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Judgments - R v GG plc and others (Appellants) and others and others (Appellants) (On Appeal from the Court of Appeal (Criminal Division))

HOUSE OF LORDS

SESSION 2007-08

REPORT

[2008] UKHL 17

on appeal from:[2007] EWCA Crim 2659

APPELLATE COMMITTEE

R

v

GG plc and others (Appellants) and others and others (Appellants) (On Appeal from the Court of Appeal (Criminal Division))

REPORT

Counsel

Appellants:

(1st) David Pannick QC

Thomas De La Mare

(Instructed by Jones Day)

(4th) Nicholas Green QC

Peter Carter QC

(Instructed by Roiter Zucker)

(7th) David Pannick QC

Clare Sibson

(Instructed by Norton Rose LLP)

(11th) David Pannick QC

Bridget Petherbridge

(Instructed by S J Berwin LLP)

Respondent:

Richard Lissack QC

James Flynn QC

Nicholas Medcroft

Maya Lester

(Instructed by the Serious Fraud Office)

Hearing date:

30-31 JANUARY 2008

ON

WEDNESDAY 12 MARCH 2008

REPORT

from the Appellate Committee

12 MARCH 2008

R v GG plc

ORDERED TO REPORT

The Committee (Lord Bingham of Cornhill, Lord Rodger of Earlsferry, Lord Carswell, Lord Brown of Eaton-under-Heywood and Lord Neuberger of Abbotsbury) have met and considered the cause R v GG PLC. We have heard counsel on behalf of the appellant and respondent.

1.  This is the considered opinion of the Committee.

2.  The issue in the appeal before the House is whether a prosecution will lie against the appellants for conspiracy to defraud the Secretary of State for Health and others by fixing and maintaining the price, and manipulating the supply, of certain drugs to suppliers of the drugs, if the steps taken in pursuance of the alleged conspiracy were dishonest and deceptive. The appellants raised the issue at a hearing of matters on which preliminary rulings were sought from Pitchford J and at which they asked him to quash the indictment on the ground that it did not disclose an offence against the criminal law. The judge on 27 April 2007 held against the appellants and ruled that the prosecution should go ahead. The Court of Appeal (Moses LJ and Jack and Owen JJ) on 9 November 2007 dismissed the appellants’ appeal [2007] EWCA Crim 2659.

3.  The defendants in the prosecution consist of five companies; together with nine individuals who were at the material times employees or directors of these companies. The companies were concerned in the manufacture, sale and/or distribution to wholesalers and pharmacists of drugs, mainly generic drugs, which pharmacists then supplied to members of the public on NHS prescriptions. The case being made against them is that in their respective capacities the defendants dishonestly fixed and maintained the price of the drugs. All save one of the defendants made submissions in the Crown Court and were appellants in the Court of Appeal, but the eighth and ninth named appellants in the Court of Appeal are not appellants before the House.

4.  Count 2 in the indictment concerns a branded drug Marevan as well as the generic drug warfarin. In the interests of simplicity we propose to follow the example of the Court of Appeal and concentrate on count 1, which relates only to generic drugs.

5.  Generic drugs are normally produced by a number of different manufacturers once the patent on a branded drug has expired. Suppliers provide list prices to the Prescription Pricing Authority, which calculates a drug tariff in reliance upon the lists of certain suppliers. The Department of Health does not regulate the prices of generic drugs, but states that it relies on the competition between suppliers in an open market to provide prices which represent value for money. Pharmacists purchase these drugs from the suppliers of their choice at their list prices and are reimbursed by the Department at the prices contained in the drug tariff for the cost of the drugs when they are dispensed on NHS prescriptions. The Department claims that the reimbursement system, to the knowledge of the suppliers, is predicated upon the existence of a genuine open competitive market and contends that it is important that the list prices published by suppliers and furnished by them to the Department should be a true reflection of the prices which should be charged in such a competitive market, otherwise they would pay the pharmacists’ inflated prices in accordance with the drug tariff. It is alleged that the appellants have engaged in dishonest price fixing, so distorting the market and obtaining artificially inflated profits from the provision of generic drugs. The Department of Health made a civil claim for damages against the appellant companies and settlements have been reached of each of these claims, involving the payment of substantial sums of money. The question of criminal liability, however, remains outstanding and the present prosecution has been brought under the aegis of the Serious Fraud Office.

6.  The prosecution case is that the appellants achieved their object in a variety of ways. First, they kept the price fixing secret, leading the Department to believe that the list prices represented true competitive market prices. Secondly, they held clandestine meetings in order to exchange information and devise and implement the price fixing scheme. Thirdly, they committed a number of misleading and dishonest acts as part of the devised scheme.

7.  The indictment on which it is proposed to try the appellants is in general terms. The statement of offence in count 1 is “Conspiracy to defraud contrary to common law". The particulars of offence are that the appellants

“between the 1st day of April 1998 and the 30th day of September 2000 conspired together and with others to defraud the Secretary of State for Health and others concerned with the provision of medicinal products by dishonestly fixing and maintaining the price, and manipulating the supply, of penicillin-based antibiotics to wholesale and retail suppliers of the said medicines.”

The allegations in count 2 in relation to warfarin and Marevan were in similar terms.

8.  In compliance with an order made by Pitchford J on 5 October 2006 the prosecution served on 2 February 2007 a Prosecution Case Statement. This was a document of several hundred pages, which, together with a Supplemental Case Statement dated 1 October 2007, contained an extremely detailed compilation of the elements of the prosecution case, including the principal facts, the witnesses who would speak to those facts, the relevant exhibits, the propositions of law relied on and a section on the consequences which the prosecution claimed flowed from the matters set out.

9.  The essence of the case against the defendants of conspiracy to defraud is contained in two passages in Section A of the Prosecution Case Statement. The first is in Part 2, para 8:

“In short it is alleged that they agreed to:

                        •  withhold sales until October 1998 in order to clear out stock that was already in the supply chain;

                        •  divide the market between themselves and others in accordance with pre-determined allocations;

                        •  increase retail and wholesale selling prices several times between September 1998 and July 1999;

                        •  mask the collusion by varying the increased list prices by +/- 2% from the prices agreed;

                        •  police the agreed prices and allocations by auditing one another with agreed oversell penalties;

                        •  pay compensation to other manufacturers to stay out of the UK market; and

                        •  give false reasons for stock shortages and price rises to customers and to the DoH.”

The second is in Part 5, para 10:

“The Crown invites the inference that the individual Defendants, and through them the corporate Defendants, acted dishonestly in one or more of the following respects:-…

i)    fixing the prices of penicillin based antibiotics;

ii)    engineering shortages;

iii)    paying other undertakings to stay out of the UK drugs market;

iv)    devising and implementing the antibiotics scheme evidenced by the

         "SCENARIO” documents and schedules;

v)    submitting price lists to the PPA which were knowingly inflated;

vi)  failing to disclose to the PPA the fact that the price lists of the major players were the product of collusive behaviour;

vii)  colluding by mutually disclosing confidential information and holding clandestine meetings to devise, implement and enforce the alleged conspiracy; and

viii)    lying as to the true position when questions were asked.

In respect of warfarin/Marevan (Count 2):

i)  colluding by mutually disclosing confidential information and holding clandestine meetings to devise, implement and enforce the alleged conspiracy;

ii)    fixing the prices of warfarin and Marevan;

iii)  procuring an increase in the price of Marevan by submitting a backdated letter to the DoH having failed to give proper notice thereof as required by the PPRS;

iv)    submitting price lists to the PPA which were knowingly inflated;

v)  failing to disclose to the PPA the fact that the price lists of the major players were the product of their collusive behaviour;

vi)  disguising compensation payments to Goldshield from Norton and Regent by entering into bogus know how agreements in respect of warfarin;

vii)  disguising a compensation payment from Norton to Regent by inflating the invoice price of warfarin; and

viii)    lying as to the true position when questions were asked.”

10.  The voluminous details in the Prosecution Case Statement set out a long narrative of an elaborate arrangement between the defendants and others to keep up the prices of the drugs concerned, carefully arranged to ensure its effectiveness by the maintenance of secrecy, the masking of the true position by the adoption of false documents and active misrepresentation and lying to the Department. It is claimed that the defendants carried this agreement into effect by a number of devices over a period and in the course of this lies were told and misrepresentations made to the Department. The allegations were summarised by Moses LJ in paras 11 and 12 of his judgment in the Court of Appeal:

“11.In relation to count 1 it is alleged that the defendants sought to induce the Department to make grossly inflated payments for the antibiotics. They held secret meetings to exchange confidential information on pricing and sales in order to devise and implement the scheme to control prices and manipulate supply. There were alleged to have been some fifteen meetings, the true purpose of which was disguised under the pretext that they were connected with packaging. False minutes were created retrospectively. The defendants pre-determined allocations of the supply of antibiotics between themselves. They increased the prices in concert on five separate occasions. They disseminated false reasons for stock shortages and price increases in accordance with a script. They lied when questioned by the Department about price increases across the market. They falsely asserted that the generic market was competitive and identified a number of bogus reasons for the price increases. They paid competitor companies with the capacity to supply antibiotics to stay out of the market and concealed the purpose of the payments. They withheld stock and policed agreed prices and market allocations by auditing each other and imposing penalties on those undertakings which exceeded the agreed allocation. They published price lists with a 2% variation of the agreed prices to disguise the fact that they were the product of collusion. Prosecution witnesses say that some of the conspirators acknowledged that they were behaving dishonestly and ran the risk of imprisonment.

12.  In short, the allegation is that the defendants entered into agreements dishonestly to fix and maintain the price of the drugs and manipulate their supply. They thereby agreed dishonestly to prejudice the economic rights or interests of the Department by inducing them to pay a higher price than would have otherwise been set by the drug tariff. They dishonestly induced the Department to believe that the drug tariff had been calculated by reference to the operation of a competitive market.”

11.  As Moses LJ pointed out at para 13 of his judgment, there is no dispute between the parties as to the meaning of conspiracy to defraud. For present purposes it is sufficient to refer to the definition formulated by Lord Goff of Chieveley in the Privy Council appeal of Wai Yu-Tsang v The Queen [1992] 1 AC 269, 280, that the conspirators have dishonestly agreed to bring about a state of affairs which they realise will or may deceive the victim into so acting, or failing to act, that he will suffer economic loss or his economic interests will be put at risk. It hardly needs to be said that while the subsequent actions of conspirators may be cogent evidence of the content of their agreement, the actus reus is the original reaching of the agreement and the focus of the court trying a conspiracy case has to be on the content of the agreement and the contemplation of the parties when it was made.

12.  It may be seen from the summaries of the prosecution case which we have quoted that its essence is that price fixing, when accompanied by secretive and misleading behaviour of the kind alleged, is dishonest by the standards of the ordinary citizen and is sufficient without more to found a prosecution for conspiracy to defraud. The contrary submission advanced by counsel for the appellants is that price fixing agreements, which he described as “cartel behaviour", are not in themselves criminal, even if made secretly and with an element of deception which may be widely regarded as dishonest. Conspiracy to defraud would require proof of agreement to make false or misleading statements or other actively fraudulent behaviour.

13.  The prosecution case was accepted by Pitchford J, who refused the appellants’ applications that he should quash the indictment. In rejecting their arguments he encapsulated the case against them at para 63:

“The prosecution case is that the corporate defendants well knew the basis upon which the Department of Health funded the provision of pharmaceutical drugs under the NHS. Its method of reaching a fair price was formulated upon the continued existence of open competition between manufacturers and suppliers. Taking advantage of that knowledge the defendants acted as though they were engaged in open competition when in fact they were not. They had secretly agreed to undermine open competition in order to fix prices and by that means to extract from the Department of Health vast sums of money from which they knew it would not otherwise have parted.”

14.  The Court of Appeal upheld the judge’s ruling. In his submissions to them, which he repeated before the House, Mr Pannick QC did not assert on behalf of the appellants a right to practise positive deceptions. He submitted that mere entry into a secret cartel was not criminal and was to be distinguished from positive action such as deceptive misrepresentation. The court rejected this argument, Moses LJ stating at para 22 of his judgment:

“22.We do not accept that such a distinction can be made. The allegations in the instant case of what Mr Pannick QC described as positive deception are no more than that the defendants took steps to maintain the deception which the secrecy of the agreement was designed to achieve. There seems to us to be no satisfactory point at which a boundary can be drawn between such secrecy and cases of positive deception. In the instant appeal the secrecy of the agreement was essential to the purpose of the agreement, deception of the Department. To maintain secrecy it may well have been necessary to provide false information but, as Auld LJ remarked in Norris (paragraph 66) the distinction is merely one of degree.”

15.  The Appellate Committee considered these arguments in Norris v Government of the United States [2008] UKHL 16 and came to the conclusion that the appellant’s submission in that case, the relevant part of which largely mirrors that which was advanced on behalf of the appellants in the present appeal, was correct. At para 17 Lord Bingham of Cornhill, giving the opinion of the Committee, stated:

“The common law recognised that an agreement in restraint of trade might be unreasonable in the public interest, and in such cases the agreement would be held to be void and unenforceable. But unless there were aggravating features such as fraud, misrepresentation, violence, intimidation or inducement of a breach of contract, such agreements were not actionable or indictable.”

We refer to that opinion, the content of which we need not repeat, for the detailed reasons on which the Committee based its conclusions.

16.  In paragraph 19 of its opinion in Norris the Committee referred to the type of aggravating element which would suffice to constitute conspiracy to defraud:

“In cases where aggravating elements, notably misrepresentation and deception, have been found, defendants have been successfully prosecuted for conspiracy to defraud. Thus in R v De Berenger (1814) 3 M&S 67 the defendants were successfully prosecuted for conspiring by false rumours to raise the price of the public funds, causing loss to those who bought during this temporary rise. In R v Lewis (1869) 11 Cox CC 404 the defendants were convicted of conspiring to obtain money by divers false pretences and deceptive practices. In Scott v Brown, Doering, McNab & Co [1892] 2 QB 724, a civil case, the plaintiff was found to have created a false market in shares by false and fictitious acts.”

The Committee concluded that all these cases fell very clearly on the wrong side of the line drawn in the authorities which it considered.

17.  The conclusions which the Committee reached in Norris, which we of course shall follow in the present appeal, make it unnecessary to consider the arguments based on section 35(2) of the Restrictive Trade Practices Act 1976 or Article 81 of the EC Treaty. Nor do we need to refer to the arguments based on the issue of legal certainty or directed to the prospect that the privilege against self-incrimination could make prosecuting unworkable.

18.  The voluminous material in the Prosecution Case Statement contains within it quite sufficient notice of aggravating elements, consisting of allegations of lies and positive deception. The appellants could not possibly maintain that they were left without notice of the acts of this nature on which the prosecution could rely in putting forward a case of conspiracy to defraud on the basis of agreement to commit such acts. The difficulty which faces the prosecution is that although they could very well charge the appellants with conspiracy to defraud so based, they have not done so as the indictment stands. It is necessary that the particulars should make clear to the defence the case which it must meet: see R v K [2005] 1 Cr App R 408 and the authorities cited there. It is readily apparent from the terms of the indictment and the summaries in the Prosecution Case Statement which we have quoted that the thrust of the case, as so charged, is that of price fixing. It goes on the incorrect assumption that price fixing, when carried out in circumstances of secretive and deceptive behaviour, is dishonest in itself and a sufficient basis for conspiracy to defraud. It does not isolate and charge any specific aggravating elements which would elevate price fixing into an indictable conspiracy to defraud. For that reason we must regard the indictment as defective as it stands.

19.  It was submitted briefly by Mr Pannick that it was too late to amend the indictment and that it should be quashed, leaving it to the prosecution to start again with a fresh indictment, if so advised. Mr Lissack QC for the respondent, while submitting that the indictment as drawn was sufficient, indicated that the prosecution would prefer to seek leave to amend the indictment rather than have it quashed. We cannot regard the present indictment and case statement as satisfactory as they stand and they require review if the prosecution is to proceed. We consider that they are in principle capable of amendment in suitable terms, in order to accord with the views which we have expressed in this appeal and in Norris’ case. Any application to amend must be made to Pitchford J, who will hear any argument and give any necessary rulings.

20.  We shall accordingly allow the appeal and remit the matter to the judge. We shall not lift the reporting restrictions presently in place, but shall order that section 11(1) of the Criminal Justice Act 1987 shall not apply to the extent necessary to allow the first-named appellant to inform the stock market of the result of the appeal.

 
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