Bristol-Myers Squibb Pharmaceuticals Pty Ltd & Anor v Minister for Human Services & Health & Ors [1996] FCA 837

CATCHWORDS

ADMINISTRATIVE LAW - guidelines for Government grants of industry assistance - scheme not established by statute - natural justice and fairness in considering application for grant - whether Commonwealth estopped from denying obligation to offer grant.

Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582

Attorney-General for NSW v Quinn (1990) 170 CLR 1

S & E Promotions Pty Ltd v Tobin Brothers Pty Ltd (1994) 122 ALR 637

Sunshine Coast Broadcasters Ltd v Duncan (1988) 83 ALR 121

BRISTOL-MYERS SQUIBB PHARMACEUTICALS PTY LIMITED & ANOR v MINISTER FOR HUMAN SERVICES AND HEALTH & ORS

No. NG 213 of 1994

Coram: Whitlam J

Place: Sydney

Date: 18 September 1996

IN THE FEDERAL COURT OF AUSTRALIA)

)

NEW SOUTH WALES DISTRICT REGISTRY) No. NG 213 of 1994

)

GENERAL DIVISION )

BRISTOL-MYERS SQUIBB

PHARMACEUTICALS PTY LIMITED

BRISTOL-MYERS SQUIBB COMPANY

Applicants

MINISTER FOR HUMAN SERVICES AND HEALTH

MINISTER FOR INDUSTRY, SCIENCE AND TECHNOLOGY

COMMONWEALTH OF AUSTRALIA

Respondents

Coram: Whitlam J

Place: Sydney

Date: 18 September 1996

MINUTES OF ORDER

THE COURT ORDERS THAT:

1. The application be dismissed with costs.

NOTE: Settlement and entry of orders is dealt with in

Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA)

)

NEW SOUTH WALES DISTRICT REGISTRY) No. NG 213 of 1994

)

GENERAL DIVISION )

BRISTOL-MYERS SQUIBB

PHARMACEUTICALS PTY LIMITED

BRISTOL-MYERS SQUIBB COMPANY

Applicants

MINISTER FOR HUMAN SERVICES AND HEALTH

MINISTER FOR INDUSTRY, SCIENCE AND TECHNOLOGY

COMMONWEALTH OF AUSTRALIA

Respondents

Coram: Whitlam J

Place: Sydney

Date: 18 September 1996

REASONS FOR JUDGMENT

Introduction

This proceeding was commenced by Bristol-Myers Squibb Pharmaceuticals Pty Limited ("BMSP") as an application for an order of review under the Administrative Decisions (Judicial Review) Act 1977 ("the ADJR Act") and for relief under s 39B of the Judiciary Act 1903. The respondents were the Minister for Human Services and Health and the Minister for Industry, Science and Technology. BMSP filed a letter dated 9 December 1993 from the Pharmaceutical Benefits Pricing Authority ("PBPA") as a statement of the terms of the decision the subject of its application. That letter concerned a program of Government grants known as the Factor (f) Scheme.

Both respondents objected to the competency of the application under the ADJR Act. BMSP's parent company, Bristol-Myers Squibb Company ("BMS"), was then added as an applicant to the proceeding, and the application was amended to add a new claim in estoppel against the Commonwealth, which was also added as third respondent to the proceeding. Consideration of the nature of the applicants' claims may be deferred at this stage. It is convenient to begin by tracing the development of the Factor (f) Scheme and the applicants' involvement with it.

Pharmaceutical Benefits Pricing Authority

On 13 September 1987 the Minister for Industry, Technology and Commerce and the Minister for Community Services and Health announced the Government's decision to replace the Pharmaceutical Benefits Pricing Bureau with an independent authority and to require the new authority to take into account the level of an individual company's Australian pharmaceutical manufacturing activity when setting or making recommendations on prices for products listed under the Pharmaceutical Benefits Scheme ("PBS"). The Bureau had been part of the Department of Community Services and Health. The
new authority was to be non-statutory and to report to the Minister for Community Services and Health.

The Ministers published the following details of the new pricing authority:

"Terms of Reference

The Authority will:

(a) maintain a continuous review of the prices for items listed as pharmaceutical benefits

(b) examine prices submitted by manufacturers and conduct negotiations with manufacturers, where necessary, on proposed price changes

(c) determine prices for items listed, or recommended for listing, as pharmaceutical benefits where annual expenditure on these items, either individually or as a group, falls within limits advised by the Minister; in other cases, recommend prices to the Minister

(d) examine and report on such matters in relation to prices of pharmaceutical benefits as the Minister may direct or request

(e) report on an annual basis to the Minister on its operations and on its interpretation of its guidelines.

Factors Considered in Setting Prices

The Authority will take account of:

(a) the prices of alternative brands of a drug

(b) comparative prices of drugs in the same therapeutic group

(d) prescription volumes, economies of scale and other factors such as expiry dating, storage requirements, product stability and special manufacturing requirements

(e) prices of the drug in reasonably comparable overseas countries

(f) the level of activity being undertaken by the company in Australia including new investment, production and research and development

(g) other relevant factors which the applicant company wishes the Authority to consider

(h) other directions as advised by the Minister."

Factor (f) was said to be new. The Bureau had not been required to take into account local pharmaceutical manufacturing activity.

The PBPA was established on 1 January 1988 as a non-statutory body. It comprised an independent chairman, an industry nominee, a consumer nominee, a representative of the Department of Community Services and Health and a representative of the Department of Industry, Technology and Commerce.

Factor (f) Scheme

On 25 May 1988 the Ministers published the "Australian activity guidelines", which enabled the PBPA "to recommend higher prices for those companies which are prepared to make a significant commitment to Australian manufacturing, product development and exports". The guidelines were designed to give effect to the new factor (f).

Revised guidelines were released by the Minister for Industry, Technology and Commerce and the Minister for Aged, Family and Health Services on 19 November 1990. These were now described as the "Factor f (Australian activity) guidelines". They contained quantitative performance requirements in order to qualify for so-called "higher prices". Under the heading "Pricing Arrangements", the guidelines stated:

"The maximum price payable for a PBS drug will be the world average price, and prices can range up to this level.

Actual price levels will be determined by the Authority having regard to the ex-manufacturer prices in other countries and the likely net benefits to the Australian economy of the increased activity. The dollar value of the higher prices paid to a company under the activity guideline will generally not exceed 25 per cent of the dollar value associated with the increased Australian activity

× for this purpose, increased Australian activity will be:

a) the increase in value added for domestic sales of pharmaceuticals (excluding the impact of changes in volume or price);

b) the increase in value added and/or volume for export sales of pharmaceuticals; and

c) the increase in expenditure on pharmaceutical research and development

× the Authority has the discretion to vary the 25 per cent ratio if a company is able to demonstrate that a particular project involves larger net benefits than implied by this figure

× in those cases where a company's research and development expenditure is attracting R&D tax concessions,the cost of price increases granted under the Australian activity guideline will not exceed 50 per cent of the increase in post-tax expenditure on research and development (ie after allowing for the taxation deduction)

× the Authority may recommend higher prices on the basis of either current or planned increases in value added, but any future increases will be discounted to present value using the long term bond rate

× the base year over which increases in Australian activity will be eligible will be 1987

× price increases will be for three years following approval of the proposal by the Government

× price increase payments are made quarterly in arrears direct to the manufacturer

× price increases granted will not increase a company's average PBS price by more than 10 per cent from one year to the next.

The above provisions will apply to both new and existing drugs.

While firms will have considerable discretion as to the products which attract higher prices, the Authority will normally expect Factor f related price increases to apply to products with a substantial local value added."

Participation in Phase I

Under cover of a letter dated 31 October 1990 BMSP had lodged a Factor (f) proposal with the PBPA. The proposal had been amended on 13 November 1990. All in all, BMSP sought a total of $19,399,000 in Factor (f) payments for the period ending 31 December 1993.

Two features of the proposal may be noted. First, the guidelines' performance requirements included a "minimum export/import ratio of 0.5 in relation to the output of pharmaceuticals". The proposal committed BMSP to achieving this ratio in 1992. Secondly, the proposal sought to have varied the 25 per cent ratio for factor (f) payments. BMSP requested payments of 50 per cent of the dollar value of the increase in post-tax expenditure on pharmaceutical research and development.

The PBPA recommended that the proposal be approved, but that payments for all increased Australian activity be calculated at 25 per cent. (Responsibility for administration of the Factor (f) program was transferred from the Department of Health, Housing and Community Services to the Department of Industry, Technology and Commerce on 1 January 1991.) On 11 January 1991 the Ministers approved the PBPA's recommendation.

On 17 January 1991 the chairman of the PBPA wrote to BMSP, informing the company of the Ministers' approval and of its eligibility to receive up to $16,213,761 in price increases for activity undertaken in the period to 31 December 1993. The letter invited "acceptance of this offer". Mr Malcolm Eppingstall, the managing director of BMSP, replied on 25 January 1991 that he was "most disappointed", but that he had requested approval of BMS "to proceed with our proposal based on the lower price grant". On 20 March 1991, Mr Eppingstall wrote to the PBPA recording "official acceptance [by BMSP] of the approved Factor F price grant outlined in your 17 January letter".

The PBPA then notified BMSP of its monitoring requirements and procedures for payments, which were set out in a booklet. Payments were to be calculated from the information supplied in quarterly activity reports. The payment for the last quarter was not to be made until BMSP's annual monitoring report had been reviewed. BMSP was required to nominate the products on which it wished to take the "price increases" and, in respect of such nominated products, to provide the past year's sales volume, an estimate of the current year's PBS sales volume and information on their world average price.

Extension of Factor (f) Scheme

On 16 December 1991 Cabinet decided to continue the Factor (f) Scheme until 30 June 1999. The Minister for Industry, Technology and Commerce wrote to the Chairman of the PBPA on 5 February 1992, informing him of the decision and of seven principles upon which the decision was based, and requesting the PBPA to develop guidelines for the new scheme to be approved by the Minister for Aged, Family and Health Services, the Minister for Trade and Overseas Development and himself. On 31 March 1992 the Minister for Industry, Technology and Commerce announced the extension of the Factor (f) Scheme. The revised guidelines for Phase II of the Scheme were approved by the Ministers on 10 June 1992.

What were now called the Factor (f) Pricing Guidelines spelt out the role of the PBPA as follows:

"The Authority will:

× consider proposals received from companies for price increases under Factor (f);

× recommend approval or otherwise to the Minister for Industry, Technology and Commerce and the Minister for Aged, Family and Health Services, and where appropriate, the value of any price increases to be offered to companies;

× monitor companies' performance against their proposal to ensure price increases are commensurate with the level of activity companies achieve; and

× discuss with companies additional activity or lower price levels in the event a company's performance is below the level forecast in its proposal."

By way of a time frame, the guidelines provided that activity undertaken in the period from 1 July 1992 to 30 June 1999 would be eligible for price increases. The 1992 guidelines distinguished between new entrants and continuing participants. A continuing participant was defined as a company which participated in the Factor (f) Scheme before 1 July 1992.

The guidelines provided generally for participation in the Scheme, and also specifically for new proposals from continuing participants, as follows:

"To receive price increases under Factor (f), companies must lodge proposals with the Pharmaceutical Benefits Pricing Authority detailing the activity they propose to undertake under the scheme.

Proposals for price increases should be detailed plans for new and expanded R&D and production. Companies will need to demonstrate their proposals are integrated with the long term strategic direction of the company as a whole. Companies must also provide forecast data for activity over the period of the proposal and audited data for activity in the base year.

Once the Authority has reviewed a proposal it will make a recommendation on approval to the Minister for Industry, Technology and Commerce and Minister for Aged, Family and Health Services. If the Government agrees with the Authority's assessment that a company has demonstrated it can meet the requirements for entry into the scheme, the company will be eligible for price increases under Factor (f).

...

Continuing participants in the scheme will be eligible for additional price increases where they can demonstrate their proposed new activity is internationally competitive and will provide significant net benefits to Australia. The Authority will discuss appropriate performance targets and price increases with these companies and will make a recommendation to the Minister for Industry, Technology and Commerce and Minister for Aged, Family and Health Services.

...

New Proposals from Participants in Factor (f)

Prior to 1 July 1992

New or revised proposals for price increases under the Factor (f) scheme from companies participating in the scheme prior to 1 July 1992 must include a detailed outline of internationally competitive activity the company proposes to undertake under the extended scheme. Continuing participants will not be required to meet the entry requirements for new entrants if they have met all their performance requirements under the 1988 guidelines and the 1990 revised guidelines. However, to continue to receive Factor (f) price increases these companies will be required to demonstrate their continuing commitment to expanding internationally competitive activity by meeting negotiated performance targets or milestones. Continuing participants in the scheme will maintain their existing base year.

Where a company participated in Factor (f) prior to 1 July 1992 and did not meet its performance requirements under the scheme, its eligibility criteria and base year for the extended Factor (f) scheme will be negotiated with the Authority, subject to approval by Ministers, based on the company's proposed activity for the extended scheme and its actual performance under past guidelines.

The Authority will evaluate the proposals of all continuing participants to determine whether the:

× company is substantially increasing its level of production and research and development activity in Australia;

× company's proposed performance targets reflect the increased activity proposed by the company;

× proposed activity is internationally competitive; and

× proposed activity will produce significant net benefits for Australia.

If the Authority considers a proposal is insufficient when measured against these criteria, it will discuss additional activity or higher performance targets with the company.

If the Authority determines the proposal is acceptable, it will discuss with the company the payment rate it will recommend to Ministers for approval of the proposal."

The 1992 revision changed the guidelines as to price increases. The payment rate that a company might receive for a proposal was to be a maximum of 25 per cent of the value of the increased activity. However, the annual limit of 10 per cent on an individual company's price increases was removed.

Discussions about Phase II Participation

The officer in the Department of Industry, Technology and Commerce responsible for the promotion and administration of the Factor (f) Scheme was Ms Helen Cox, the manager of the Pharmaceuticals Section. During 1992 she also acted as proxy for the Department's representative on the PBPA, and on 28 January 1993 she was appointed a member of the PBPA.

Even before the new guidelines were approved, Ms Cox had called on BMSP in Melbourne, in May 1992, to discuss involvement in Phase II of the Scheme. In October and November 1992 she visited corporate headquarters of prospective and current participants in the United States. During this trip she met senior officers of BMS with Mr Eppingstall in Princeton, New Jersey on 29 October 1992.

In the course of the Princeton discussions Ms Cox said that there was no "particular time frame" for a proposal from

BMSP under Phase II, that each proposal would be treated on its own merits, and that no funding problems were anticipated. (There is an entirely inconsequential conflict in the evidence as to whether, at this meeting, Ms Cox used the word "favoured" to describe the position under the 1992 guidelines of continuing participants, such as BMSP.)

The Government had approved funding up to $820 million for the revised Factor (f) Scheme announced on 31 March 1992. These funds were to be spent over the life of the scheme between 1 July 1992 and 30 June 1999.

However, by the end of 1992, the Government faced a predicament. Proposals already favourably recommended by the PBPA involved payments of approximately $819 million. By a minute dated 24 December 1992 the Minister for Industry, Technology and Commerce was advised by his Department that exhaustion of funding for the scheme at such an early stage was now a cause for concern. In particular, the Minister was advised that "a number of existing participants in the scheme" (including BMSP) were expected to lodge proposals early in the new year, seeking payments totalling around $185 million.

Ms Cox and Mr Eppingstall spoke by telephone on 19 January 1993. The next day Mr Eppingstall sent BMS a fax, in which he said:

"We will need to accelerate our planning for a Phase II application to the Government for the following reasons:

1. DITAC has been flooded with submissions and the budget funds are disappearing - Glaxo, Merck, Astra, Fauldings, CSL and Upjohn have all presented.

2. A federal election is looming as early as late March and if a new Government is elected, or even if labour is re-elected, new Cabinet Ministers will be involved, possibly influencing the outcome. For example Senator Button is retiring.

You may recall, Helen Cox, said "Don't rush - get it right the first time". However, yesterday I called DITAC and was told they have been expecting our submission because some of the competitive submissions involve potentially large grants, and they would like a feel for
BMS plans so they can see how their A$840 million is holding up.

DITAC would like a rough cut of our expected Factor F Phase II grant before their next meeting on February 14. A commitment is not necessary - just a best estimate."

DITAC is an acronym for Department of Industry, Technology and Commerce.

The next meeting of the PBPA was, in fact, held on 18 February 1993. Two days beforehand, Mr Eppingstall wrote to Ms Cox, giving an estimate of $60 million for BMSP's payments under Phase II of the scheme. He prefaced his letter this way:

"Although Bristol-Myers Squibb is not yet in a position to make a firm commitment on continued involvement in the Factor F programme, negotiations are well advanced and should be completed shortly. It is my understanding that for planning purposes the Pricing Authority would appreciate an order of magnitude estimate of Bristol-Myers Squibb Factor F income for Phase II."

Mr Eppingstall says that, in their telephone conversation on 19 January 1993, Ms Cox said that the Department wished to "reserve money" for BMSP under Phase II. Ms Cox denies this, and I accept her denial. Mr Eppingstall must be mistaken in his recollection. The Department had no authority to reserve money, and it would make no sense for Ms Cox to say such a thing.

In March 1993 BMSP submitted the data required for its annual monitoring report for the year ended 31 December 1992. This material showed an export/import ratio of 0.39, which was well below the forecast level of 0.5. The PBPA considered that report at its meeting on 22 April 1993. Whilst it accepted the report, it decided to monitor BMSP's export/import ratio on a quarterly basis. On 29 April 1993 BMSP was informed of this decision, which would "allow the Factor (f) Secretariat to monitor your company's progress towards this quantitative requirement during 1993".

Meanwhile, on 15 March 1993 new administrative arrangements had been effected following a general election. The name of the Department responsible for factor (f) matters had been changed to the Department of Industry, Technology and Regional Development, which was referred to by the acronym DITARD.

On 11 May 1993 Ms Cox telephoned Mr Eppingstall. She told him that the next meeting of the PBPA was scheduled for 21 June 1993 and that, if BMSP wished to have a proposal considered at that meeting, it should be lodged as soon as possible. They arranged to meet at BMSP's offices in Melbourne on 21 May 1993.

The meeting took place as arranged. Ms Cox was accompanied by Mr Alan Brindell, the executive officer of DITARD's Factor (f) Secretariat; Mr Eppingstall by a consultant and several staff, including BMSP's director of finance Mr Damian O'Reilly. These four persons have given evidence of their discussions that day. It is common ground that they discussed BMSP's proposed new activity and performance targets for its Phase II submission. There are, however, different recollections on two matters. One is, quite unimportantly, the actual terms used by Mr Brindell to describe how BMSP should demonstrate its ability to achieve during 1993 the required export/import ratio of 0.5 under the 1990 guidelines. Such performance was critical if BMSP were to retain its existing base year of 1987 under Phase II.

The other matter is funding for Phase II. Mr Eppingstall accepts that Mr Brindell told him payments sought by companies under the extended scheme were likely to exceed current funding and that DITARD was preparing a proposal for additional funding in the upcoming August Budget. (Mr Eppingstall already knew that funds for Phase II were "almost exhausted". He had faxed BMS much earlier, on 5 March 1993, a well-informed status report on this topic, although he seems to have been under the misapprehension that funds were being "held" for BMSP.) Mr Brindell says that he also told Mr Eppingstall that the consequence was that BMSP might receive approval for a "significantly lower level of payments" than requested or, indeed, that it might not get any money at all. Mr Eppingstall denies this alleged part of their conversation. I am satisfied that Mr Brindell's recollection is to be preferred. In his evidence he explains convincingly how he recalls the conversation. He was concerned about the propriety of telling BMSP about DITARD's seeking extra funding in the Budget process. It would only make sense to raise that subject at all in order to mention its impact on a proposal from BMSP.

Phase II Proposal

BMSP lodged its proposal with the PBPA on 9 June 1993. BMSP requested factor (f) payments totalling $80.22 million for the period from 1 January 1994 to 30 June 1999. It sought payment rates of 25 per cent on export value added, 20.75 per cent on research and development and 20% on domestic value added.

The PBPA met on 21 June 1993. Mr Brindell informed the meeting that BMSP was "aware of the current Factor (f) situation". Ms Cox noted that BMSP would like an early meeting to present its case, but that the PBPA could not decide on the proposal until the funding situation had been resolved.

On 6 July 1993 Mr Eppingstall wrote to the chairman of the PBPA requesting a meeting that month to consider the proposal. He wrote that:

"BMS planning is at a particularly critical stage, with some elements of Phase II on hold until the funding issue is clarified. As a consequence we run the risk of losing some exports to other BMS supplying locations. In addition the BMS budget process for Australia must be completed by July 27. The uncertainty is creating major problems for us and although I realise PBPA could not provide definitive comment until Ministerial approvals are received, some indication from PBPA of the merit of our submission would enable BMS to proceed with Phase II plans."

The Factor (f) Secretariat within DITARD recommended payments to BMSP up to a maximum of $72,397,615 for the period requested. The recommendation of a figure lower than that requested by BMSP was based on a payment rate of only 15% for increased domestic value added.

On 19 July 1993 the chairman of the PBPA, Mr Graham Glenn, telephoned Mr Eppingstall. The next day, Mr Glenn wrote to Mr Eppingstall:

"The Authority appreciates the problems that the current uncertainty is causing you and others, but at this stage we are not in a position to give definitive responses to companies with Factor (f) applications before us. The reason for this is that the Government is considering the funding arrangements for the Scheme in the context of the August Federal Budget, at which time we expect a decision will be announced. The Authority is of the view that it must have that decision before it can properly deal with the outstanding applications.

In these circumstances the Authority concluded that it could not really advance your company's application in the way you would like, and expressed a clear preference not to comment at all on the merits of it at this stage. I can say, however, that the Authority's Secretariat has informed us that the proposal meets the general guidelines of the Phase 2 Factor (f) Scheme."

The PBPA met to discuss factor (f) matters at its scheduled meeting on 12 August 1993. The meeting decided "to assess the remaining company proposals on their relative merits and to impose a cut-off date for further applications as of the Budget, 17 August". The PBPA set a new meeting for 16 August 1993 at which four companies (including BMSP) were to be invited to make presentations.

The next day Mr Eppingstall faxed BMS:

"Yesterday I received an urgent call to attend a special PBPA meeting in Canberra on Monday August 16 at 3.00pm. My understanding is that four companies will present and that following the meeting the PBPA will make the hard decision on how to allocate funds across the various proposals.

I understand that the Glaxo and Fauldings proposals alone could take up all remaining funds

...

We may get some indication [whether we will receive money and, if so, the level] at the presentation on Monday but I think this is unlikely. The PBPA will have to consider its options, discuss them with relevant Ministers and then advise each company. This could take some weeks. Meantime I feel we should press on with the assumption that the outcome is still attractive to us."

BMSP made a presentation to the PBPA on 16 August 1993. The minutes of the meeting record an exchange during the presentation as follows:

"Mr Glenn asked Bristol-Myers Squibb what level of funding was crucial for the company to achieve critical mass. Mr Eppingstall replied that if the
company is offered less than $60 million in funding, both capital and R&D investments will be at risk.

Mr Eppingstall emphasised that he hoped the current shortage of Factor (f) funding would not prevent Bristol-Myers Squibb's proposal from being considered on an equitable basis and that the company will not be put in the position of needing to meet the same targets for a reduced level of Factor (f) funding. Mr Glenn replied that their concerns were unnecessary."

On 17 August 1993 DITARD announced that the Government had not increased the funding for the Factor (f) Scheme. The Factor (f) Secretariat submitted a new recommendation to the PBPA on 18 August 1993. It noted that the PBPA should base its forward estimates on the assumption that, out of a total $820 million originally approved for Phase II, only a little over $300 million was now available for the life of the scheme. The Secretariat recommended that the proposal from BMSP be rejected due to insufficient funds. On 19 August 1993, in a teleconference, the PBPA agreed to that recommendation and resolved to make such a recommendation to the Ministers.

The recommendations of the PBPA were forwarded to the Ministers by Mr Glenn on 27 August 1993. Mr Glenn noted that the PBPA had nine applications before it and that applications for several of those companies had been delayed due to the election and whilst additional funding was sought from the Government. He went on to say:

"The PBPA considers that the activity proposed by each of the 9 new applications has merit, is internationally competitive and would provide significant net benefits for Australia. Further, the proposed programs of achievement by each company are consistent with the objectives of the Government's policy of encouraging the development of the pharmaceutical industry in Australia. On the PBPA's assessment of the value of these proposals, in excess of $630 million would be required to fund them fully, ie $328 million more than is available.

A number of scenarios have been considered including distributing the available funds on a strictly pro-rata basis to all remaining applicants. This option is simply not viable. In some cases it means that the really significant benefits will be lost, while in others the proposals are predicated on the Australian subsidiary establishing itself as the regional manufacturing centre for the corporation. Providing these companies with less than half of the allocation requested is not likely to provide sufficient leverage for this objective to be achieved.

The PBPA considers that a more appropriate use of the available funding is to invest in those proposals which will realise the maximum benefit for Australia, particularly in terms of ensuring that we are putting in place the infrastructure to ensure the industry will, in the longer term, have the capacity to develop and commercialise local research. On that basis the proposals of Glaxo Australia and F.H. Faulding & Co select themselves albeit at substantially lower levels of funding than that requested by the companies

By adopting this course there will be a substantial loss of activity and the opportunity for some companies to establish Australia as the corporation's regional manufacturing centre will be lost. However, the benefits to be gained by supporting [Glaxo and Faulding] substantially outweigh, in both a qualitative and quantitative sense, this lost activity."

On 31 August 1993 the Minister for Industry, Technology and Regional Development received a brief from his Department concurring with the recommendations of the PBPA. On 11 October 1993 he visited BMSP's plant in Melbourne. On 29 October 1993 he wrote to the Minister for Health indicating that he agreed with the PBPA's recommendations.

Mr Eppingstall wrote to Mr Glenn on 24 November 1993:

"As you will be aware Bristol-Myers Pharmaceuticals (BMSP") lodged an application for Factor (f) price increases on 9 June 1993. We understand that our application complies with the general guidelines for the Phase 2 Factor (f) Scheme. In August 1993 we made a presentation to the Authority which was favourably received and are now anxious for confirmation of approval of the application so we can proceed with the plans.

BMSP has undertaken significant investment commitments in reliance on the Government's Factor (f) Scheme. Among other things we have constructed a new plant at Noble Park in Victoria, we have closed plants in Canada and Germany and have greatly increased the level of research and development being conducted in Australia. In addition, we have recruited staff and have entered into export obligations in the Asia-Pacific region and beyond.

Accordingly, BMSP, like the other companies approved under the Scheme, is entitled to have its proposal considered and processed in accordance with the Guidelines published in relation to the administration of the Scheme. As a recommendation on BMSP's proposal has been made to Minister I wish to arrange to meet with the Authority in accordance with the Factor F Guidelines (p.11) to discuss the payment rate which the Authority has recommended to Ministers for approval of the proposal."

On 30 November 1993 the Minister for Health notified the Minister for Industry, Technology and Regional Development that he agreed with the PBPA's recommendations. On 9 December 1993 the Minister for Industry, Technology and Regional Development announced the Government's decision. (Mr Eppingstall faxed BMS that the announcement confirmed "our
worst fears".) Mr Glenn wrote to Mr Eppingstall, informing him of the decision, and stating:

"In the circumstances it has been necessary on this occasion, unlike Phase 1 of the Factor (f) scheme, to consider the relative merits of company's [sic] applications and to determine the allocation of the remaining funds based on those merits. While your company's application has merits in its own right, the Government has given a higher rating to others. I regret therefore that we are unable to offer your company any price increases under Phase 2 of the Factor (f) scheme."

Mr Eppingstall replied on 15 December 1993:

"You assert that unlike Phase I of the Factor (f) scheme it has been necessary to consider the relative merits of applications and to determine allocation of the remaining funds based on those merits.

I am astounded by the decision which you state has been made and by the explanation you give about that decision.

BMSP made significant business decisions and entered into substantial financial commitments in reliance on the scheme. I assume the other companies to which you refer did likewise. BMSP relied also on the statements and assurances made to us by various Commonwealth officers.

You are aware in detail of those matters both from Phase 1 and Phase 2 applications. The commitments included the closure of plants in various countries, the expansion and upgrading of our plant in Australia at Noble Park in Victoria, entry into export commitments to the Asia-Pacific region Europe and other countries and the enormous human resource arrangements required by those decisions.

We were assured that there would be adequate funds for our proposal and there would be no priority given to Phase 2 applications by reference to their date of lodgment. We would not have made those commitments if there had been any suggestion that funds were or would be limited or that the allocation of funds would be dependent on the relative merits of company applications. Specifically, those assurances were given to us in a meeting between senior executives of BMSP and a senior officer of the Department of Industry, Technology and Commerce in Princeton, New Jersey, US in October 1992, and were consistent with assurances given to BMSP both before and after that time. Those assurances were given in the context of our known plans and the plans proposed and being undertaken by other companies.

The scheme was never a scheme about considering relative merits, nor of rating companies, nor of allocating funds based on relative merits."

Relief claimed

The indignant tone reflected in the above passage, combined with the language of entitlement in Mr Eppingstall's earlier letter of 24 November 1993, informs the current suit. The applicants seek, first of all, an order setting aside the decision of the two Ministers to reject BMSP's proposal. They also seek mandatory relief said to be appropriate to give effect to an alleged estoppel. That relief is an order against the Commonwealth either that BMSP has a "right" to have its proposal approved and payments made to it in accordance with the 1992 guidelines, or that the Commonwealth is obliged to offer to enter into a contract with BMSP in a specified form and, if accepted, to enter into such contract.

The contract in question is evidently in the standard form for participating companies in Phase II of the Factor (f) Scheme. Such a standard form was recommended by the Auditor-General in a report tabled in Parliament on 4 May 1993. The applicants were not aware of the existence of such a standard form of contract when this proceeding was commenced. The provisions of the contract propounded by them accord with the recommendations initially made by DITARD's Factor (f) Secretariat in July 1993.

In the alternative to such relief against the Commonwealth, the applicants seek an order in the nature of mandamus compelling the respondent Ministers to consider BMSP's proposal without reference to what is described as "insufficiency of funds".

Jurisdiction

As I mentioned at the outset, the applicants invoke the jurisdiction of the Court under the ADJR Act and s 39B of the Judiciary Act. The respondents object to the competency of the application under the ADJR Act. The applicants submit that the Ministers' decision was made under the National Health Act 1953 ("the Act").

Part VII of the Act deals with pharmaceutical benefits, and Division 3 of that Part regulates manufacturers' prices for sales of pharmaceutical benefits to pharmacists. But the Ministers' power to decide whether or not to approve "price increases" under the Factor (f) Scheme is not conferred by the Act or any other Act. The Appropriation Acts accurately label the payments under the Scheme as assistance to the pharmaceutical industry. The "price increases" are merely notional. Nor do the Appropriation Acts provide the source of power for the Ministers' decision. The position is explained in Barnett v Minister for Housing (1991) 31 FCR 400 per

Heerey J at 402.

The respondents also rely on what is next said in Barnett at 403 to ground a submission that, in the present case, there is no public duty resting on the Ministers which is enforceable by mandamus. Again, I accept this submission. The Factor (f) Scheme was not established by statute and, for the reasons given by Heerey J, there is no public duty owed by the Ministers to companies lodging proposals under the Scheme.

The applicants meet this situation by submitting that, even if the objection to competency is upheld, the application under the ADJR Act was brought "as a matter of substance, not as a matter of artificiality or subterfuge", and that accordingly the Court has jurisdiction to deal with the applicants' claims. They rely on Post Office Agents Association Ltd v Australian Postal Commission (1988) 84 ALR 563 per Davies J at 565. The respondents do not submit that the claims to jurisdiction are colourable. (See the note by Lee Aitken, "The Swan Hill tramp" (1996) 70 ALJ 383.) Accordingly, for the reasons given by Hill J in New South Wales Aboriginal Land Council v Aboriginal and Torres Strait Islander Commission (1995) 59 FCR 369 at 383-385, I accept
that the Court has jurisdiction to entertain the applicants' claims under the general law.

Natural Justice

The principles of natural justice are first called in aid by the applicants. Specifically, it is submitted that BMSP was not given notice of, or an opportunity to be heard on, the change to a "relative merits" basis for consideration of outstanding proposals. Further, they submit that BMSP had a "legitimate expectation" that its proposal would be considered on an "individual merits" basis in accordance with the 1992 guidelines and what Ms Cox said on 29 October 1992.

Legitimate expectations can have effect only on procedure: see Attorney-General for NSW v Quinn (1990) 170 CLR 1, especially per Mason CJ at 23 and Brennan J at 38. Once that is appreciated in the context of a scheme of Government grants, it is apparent that what the applicants really seek here is to give substantive effect to an alleged expectation that, if BMSP's proposal "complied" with the guidelines, it would be approved. Indeed, that is, in terms, their next submission. But it must be rejected. The Factor (f) Scheme is not a statutory scheme of entitlement. The guidelines are just that, and no more. Government policy may be administered by Ministers to arrive at what they regard as appropriate decisions. The individual Ministers are bound by Cabinet decisions on funding. There is no "magic pudding". It would not be open to a single company to lodge a gargantuan proposal which would require Ministerial approval for payments well in excess of Budget estimates for the whole program. In other words, it is implicit in such a scheme that funds available will be limited. Where there are several companies likely to lodge proposals, it must always be possible that allocation of funds will be made on the basis that it was in the instant case.

No doubt, Ms Cox made an honest assessment of the situation, as she saw it, in her discussions at the end of October 1992 in the United States. But she cannot add a gloss to the guidelines which could have the effect of committing the Government to expenditure on the Scheme without limit. In any event, by the time Mr Eppingstall received his telephone call after the PBPA meeting on 12 August 1993, he cannot have been in any doubt that BMSP was engaged in what might colloquially be called a "beauty contest". This is reflected in his fax to BMS on 13 August 1993. It was on this basis that Mr Eppingstall conducted BMSP's presentation to the PBPA on its Phase II proposal. Accordingly, this ground of attack upon the decision-making process fails.

Improper Exercise of Power

Next, the applicants submit that the Ministers' decision-making was an improper exercise of power. This is said to be so because they failed to take relevant considerations into account and exercised their power in a way that constituted an "abuse of power".

Both the allegedly relevant considerations relate to the timing of BMSP's lodgment of its proposal on 9 June 1993, namely what Ms Cox said in Princeton and the fact that BMSP could receive payments under Phase 1 of the Scheme for its activity up to 31 December 1993. Again, it needs to be borne steadily in mind that the Ministers were not exercising a statutory power. The policy evinced in the guidelines reveals no reason why the Ministers were bound to take these matters into account. BMSP still had not made up its mind in February 1993 whether to lodge a proposal. No proposals lodged after that time were approved ahead of the consideration of BMSP's proposal. The comparative assessment of the nine outstanding proposals did not require regard to be had to when BMSP lodged its proposal when it did.

The "abuse of power" argument rests on the allegedly inconsistent application of the 1992 guidelines arising from the allocation of over $500 million to companies on an "individual merits" basis, whilst BMSP and another eight companies had to compete on a "relative merits" basis for the remaining $300 million. In Sunshine Coast Broadcasters Ltd v Duncan (1988) 83 ALR 121, Pincus J held that an administrative decision was vitiated by inconsistency where the decision-maker had applied against one applicant a guideline which was equally applicable to competing applicants against whom it had not been applied "without any stated or rational justification for that discrimination".

Here, however, the same guidelines have been applied to all applicants, although the decisions have been taken at different times. To the extent that the decision announced on 9 December 1993 took into account budgetary considerations that did not inform the earlier decisions, there cannot be said to be any "inconsistent" application of the 1992 guidelines. Further, the reasons for the recommendation agreed to by the Ministers, as set out in Mr Glenn's letter of 27 August 1983, are quite rational. This ground of challenge also fails.

Estoppel

This brings me to the claim in estoppel against the Commonwealth. In S & E Promotions Pty Ltd v Tobin Brothers Pty Ltd (1994) 122 ALR 637 at 653 a Full Court of this Court endorsed the following statement by Priestley JA in Austotel Pty Ltd v Franklins Selfserve Pty Ltd (1989) 16 NSWLR 582 at 610:

"For equitable estoppel to operate there must be the creation or encouragement by the defendant in the plaintiff of an assumption that a contract will come into existence or a promise be performed or an interest granted to the plaintiff by the defendant, and reliance on that by the plaintiff, in circumstances where departure from the assumption by the defendant would be unconscionable."

In their statement of claim the applicants allege that, by announcement of the extension of the Factor (f) Scheme on 31 March 1992 and the publication of the guidelines approved on 10 June 1992, the Commonwealth represented:

"(a)That a company such as the first applicant which participated in Phase I was a continuing participant.

(b) That activity undertaken in the period to 30 June 1999 would be eligible for price increases.

(c) That continuing participants in the Scheme, such as the first applicant, would be eligible for price increases, additional to those to which they were entitled under Phase I, where they could demonstrate their proposed new activity was internationally competitive and would provide significant net benefits to Australia.

(d) That continuing participants in the Scheme, such as the first applicant, would not be required to meet the entry requirements for new entrants if they had met all their performance requirements under Phase I.

(e) That continuing participants in the Scheme, such as the first applicant, would maintain their existing base year.

(f) That the third respondent, by the PBPA, would evaluate the proposals of continuing participants for entry into Phase II and if the PBPA determined the proposal was acceptable, the PBPA would discuss with the applicant company the payment rate it would recommend to Ministers, being the first and second respondent or their predecessors, for approval of the proposal.

(g) If the proposal was acceptable, price increases would be calculated on the value of increased activity by the company, payments being made one quarter in the
arrears of activity identified by the company in quarterly reports."

The trouble with the above "representations" teased out of the 1992 guidelines is their selectivity. In particular, there is no reference to the "negotiated performance targets or milestones". This is a central concept in the extended Factor (f) Scheme. It is simply not possible for a continuing participant to lodge a proposal and claim the so-called "higher prices" as an entitlement. Its proposed performance targets must be agreed. (BMSP well knew this from its grudging acceptance of the offer in Phase I.) Most importantly, overarching the whole scheme is the requirement for Ministerial approval.

It follows that I do not consider that the Commonwealth represented that it would offer to enter into any particular contract with a continuing participant. Nor is this view altered by reference to what Ms Cox or Mr Glenn said. I have already found that Ms Cox did not tell Mr Eppingstall that any moneys would be "reserved" for BMSP. Further, whatever is meant by the cryptic remark attributed to Mr Glenn in the minutes of the PBPA meeting of 16 August 1993, it could not mean, as submitted by the applicants, that BMSP's proposal would be recommended for payments of not less than $60 million.

The equitable notion of unconscionability underpins the concept of promissory estoppel developed in Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387. Whilst I accept that there is no statutory discretion to be fettered in the present case, the scope for the application of such estoppel in decision-making by Government will be very limited. Views as to what constitutes "internationally competitive" activity and what will provide "significant net benefits to Australia" must necessarily be subjective. The published guidelines made it clear that the Government had charged the two Ministers, and no one else, with the responsibility to authorise the expenditure of public funds involved. This is not fertile ground for equity and conscience.

Since I am satisfied that relevantly no representations or promises by the Commonwealth encouraged any assumption by BMSP or BMS that BMSP's proposal would be approved, it is unnecessary to consider whether they actually laboured under a false assumption and, if so, to what extent those companies exposed themselves to detriment. Two senior officers of BMS, Mr Samuel A Hamad and Mr Anthony J Russ, gave evidence touching on this question. Mr Eppingstall elaborated on the points pithily summarized in his letters of 24 November 1993 and 15 December 1993. In particular, he said that it was not true to say, as he had in his letter to PBPA on 6 July 1993, that BMS's planning for Phase II was "on hold". Each witness emphasized the desire for a "seamless" transition from Phase I to Phase II, when it came to justifying the acceleration of certain activity into Phase I. But the fact is that this activity took place against the background of BMSP's failure to meet its forecast export/import ratio for the Scheme's quantitative requirements under Phase I and the risk of the Commonwealth seeking to recover payments already made. Mr Eppingstall emphasized how critical that performance was in his fax to BMS of 5 March 1993. When Mr Hamad demurred at signing a capital appropriation request made by Mr Eppingstall, the latter faxed BMS on 20 July 1993 pointing out that the expenditure was still necessary to achieve Phase I quantitative performance requirements. The subsequent inter-office correspondence shows Mr Eppingstall (again to put it colloquially) backing his own judgment that BMSP will receive a grant. He may have thought that his presentation on 16 August 1993 was "favourably received" but, in the end, BMSP's proposal was not approved by the Ministers.

Order

The application will be dismissed with costs.

I certify that this and the preceding 33 pages are a true copy of the reasons for judgment herein of the Hon. Justice A.P. Whitlam

Associate: John Merity

Date: 18 September 1996

Counsel for the applicants: D.H. Bloom QC and Alan Robertson

Solicitors for the applicants: Mallesons Stephen Jaques

Counsel for the respondents: B.J. Shaw QC and G.M. Elliott

Solicitor for the respondents: Australian Government Solicitor

Dates of hearing: 21-25 August, 20 September 1995

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