

[63] The contrary argument advanced by Ms Clark, and strongly supported by Mr Colson, was to the effect that this was to place the cart before the horse. Section 53 applies to a defined, and limited, range of conduct. Before the availability of the exemption is to be assumed, the facts of any given case must be ascertained. It is the role and function of the Commission to do so. It follows that the present challenge to the validity of the s98 notice must be premature. It is not for the Commission to assume, absent a proper investigation, that potentially anti-competitive behaviour has occurred, but is exempt from the reach of Part 2 of the Commerce Act. It would be a dereliction of duty for it to do so.

...

[66] But, in particular, I consider that the factual situation gives rise to questions of context and purpose. Seemingly the parties were in negotiations concerning the conclusion of the arrangement for the future supply of Betaloc CR. But, did the suspected anti-competitive behaviour occur in the context of initiatives directed towards entering into a pharmaceuticals agreement? Equally, was something done by AstraZeneca which amounted to anti-competitive conduct and for the purpose of securing a new agreement? It is only if these requirements of context, and purpose, are met that the exemption applies.

[67] I consider it is speculative to assume that the alleged anti-competitive behaviour (assuming it occurred) took place in the context of contractual negotiations and was for the very purpose of securing an agreement. It may well have been, but at this point in time that is supposition. Until it is in full possession of the facts, the Commission is entitled (if not obliged) to take the view that it is necessary and desirable to issue a s98 notice in order to carry out its statutory functions.

...

[71] Against this statutory background it is apparent why the exemption in s53 was provided by Parliament. Pharmac, by definition is a monopolist purchaser of pharmaceuticals on behalf of District Health Boards. The exemption protects Pharmac’s ability to structure agreements in ways that might otherwise be open to challenge under the Commerce Act. Thereby Pharmac is assisted to achieve its statutory purpose of securing pharmaceuticals which promote the best health outcomes achievable within the budget provided.

[72] But, it is no part of Pharmac’s role to deter or lessen competition between pharmaceutical suppliers. To the contrary healthy competition between suppliers will help lower the cost of pharmaceuticals obtained by Pharmac under supply agreements. Hence, I accept Ms Clark’s submission that the purpose of s53 is to protect Pharmac in relation to its concluding pharmaceutical arrangements that are in the public interest and for the public benefit. The exemption does not exist to enable a supplier with market power to engage in anti-competitive behaviour. This would prevent Pharmac from obtaining the best possible deal.

...

[76] Based on these various materials (and others to which counsel referred) I agree with the submissions of Ms Clark and Mr Colson that the purpose and interpretation of s53 is clear. The exemption exists to enable Pharmac, on behalf of the district health boards, to operate with increased market power so that it may negotiate better prices and terms for the supply of pharmaceuticals. The exemption is aimed at the attainment of public benefit. It extends to pharmaceutical suppliers because this is necessary to ensure that Pharmac is free to enter into collusive purchasing arrangements. But, there is nothing to suggest that the exemption exists for the protection of pharmaceutical suppliers generally. In short, its availability is closely linked to actions occurring in the context of a pharmaceutical agreement or for the purpose of entering into such an agreement. This tends to confirm the conclusion already reached that in order to ascertain whether the exemption applies in any given situation it is first necessary to examine and establish the surrounding facts. Assumptions may be misplaced. The investigative role falls to the Commission. Its investigative powers should be available to that end.

The issues

[31] The parties do not agree on the issues to be determined. The appellant characterises the issue as whether the conduct, the subject of the s 98 notice, is within the statutory exemption. The respondents say the issue is whether the Judge was right to hold it is speculative to assume the alleged anti-competitive conduct falls within the exemption. Part of the respondents’ argument is that, on the facts known to the Commission so far, it is necessary and reasonable for the Commission to investigate further.
[32] I proceed by considering first the scope of the subject matter of the s 98 notice. Then I move on to the heart of the dispute, which is whether it is clear now, no matter what further detail may be available, that the conduct of AstraZeneca has the benefit of the exemption.

First issue: the scope of the subject matter of the notice under s 98 of the Commerce Act

[33] The issue of a s 98 notice is an exercise of a public power. The opening words of the section require the Commission to consider that it is necessary or desirable for the purpose of carrying out its functions or exercising its powers to serve the notice.
[34] The leading authority on the scope of s 98 is the High Court decision in Telecom Corporation of New Zealand Ltd v Commerce Commission [1991] NZAR 155. That decision was summarised by Panckhurst J in the decision under appeal:

[49] The interpretation of s98 was considered in Telecom Corporation of NZ Ltd v Commerce Commission [1991] NZAR 155 (HC). Telecom challenged a s98 notice upon the grounds that documents sought were not relevant to the investigation being undertaken by the Commission and upon the further grounds that certain documents were protected by legal professional privilege. Gallen J observed at 162 that the power was exercisable where the Commission “considered it necessary or desirable”. But, information may only be sought for the purposes of carrying out the Commission’s functions or exercising its powers under the Act. Hence the power to require citizens to furnish information was limited. Although the words of the section are widely cast, the nature of the information sought must be shown to be related to the particular subject-matter which gives the Commission jurisdiction to investigate at all. (Emphasis added)

[35] As to the subject matter and scope of the notice, Ms Clark QC for the Commission argued that the Court should not focus on paragraph 4 of the covering letter (set out at [25] above). She cited the decision of the Full Federal Court of Australia in Seven Network Ltd v Australian Competition and Consumer Commission [2004] FCAFC 267; (2004) 140 FCR 170 for the proposition that the Court should not adopt an over-technical or hypercritical approach to the construction of a notice and it is not necessary to plead in a notice all the facts necessary to constitute a contravention or possible contravention.
[36] The summary in paragraph 4 of the Commission’s covering letter is accurate. It is confirmed by an examination of the list of documents and information sought in the formal notice itself. Of the nine categories of documents, only one (item 7) did not refer expressly to one or both of the drugs at issue. Item 7 provides:

7. Copies of AstraZeneca Limited’s written policies and/or guidelines relevant to the required levels of profitability for pharmaceuticals, in particular those relating to prescribed minimum levels of profitability required to justify continued supply of the pharmaceutical in the market;

[37] Plainly such a general request, to be necessary or desirable, has to be related to the continued supply of these beta-blockers, and in particular Betaloc IV. When item 7 is read in its context, it is so related. The Commission wanted to examine whether AstraZeneca’s stated purpose of commerciality for discontinuing Betaloc IV was the real purpose, and if not, find out the purposes.
[38] The information or class of information that is the subject of a s 98 notice has to be considered necessary or desirable by the Commission, in this context, to investigate a breach of s 36 arising from conduct withdrawing supply of Betaloc IV. If the information sought could not assist in determining whether there has been a breach there is no basis for a valid conclusion that obtaining such information is necessary or desirable. It is not necessary in the notice to define all the facts necessary to constitute a possible contravention. If it is possible to conclude that any tying of Betaloc CR and Betaloc IV, however it is done, is exempted from Part 2 of the Commerce Act, then there is no justification for the notice. Panckhurst J was persuaded it was premature to examine that question. The appellant argues that we can and should answer that question.

Second issue: The application of s 53 of the NZPHD Act

[39] The Commerce Commission and Pharmac argue that it is premature to find that the conduct of AstraZeneca falls within s 53(2)(b):

(b) any act, matter, or thing, done by any person for the purposes of entering into such an agreement; ...

[40] They argue the High Court was correct to conclude that it is speculative to assume that the alleged conduct (assuming it breached the Commerce Act) is covered by the exemption and that until the Commissioner is in full possession of the facts, the Commission was entitled to take the view that it was necessary and desirable to issue a s 98 notice.
[41] The Commission argues that s 53 exempts Pharmac’s pharmaceutical arrangements and associated potentially anti-competitive conduct and practices from Part 2 of the Commerce Act in order to facilitate Pharmac’s role as a monopsonist purchaser of pharmaceuticals on behalf of the Crown, thereby securing the best health outcomes for eligible members of the public in need of pharmaceuticals. The Commission argues that the exemption was not enacted to protect anti-competitive conduct independent from Pharmac’s purchasing arrangements. The exemption does not prevent investigation into such activities. In particular it does not exempt pharmaceutical companies from liability for unilateral or collusive anti-competitive conduct while supplying Pharmac, and that it is possible that the conduct under enquiry falls outside the exemption.
[42] AstraZeneca argues that the conduct which is the subject of the s 98 notice was plainly done during negotiations with Pharmac, for the purposes of an agreement with Pharmac: see s 53(2)(b) of the NZPHD Act. The pharmaceuticals were pharmaceuticals for which full or part payment of monies may be made from public money, as both Betaloc CR and Betaloc IV are subsidised: see s 53(2)(a). It argues that it is obvious that the exemption applies.

Analysis

[43] When the exemption was first enacted there was no equivalent to s 53(2)(b): see s 29 of the Health Reforms (Transitional Provisions) Act 1993 and s 2 of the Finance Act 1994. The exemption as first enacted, without s 53(2)(b), was discussed by the High Court in Researched Medicines Industry Association of NZ Inc v Pharmaceutical Management Agency Ltd (Pharmac) HC WN CP177/95 22 October 1997. Ellis J in that case, referred to Hansard and said (at 18):

... [I]t is plain that Parliament intended that the implementation of major health reforms should not be impeded by the Commerce Act.

[44] Ellis J deliberately took a liberal view of what could constitute “any act, matter or thing”, holding that the phrase included decisions whether to list a drug (and the subsidy to be paid whether or not it involves entering into an agreement with a supplier): at 19. The decision was confirmed on appeal: Researched Medicines Industry Association of NZ Inc v Pharmaceutical Management Agency Ltd [1998] 3 NZLR 12 (CA). The appeal was on a different point – adequacy of consultation. However, the Court held that the effect of the provisions are to give Pharmac “a broad exemption”: at 20.
[45] When the New Zealand Public Health and Disability Bill 2000 was introduced into the House of Representatives, the new cl (2)(b) was added. There was no reference to this change in the explanatory notes or in the report of the Health Committee to the House. However, Ms Clark for the Commission sought to support the Commission’s construction of s 53 by inviting this Court to give weight to statements by the Hon Annette King, the then Minister of Health, in a memorandum to the Cabinet Social Policy and Health Committee (Statutory Form of the New Zealand Blood Service and Pharmac), arguing for the exemption to be carried over into the NZPHD Bill and be extended to include the health sector’s new structure. That paper included the propositions that:

PHARMAC is not interested in eliminating or diminishing competition – its goal of getting value for money from pharmaceuticals is facilitated where there is vigorous competition among suppliers. PHARMAC’S processes ensure that all suppliers have an equal opportunity to compete.

...

To give full effect to the exemption, it will be important to protect not just PHARMAC but the Crown (including Ministers), the DHBs, and other organisations (including pharmaceutical companies and pharmacies) that will enter into contracts or other arrangements in relation to pharmaceuticals with PHARMAC.

[46] There are three problems with the use of this material. First, it is in a Cabinet paper, normally regarded as an unreliable guide to a statute’s meaning. Second, the first passage quoted is to a degree rhetorical, as Pharmac’s processes include bundling arrangements across markets which can have the effect that suppliers who are not supplying in all the relevant markets lose an opportunity to compete in the market they supply in. So it is a general statement which does not pretend to explain fully what Pharmac does and what its effect truly is on competition in relevant markets for the purposes of the Commerce Act. Third, the second passage quoted is plainly not directed to distinguishing between subs (2)(a), (b) and (c). It is again a general proposition.
[47] All that said, I agree that it was not the purpose of the Government when introducing the NZPHD Bill into the House to facilitate the pharmaceutical companies using anti-competitive conduct to put pressure on Pharmac. That is a negative proposition. It does not follow that the inclusive language in the text of s 53 can be ignored, if it has that consequence.
[48] Section 5 of the Interpretation Act 1999 requires the text of any statutory provision to be read in the light of its purpose. What is the purpose of subs (2)(b)? The exemption has always protected any act, matter or thing done by any person to give effect to such an agreement, as now appears in subs (2)(c). It is obvious that subs (2)(b) applies to conduct prior to entering into any agreement with Pharmac, as defined and provided for in subs (2)(a). At least part of the purpose of the new clause subs (2)(b) is to enable Pharmac and any persons who are taking steps for the purposes of entering into a subs (2)(a) agreement with Pharmac to be exempt from Part 2 of the Commerce Act. Plainly, in 2000, or shortly before, a mischief was identified. It was that pre-agreement conduct by Pharmac or a pharmaceutical supplier might itself be in breach of Part 2 of the Commerce Act. For example, an understanding with Pharmac to enter into a tying arrangement might be breach of s 27, being conduct for the purpose of substantially lessening competition in a relevant market. So subs (2)(b) was introduced to extend the protection to Pharmac and persons dealing or intending to deal within the terms of subs (2)(a).
[49] Both the first and second respondents argued that subs (2)(b) should be interpreted in the light of the overall purpose of the s 53 exemption. They argue the exempting provision was only intended to have effect where the conduct that is exempt is anti-competitive conduct that generates a public benefit being the achievement of Pharmac’s objectives; that the word “purposes” in subs (2)(b) constrains the scope of subs (2)(b). I now go on to examine this submission in the context of the facts of this case.
[50] There is no doubt as to the sequence of events. It is the characterisation and purpose of the events which is disputed. The Commission wants to get information which will throw further light on the purpose of AstraZeneca. The undisputed conduct is summarised in my introduction. Panckhurst J recorded aspects of the conduct in this way:

[12] Negotiations with Pharmac proceeded in the first half of 2007 concerning the ongoing supply of Betaloc CR by AstraZeneca. Previously AstraZeneca was the sole supplier, but, with the active ingredient of the pharmaceutical off patent, the conclusion of a new long term agreement was a contentious issue. There was an added complication in that although alternative products to Betaloc CR are internationally available, regulatory approval for their sale in New Zealand does not exist. The process to obtain approval is lengthy, and approval is not anticipated until about the middle of 2008. Hence, the negotiations unfolded in circumstances where AstraZeneca was vulnerable to the emergence of competitors, and Pharmac was exposed to the necessity to secure ongoing supplies of Betaloc CR when approval for an alternative product line remained some way off.

[13] During the negotiations AstraZeneca advised Pharmac that it was reviewing the commercial viability of Betaloc IV. Absent sufficient progress in the Betaloc CR negotiations, AstraZeneca gave notice on 30 July 2007 of its withdrawal of Betaloc IV from the market. Media coverage resulted.

[14] By way of example one newspaper published an article commencing in these terms:

Drug standoff ‘could cost lives’

A standoff between Pharmac and a multinational drug company “could potentially cost lives” and see up to 150,000 heart patients paying more for life-saving medication.

Pharmaceutical company AstraZeneca this week said it was withdrawing its Betaloc heart injection from the market and would charge more for the tablet form of the drug.

Betaloc is the only registered medication of its kind in New Zealand, but AstraZeneca and Pharmac, New Zealand’s drug-buying agency, have fallen out over the cost of the drug.

The balance of the article contained observations from a number of commentators, one of whom said that Pharmac’s contract negotiating process was partly responsible, while another ventured that AstraZeneca was gambling with the lives of acutely ill patients to protect itself from competition.

[15] The article concluded with a comment attributed to Mr Gravatt:

AstraZeneca New Zealand general manager Lance Gravatt said the company had offered Pharmac a competitive proposal on a package of heart medications when its three-year contract to supply Betaloc expired a few months ago.

He said Pharmac was a tough negotiator and AstraZeneca also had to play hard. As negotiations between the drug company and Pharmac had broken down, AstraZeneca could not continue to supply small volumes of Betaloc injections without a long-term contract to supply the larger and more lucrative tablet market, Gravatt said.

[51] As a monopsonist Pharmac is in a position to drive hard bargains with the drug suppliers. For example, it has developed expenditure management strategies which include cross deals in bundling arrangements whereby:

A composite decision may be made in tailoring amendments to the schedule in respect of more than one pharmaceutical (whether or not those pharmaceuticals are related therapeutic or sub groups).

[52] This means that Pharmac may enter agreements with suppliers to amend the subsidies or the listing of unrelated products from a supplier and thereby tie the markets and prices (by way of setting subsidies) for different products together. It is easy to see that this exercise of market power by Pharmac may result in Pharmac’s power as a buyer in one market being used to restrict competition for supply in another market. By this and other mechanisms Pharmac is in peril of being in breach of s 36(2) of the Commerce Act by exercising its undoubtedly substantial degree of market power in one market to restrict persons from entering into that or any other market; or to prevent or deter persons from engaging in competitive conduct in that or any other market; or to eliminate a person from that or any other market (see subs (2)(a), (b), (c)).
[53] Accordingly, it is plain that the exemption in s 53 was provided to protect Pharmac’s ability to structure agreements in ways that might otherwise be open to challenge under Part 2 of the Commerce Act. In this respect I agree with the conclusion of Panckhurst J at [71] of his judgment: at [30] above.
[54] Pharmac’s complaint in this case is essentially that AstraZeneca is using the same type of supply strategies against it ensuring the continuation of supply of its beta-blocker, Betaloc CR, into the tablet market for beta-blockers by threatening to withdraw supply of Betaloc IV into the injection market for beta-blockers. In the latter market Pharmac is contending that AstraZeneca has a substantial degree of market power.
[55] Panckhurst J was sympathetic to the proposition that the s 53 exemption could not be used to shield anti-competitive behaviour of persons dealing with Pharmac. I refer to his paragraph [72]: at [30] above.
[56] I agree that Pharmac has no interest in deterring or lessening competition between pharmaceutical suppliers. However, in my opinion, it does not follow that the only purpose of s 53 is to protect Pharmac. Section 53 extends expressly to protect “any person” dealing with Pharmac.
[57] I also agree that subs (2)(b) and (c) were not enacted to enable pharmaceutical suppliers to act to prevent Pharmac from obtaining the best possible deal, measured from Pharmac’s point of view. However, this may be an inevitable consequence of granting the exemption in subs (2)(b).
[58] Subs (2)(b) uses very inclusive language:

• Any act, matter or thing
• Done by any person

[59] Plainly, “any act” can include the linking of continued supply of products in different markets initiated by the pharmaceutical supplier.
[60] Implicitly recognising the absence of any constraint in those parts of the text of subs 2(b), counsel for the Commission and Pharmac concentrated on seeking to confine the meaning of the phrase “for the purposes of entering into such an agreement”. They argued first, contextually, that AstraZeneca’s conduct should not be inferred to be for the purposes of entering into such an agreement with Pharmac just because the conduct occurred contemporaneously with negotiations for an agreement. Second, they argued that the purposes must not be to restrict the competition between suppliers.
[61] Panckhurst J agreed. He plainly had in mind the fact recorded at [13] of his judgment (set out above at [50]) that AstraZeneca did withdraw Betaloc IV independently of reaching an understanding with Pharmac. It is appropriate to repeat his paragraphs [66] and [67]:

[66] But, in particular, I consider that the factual situation gives rise to questions of context and purpose. Seemingly the parties were in negotiations concerning the conclusion of the arrangement for the future supply of Betaloc CR. But, did the suspected anti-competitive behaviour occur in the context of initiatives directed towards entering into a pharmaceuticals agreement? Equally, was something done by AstraZeneca which amounted to anti-competitive conduct and for the purpose of securing a new agreement? It is only if these requirements of context, and purpose, are met that the exemption applies.

[67] I consider it is speculative to assume that the alleged anti-competitive behaviour (assuming it occurred) took place in the context of contractual negotiations and was for the very purpose of securing an agreement. It may well have been, but at this point in time that is supposition. Until it is in full possession of the facts, the Commission is entitled (if not obliged) to take the view that it is necessary and desirable to issue a s98 notice in order to carry out its statutory functions.

(Emphasis added)

[62] The only purposes relevant to this s 53 analysis are the purposes for entering into an agreement with Pharmac, and anti-competitive purposes relevant to a breach of s 36 of the Commerce Act. If AstraZeneca withdrew Betaloc IV simply because it was not commercial to supply it in small quantities, then that benign purpose cannot of itself constitute breach of Part 2 of the Commerce Act, as those sections do not impose an obligation to supply non-essential services.
[63] Ms Clark submitted that:

The only evidence before the Court as to AstraZeneca’s purpose in withdrawing Betaloc IV refers to profitability concerns.

[64] On the history of this matter it is open to the Commission and Pharmac to dispute the stated reason by AstraZeneca as to why it was withdrawing Betaloc IV. But the only anti-competitive purpose that they can advance on these facts is the purpose which Ms Clark did advance:

For example, it is equally arguable that AstraZeneca was attempting to prevent Pharmac from concluding or effecting agreements with generic manufacturers of [beta-blockers]. Such conduct could not fall within the exemption.

(Such an attempt can be classified as a s 36(2)(a) or (b) purpose.)

[65] However, the only reason why AstraZeneca would attempt to prevent Pharmac from concluding or effecting agreement with generic manufacturers of beta-blockers is in order to pressure Pharmac to continue to take supply from AstraZeneca of Betaloc CR. If the Commission were able to obtain more information it would not be able to exclude or supplant this obvious reason. This reason is a “purpose” for s 53 analysis.
[66] Accordingly, Ms Clark’s argument for the Commission is that if the conduct of AstraZeneca was for anti-competitive purposes vis-à-vis its competitors, as well as being for the purpose of securing agreement with Pharmac, then the exemption does not apply. Ms Clark did not make this submission expressly. She made a number of specific submissions on that theme, which I address.
[67] She submitted that s 53 “was only intended to have effect where the conduct that is exempt is anti-competitive conduct that generates the requisite public benefit”. It would be an extraordinary conclusion which the text of s 53 cannot bear, to find that its application depends upon the conduct generating a public benefit.
[68] Ms Clark also submitted “s 53 will not protect those who engage in unilateral anti-competitive conduct”. In context she was submitting that s 53 did not protect the unilateral conduct initiated by AstraZeneca of discontinuing supply of Betaloc IV in order, the Commission alleges, to put pressure on Pharmac. Mr Colson for Pharmac similarly submitted “the exemption extends to pharmaceutical suppliers so as to prevent the possibility that Pharmac’s agreements and conduct can be attacked indirectly via an action against a pharmaceutical supplier that is either a party to, or attempting to enter into, an agreement with Pharmac” (emphasis added). If Parliament had intended not to exempt unilateral anti-competitive conduct, one would expect such an intent to be achieved by qualifying the text’s reference to the applicable range of conduct, by confining the exempted conduct to being as a party to Pharmac’s conduct. Such a limitation cannot be fitted into the existing text of “any act, matter or thing done ...”.
[69] Ms Clark also submitted:

Such conduct is antithetical to the purpose of the exemption as it does not advance Pharmac’s statutory objectives (and thus public benefit).

Therefore she does not regard that conduct as conduct which is “done for the purposes of entering into such an agreement ...[with Pharmac]”.

[70] So ultimately Ms Clark’s argument is contending that if one of the available purposes of AstraZeneca’s conduct is attempting to prevent Pharmac from concluding or effecting agreements with generic manufacturers of beta-blockers then the fact that it is also for the purpose of persuading Pharmac to enter into an agreement does not bring AstraZeneca within s 53.
[71] I disagree. That would be to gloss s 53(2)(b) so that it reads:

Any act, matter, or thing, done by any person for the [sole] purpose (singular) of entering into such an agreement.

[72] However, this is a gloss which is not practicable. All conduct for the purposes of entering into a subs (2)(a) agreement with Pharmac will be to the disadvantage of any rivals for that supply. As already noted in [52], if that conduct is anti-competitive then it may be in breach of various provisions of Part 2. All market behaviour tends to have effects on both suppliers and buyers, and can be characterised as being for multiple purposes. To address this multiple purpose characteristic of market behaviour, s 2(5)(b) of the Commerce Act provides:

(5) For the purposes of this Act–

...

(b) a person shall be deemed to have engaged, or to engage, in conduct for a particular purpose or a particular reason if–

(i) that person engaged or engages in that conduct for that purpose or reason or for purposes or reasons that included or include that purpose or reason; and

(ii) that purpose or reason was or is a substantial purpose or reason.

[73] Mr Colson argues rhetorically:

AstraZeneca not only threatened to discontinue Betaloc IV but, in fact, did so by issuing a notice of discontinuance. Given that it actually took this step, and did not just threaten it, can it still be said that this action was for the purpose of entering into an agreement with PHARMAC as regards Betaloc CR?

What is the relevance of there already being an agreement on foot here for Betaloc CR? AstraZeneca was seemingly seeking to improve the terms of listing against the backdrop of a likely generic entrant into the market. Is such conduct for the purpose of entering into an agreement with PHARMAC?

[74] This is an argument that the conduct has to be proximate by some measure to conduct entering into an agreement in order to be for the purpose of entering into an agreement. Note that Mr Colson’s examples use the word “purpose”, not “purposes” the word in the text. The section cannot be interpreted to change the word “purposes” to singular. “Purposes” in the plural plainly accommodates all conduct aimed at the goal of entering into such an agreement. To introduce some standard of proximity is contrary to the text.
[75] Subsection (2)(b) does not read so that Pharmac gets a broader exemption pre-agreement, than other persons. It reads as providing a common exemption. Yet the Commerce Commission and Pharmac are contending ultimately for a construction of s 53 which gives Pharmac a wider exemption than that given to the persons who deal with it. Section 53 does not say that. It comes nowhere near saying it. It may well be a meritorious policy. But if it were the policy the exemption would have to read very differently. I think that it is not possible to construe the text of s 53 to set asymmetrical limits on the exemption to Pharmac and to other persons.
[76] For these reasons I think that the Commission and Pharmac are contending for a meaning which the text of s 53 is “quite incapable of bearing”. See Burrows Statute Law in New Zealand (3ed 2003) at 151.

Conclusion

[77] I think there is no doubt that if AstraZeneca’s withdrawal of Betaloc IV was anti-competitive to rival suppliers and to Pharmac as the buyer, it was nonetheless inevitably for the purposes of entering into a subs (2)(a) agreement with Pharmac. “Purposes” cannot be read down to exclude AstraZeneca’s conduct, however characterised. Accordingly, the exemption applies even if AstraZeneca’s conduct was for an anti-competitive purpose. There was no basis for issuing the s 98 notice.
[78] I think that the Commission has been acting in error of law. I would allow the appeal and quash the s 98 notice.

MACKENZIE J

[79] The essential issue, on this appeal, is whether the application of s 53 of the New Zealand Public Health and Disability Act 2000 (NZPHD Act) can be so clearly ascertained that it can be said that any conduct of the appellant which may be the subject of investigation by the Commerce Commission under its s 98 notice must necessarily fall within the scope of the s 53 exemption.
[80] If regard is had only to the words of the section, I consider that that point is reached. Section 53(2)(b) exempts any act, matter, or thing done by any persons for the purposes of entering into an agreement to which Pharmaceutical Management Agency (Pharmac) is a party and that relates to pharmaceuticals. The matters which the Commerce Commission wishes to investigate, for the purposes of which it has issued its notice, are described in its covering letter. It is investigating allegations that during negotiations with Pharmac, AstraZeneca Limited may have illegally tied the provision of Betaloc CR tablet pharmaceuticals to the continued supply of Betaloc intravenous injection pharmaceuticals in breach of s 36 of the Commerce Act 1986. The allegations expressly relate to negotiations with Pharmac, and the only tying of the two pharmaceuticals which might have taken place relates to the supply to Pharmac. In my view, any conduct of AstraZeneca which the Commission might properly investigate would fall within the plain meaning of the words “any act, matter or thing” done by AstraZeneca for the purposes of entering into an agreement with Pharmac.
[81] However, I do not consider that it is possible to say, at this stage, and without a closer examination of the meaning of s 53(2)(b), and its application to the particular facts, that that meaning must prevail. The Supreme Court said in Commerce Commission v Fonterra Co-operative Group Ltd [2007] 3 NZLR 767:

[22] It is necessary to bear in mind that s 5 of the Interpretation Act 1999 makes text and purpose the key drivers of statutory interpretation. The meaning of an enactment must be ascertained from its text and in the light of its purpose. Even if the meaning of the text may appear plain in isolation of purpose, that meaning should always be cross-checked against purpose in order to observe the dual requirements of s 5. In determining purpose the Court must obviously have regard to both the immediate and the general legislative context. Of relevance too may be the social, commercial or other objective of the enactment.

[82] That statement by the Supreme Court clearly demonstrates that the role of the Courts in the interpretation of the will of Parliament as expressed in statutes has moved considerably in the last half century, since Magor and St Mellons Rural District Council v Newport Corporation [1952] AC 189 at 190 - 191 when Lord Simonds delivered this rebuke to Denning LJ who had adopted what today might be described as a purposive approach:

My Lords, the criticism which I venture to make of the judgment of the learned Lord Justice is not directed at the conclusion that he reached. It is after all a trite saying that on questions of construction different minds may come to different conclusions ..... But it is on the approach of the Lord Justice to what is a question of construction and nothing else that I think it desirable to make some comment; for at a time when so large a proportion of the cases that are brought before the courts depend on the construction of modern statutes it would not be right for this House to pass unnoticed the propositions which the learned Lord Justice lays down for the guidance of himself and, presumably, of others.

“We sit here”, he says, “to find out the intention of Parliament and of Ministers and carry it out, and we do this better by filling in the gaps and making sense of the enactment than by opening it up to destructive analysis.” [[1950] 2 All ER 1226, 1236]The first part of this passage appears to be an echo of what was said in Heydon's Case 300 years ago, and, so regarded, is not objectionable. But the way in which the learned Lord Justice summarises the broad rules laid down by Sir Edward Coke in that case may well induce grave misconception of the function of the court. The part which is played in the judicial interpretation of a statute by reference to the circumstances of its passing is too well known to need restatement; it is sufficient to say that the general proposition that it is the duty of the court to find out the intention of Parliament – and not only of Parliament but of Ministers also – cannot by any means be supported. The duty of the court is to interpret the words that the legislature has used; those words may be ambiguous, but, even if they are, the power and duty of the court to travel outside them on a voyage of discovery are strictly limited: see, for instance, Assam Railways & Trading Co Ltd v Inland Revenue Commissioners, and, particularly, the observations of Lord Wright [[1935] AC 458].

The second part of the passage that I have cited from the judgment of the learned Lord Justice is, no doubt, the logical sequel of the first. The court, having discovered the intention of Parliament and of Ministers too, must proceed to fill in the gaps. What the legislature has not written, the court must write. This proposition, which restates in a new form the view expressed by the Lord Justice in the earlier case of Seaford Court Estates Ltd v Asher (to which the Lord Justice himself refers), cannot be supported. It appears to me to be a naked usurpation of the legislative function under the thin disguise of interpretation. And it is the less justifiable when it is guesswork with what material the legislature would, if it had discovered the gap, have filled it in. If a gap is disclosed, the remedy lies in an amending Act.

[83] The essential issue, on the application of s 53, must be whether the purpose for which the exemption was enacted requires the legislation to be read so that the exemption applies not to any taking advantage of a substantial degree of power in the market by any person, but only to the taking advantage of a substantial degree of power held by Pharmac. The Court which determines that question should have the benefit of a detailed factual context in which to consider it. That is not available at this stage. Accordingly, in my view, it would be inappropriate to venture upon a full examination of the purpose of s 53 on this appeal.
[84] For these reasons, I too am of the view that the appeal should be dismissed.

Solicitors:
Lee Salmon Long, Auckland, for Appellant
Commerce Commission, Wellington, for First Respondent
Bell Gully, Auckland, for Second Respondent