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Key decisions

  • Hobart International Airport Pty Ltd v Clarence City Council and Australia Pacific Airports (Launceston) Pty Ltd v Northern Midlands Council Pty Ltd [2022] HCA 5
  • H Lundbeck A/S & Anor v Sandoz Pty Ltd and CNS Pharma Pty Ltd v Sandoz Pty Ltd [2022] HCA 4

Judicial power of the Commonwealth

In the High Court decision of Hobart International Airport Pty Ltd v Clarence City Council and Australia Pacific Airports (Launceston) Pty Ltd v Northern Midlands Council Pty Ltd [2022] HCA 5(9 March 2022) the High Court was required to determine whether the dispute sought to be agitated by the respondents (‘Councils’) involved a ‘matter’ for the purpose of Chapter III of the Constitution.

The appellants (‘the Lessees’) entered into long-term leases with the Commonwealth (‘Leases’) for the Hobart Airport and the Launceston Airport (‘Airport Sites’). The Airport Sites are both on Commonwealth land and in areas administered by the Councils. The Commonwealth granted the Leases pursuant to s 22 of the Airports (Transitional) Act 1996 (Cth) (‘Transitional Act’). The Leases contain materially similar terms including cl 26 which formed the basis of the dispute between the parties.

The insertion of cl 26 into the Leases is consistent with the principle of ‘competitive neutrality’ embodied in the Competition Principles Agreement between the Commonwealth and the States and Territories. Clause 26 provides that if rates are not payable to the local council, because the Airport Site is on Commonwealth land, then the Lessees must use ‘all reasonable endeavours’ to enter into an agreement with the Council to pay an amount equivalent to the amount which would have been payable as rates on those parts of the Airport Sites which are either sub-leased to tenants or on which ‘trading or financial operations are undertaken’.

In 2014, the Valuer-General of Tasmania undertook a re-valuation of the Airport Sites. The outcome was a significant increase in the amount payable by the Lessees to the Councils under cl 26. Subsequently, the Commonwealth engaged an independent valuer to value the Airport Sites. In 2016, the independent valuer provided a valuation report which was later revised in 2017 (‘Revised Valuation’). The Commonwealth told the Lessees that it would consider the Lessees compliant with their obligations under cl 26 if the Lessees paid the Councils on the basis of the Revised Valuation.

The Councils then commenced proceedings in the Federal Court of Australia against both the Commonwealth and the Lessees seeking, among other things, declaratory relief pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth), as to the proper construction of cl 26. The primary judge dismissed the Councils’ applications on the basis that the Councils lacked standing to obtain the declaratory relief sought. The Councils successfully appealed to the Full Court of the Federal Court (Jagot, Kerr and Anderson JJ). By grant of special leave the Lessees appealed to the High Court.

The High Court (Edelman and Steward JJ dissenting) dismissed the appeals. Kiefel CJ, Keane and Gordon JJ observed that a ‘matter’ has two elements: the subject matter itself (as defined by reference to the heads of jurisdiction set out in Chapter III of the Constitution) and the nature of the dispute sufficient to give rise to a justiciable controversy (at [26]). Kiefel CJ et al found that the Councils’ dispute satisfied both elements. Kiefel CJ et al considered that the first element was satisfied because ‘the Leases owe their existence to a Commonwealth law, the Transitional Act’ (at [27]). In determining the second element (the existence of a justiciable controversy), Kiefel CJ et al considered that the answer turned on ‘whether the Councils had standing to have the dispute determined’ and to obtain the declarations sought (at [30]).

Referring to the decision of the Full Court of the Federal Court in Aussie Airlines Pty Ltd v Australian Airlines Ltd [1996] 68 FCA 813, Kiefel CJ et al held that the Councils had standing to obtain a declaration in respect of the proper construction of cl 26. Although the Councils were not a party to the Leases, the Councils had a ‘sufficient’ and ‘real’ interest in seeking declaratory relief. Gageler and Gleeson JJ also found both elements of a ‘matter’ to be present. Their Honours, citing Aussie Airlines, found that the Councils had an interest in declaratory relief that was ‘distinctive’, ‘substantial’ and aligned to the public interest sought to be advanced by cl 26 (at [74]). In dissent, Edelman and Steward JJ agreed with the principles enunciated by Kiefel CJ et al but, in applying those principles, concluded there were no exceptional circumstances giving the Council standing to seek declaratory relief.

Although the Councils were not a party to the Leases, the Councils had a ‘sufficient’ and ‘real’ interest in seeking declaratory relief.

Construction of contract

In H Lundbeck A/S & Anor v Sandoz Pty Ltd and CNS Pharma Pty Ltd v Sandoz Pty Ltd [2022] HCA 4 (9 March 2022) the High Court considered two appeals arising out of a long-running litigation between the parties in respect of a standard patent of a pharmaceutical substance known as escitalopram (‘Patent’). The appeals heard by the High Court raised many complex issues however the resolution of these issues rested on one key issue: the construction of a clause in an agreement executed in 2007 (‘Settlement Agreement’), purporting to give the respondent on both appeals (‘Sandoz’) an irrevocable, non-exclusive licence to exploit the Patent.

H Lundbeck A/S (‘Lundbeck Denmark’) is the owner of the Patent. Lundbeck Australia Pty Ltd (‘Lundbeck Australia’) is the Australian subsidiary of Lundbeck Denmark and holds the exclusive licence for the Patent. CNS Pharma Pty Ltd (‘Pharma’) is a subsidiary of Lundbeck Australia and sells a generic version of a drug, containing escitalopram, which it purchases from Lundbeck Denmark. Lundbeck Denmark and Lundbeck Australia (‘Lundbeck Entities’) agreed to give Sandoz a licence for the Patent if Sandoz discontinued legal proceedings against them for the revocation of the Patent. Clause 3 of the Settlement Agreement provided for Sandoz’s licence to commence two weeks prior to the expiry of the Patent on 13 June 2009 (the Patent was dated 13 June 1989 and had a standard term of 20 years). Unexpectedly, Lundbeck Denmark was granted an extension of the term of the Patent to 9 December 2012. During the extended term of the Patent, from 15 June 2009 to 9 December 2012, Sandoz sold generic escitalopram products.

The day after the extended term was granted, the Lundbeck Entities commenced proceedings against Sandoz in the Federal Court seeking, among other things, damages and pre-judgment interest on the basis that Sandoz infringed the Patent by selling escitalopram products during the extended term. Pharma also commenced proceedings against Sandoz in the Federal Court seeking, among other things, damages and pre-judgment interest on the basis that Sandoz engaged in misleading or deceptive conduct, within the meaning of s 52 of the Trade Practices Act 1974 (Cth) and s 18 of the Australian Consumer Law, by failing to warn customers that its escitalopram product might infringe the Patent if and when the term of the Patent was extended.

The primary judge found against Sandoz in both proceedings. Sandoz appealed the decisions and the Full Court of the Federal Court allowed both appeals. The Full Court held that the Settlement Agreement gave Sandoz a non-exclusive licence to the Patent from 31 May 2009 to 9 December 2012. The holding of the licence meant that Sandoz did not infringe the Patent and, accordingly, could not have engaged in misleading or deceptive conduct.

The Lundbeck Entities appealed to the High Court (‘Lundbeck Appeal’) and so did Pharma (‘Pharma Appeal’). The High Court unanimously allowed the Lundbeck Appeal and dismissed the Pharma Appeal. Kiefel CJ, Gageler, Steward and Gleeson JJ gave a joint judgment and Edelman J gave a judgment on his own.

In the Lundbeck Appeal, Kiefel CJ et al observed that s 79 of the Patents Act 1990 (Cth) (‘Patents Act’) had the effect of filling the ‘temporal gap’ between the expiration of the original term of the Patent and the date on which the term of the Patent was extended (at [40]). As to the construction of the Settlement Agreement, their Honours noted that parties to a written contract in respect of statutory rights ‘can ordinarily be taken to use statutory language according to its statutory meaning’ (at [51]). The terms ‘Patent’ and ‘expire’, used in the Settlement Agreement, took their content from the Patents Act. Their Honours concluded, by giving effect to the statutory meaning of these terms and being attentive to the ‘internal logic’ of cl 3, the ‘overall effect’ was to grant Sandoz a licence two weeks before the expiry of the original term of the Patent with the licence then coming to an end on the expiry of that original term (at [56]). Their Honours inferred that the ‘commercial result’, which the parties intended to produce by cl 3, was to give Sandoz a commercial advantage over its competitors by giving Sandoz a two week head start on manufacturing, importing, marketing and offering to sell escitalopram products before the expiry of the original term of the Patent (at [57]). Consequently, Sandoz did hold a licence during the extended term of the Patent and infringed the Patent when it sold escitalopram products during the extended term. Having made this finding, their Honours then determined that only Lundbeck Denmark (the holder of the Patent), and not Lundbeck Australia, had rights to bring proceedings against Sandoz for infringing the Patent (at [61]). Their Honours held that Lundbeck Denmark’s cause of action against Sandoz only accrued on the date that the extended term was granted and so Lundbeck Denmark could only obtain pre-judgment interest on damages, under s 51A(1)(a) of the Federal Court of Australia Act 1976 (Cth), from that date (at [68]).

In the Pharma Appeal, their Honours observed that the resolution of the appeal required highlighting two principles relevant to the determination of whether the conduct is misleading or deceptive (at [69]). The first principle being (where the conduct is not directed to an identified individual) the need ‘to isolate by some criterion’ a representative member of the target audience for the conduct. And the second principle being (where the impugned conduct is said to be the non-disclosure of a circumstance) to establish that the representative member of the target audience would ‘hold a reasonable expectation that the circumstance would be disclosed if the circumstance exists’. Their Honours considered it was ‘not self-evident’ that pharmacists purchasing Sandoz’s escitalopram products would have held a reasonable expectation of the possibility that they might be exposed to proceedings for infringement of the Patent (at [73]).



Dr Michelle Sharpe
is a barrister in Castan Chambers in Melbourne.