GLAXOSMITHKLINE UK LTD V DEPARTMENT OF HEALTH

[2007] EWHC 1470 (Comm), Queen’s Bench Division, Commercial Court, Mr Justice Cooke, 21 June 2007

Arbitration – Pharmaceutical Price Regulation Scheme 1999 – Appeal against arbitration award for error of law – Whether binding arbitration agreement – Intention to create legal relations – Arbitration Act 1996, section 69

The Pharmaceutical Price Regulation Scheme 1999 was an agreement between the Department of Health and various drugs companies which regulated sales of branded medicines to the NHS (it was subsequently replaced in 2005). The purpose of PPRS was to “secure the provision of safe and effective medicines for the NHS at reasonable prices, to promote a strong and profitable pharmaceutical industry and to encourage the efficient and competitive development and supply of medicines.” PPRS had rules for the determination of maximum prices by reference to profit control. Price modulation was permitted, in part to protect manufacturers against parallel imports of their products from elsewhere in the EEA where they were initially sold at a lower price, and also to protect manufacturers against the import of generic off-patent products. A dispute arose between the parties, which was referred to PPRS arbitration. The drug companies appealed against the award for error of law under section 69 of the Arbitration Act 1996, and the Department raised the defence that PPRS was a voulntary agreement and that there was no intention to create legal relations so that there were no arbitral proceedings at all nor any question of law. This suggestion was rejected by Cooke J. PPRS was established under the Health Act 1999, and although it was a voluntary scheme it was binding on anyone who chose to enter it. Cooke J also rejected the argument that scheme was not binding because it contained a provision under which a company which chose not to accept an arbitration award could withdraw from PPRS or be removed from it by the Department: the award was binding, and this provision merely set out the consequences of non-compliance. Cooke J went on to allow the appeal on its merits.