High Court of Australia confirms limits on undertaking as to damages: Commonwealth loses appeal in clopidogrel PBS claim

On 11 December 2024, the High Court handed down its judgment in Commonwealth of Australia v Sanofi [2024] HCA 47, bringing the long-running damages dispute between the Commonwealth and Sanofi to an end.

The majority of the High Court upheld the Full Federal Court’s decision, dismissing the Commonwealth’s appeal for compensation under Sanofi's damages undertaking. The Commonwealth claimed it had suffered loss due to a preliminary injunction preventing Apotex from launching its generic clopidogrel products. The High Court reaffirmed the principle that it will not re-examine factual findings from lower courts unless there is clear injustice or error, marking the end of the Commonwealth's bid for compensation. The judgment also contains some significant takeaways for patentees and generics alike, as discussed below.

Background: the Clopidogrel patent dispute and the Commonwealth’s claim for damages

In 2007, Apotex sought to revoke Sanofi's patent that protected its blockbuster drug clopidogrel, which was sold under the brand names Plavix® and Iscover®, a drug costing the Commonwealth $170 million annually.

Sanofi successfully obtained a preliminary injunction to block Apotex’s generic launch, offering the "usual undertaking as to damages" (damages undertaking) in return – an undertaking to submit to such order as the Court may consider just for the payment of compensation to be assessed by the Court "to any person whether or not a party, adversely affected by the operation of the injunctions".

After the patent was revoked for invalidity, the Commonwealth sought compensation pursuant to the damages undertaking on the basis that the wrongly granted preliminary injunction obtained by Sanofi delayed PBS listing of Apotex's generic clopidogrel products until May 2010. As a consequence, the Commonwealth paid higher PBS subsidies for clopidogrel prescriptions dispensed between 1 April 2008 and 1 May 2010.

The primary judge (Justice Nicholas) found that the Commonwealth had failed to prove its claim. On appeal, the Full Court (Justices Besanko, Perram and Yates) delivered a single, unanimous judgment that the Commonwealth's claim on the damages undertaking should be dismissed in its entirety, but disagreed in part with the primary judge's reasons.

Relevantly, the Full Court agreed with the primary judge that, in this particular case, the Commonwealth had failed to establish that Apotex would have launched its products on and from the foreshadowed PBS listing date of 1 April 2008 had the preliminary injunction not been granted.

However, the Full Court agreed with the Commonwealth that if it had succeeded in that part of the case, its claimed losses would have "flowed directly" from the interlocutory injunction.

The Commonwealth's grounds of appeal in the High Court

There were two grounds of appeal before the High Court:

1. Onus of proof: The Commonwealth contended that the Full Court erred in its findings regarding the onus of proof in a claim based on a damages undertaking. This ground of appeal had two parts:
   1. 1. the Commonwealth claimed that the Full Court wrongly concluded the evidential burden rested with it to establish a prima facie case that its loss directly resulted from the interlocutory injunction. The Commonwealth argued that once it established this, the burden should shift to Sanofi to prove that Apotex would not have sought PBS listing without the injunction; and
      2. the Commonwealth further argued that it had met its evidential burden, while Sanofi had not.
2. Inference from evidence: Second, the Commonwealth argued that the Full Court erred in failing to find, by inference from the evidence, that in absence of the interlocutory injunction, it was likely that Dr. Sherman – the ultimate controller and decision-maker of the Apotex group – would have reconfirmed the plan for Apotex to seek PBS listing.

The majority's reasons

Both grounds of appeal were ultimately dismissed by the majority of the High Court, comprising Acting Chief Justice Gordon and Justices Edelman and Steward. In their joint judgment, the majority made important comments on:

(i) the relevant onus of proof;

(ii) the principles that guide the High Court's factual analysis, and

(iii) how the counter-factual test is to be applied in the circumstances of this case.

(i) Onus of proof

The majority held that the Commonwealth bore the legal and evidentiary onus of proof in relation to causation of loss within the scope of the undertaking as to damages while the interlocutory injunction persisted in the period between 25 September 2007 and 19 August 2008. The Commonwealth was required to establish on the balance of probabilities that Apotex would have sought and obtained PBS listing but for the interlocutory injunction. In the majority’s judgment, it had failed to do so.

(ii) Applicable principles: High Court’s approach to factual analysis

The Commonwealth’s second ground of appeal sought for the High Court to review and value a vast body of evidence.

However, the primary judge’s findings of fact on this issue were confirmed by a unanimous Full Court. Importantly, at no point did the Commonwealth assert that the Full Court had erred in concluding that the primary judge had addressed, or adequately addressed, one or more of the Commonwealth's submissions at first instance or that the Full Court had failed to address one or more of the Commonwealth's submissions on appeal. Accordingly, the majority found that the High Court could not overturn concurrent findings of fact unless the Commonwealth established that both the primary judge and the intermediate court of appeal were clearly wrong to make the findings that they did – and this was simply not the case.

In support of this position, the High Court majority referred to similar principles adopted in the appellate courts of the US, Canada, and the UK. These jurisdictions generally follow the principle that appellate courts should not reassess the factual findings of trial judges unless, in Canada, a “palpable and overriding error in the… analysis of facts”^[1], in the US, a “very obvious and exceptional showing of error”^[2], or in the UK, unless both courts were “clearly wrong”.^[3]

Ultimately, the majority concluded that the Commonwealth's appeal did not meet the high standard required for such reassessment.

(iii) The counter-factual test: would Apotex have sought and obtained listing of clopidogrel on the PBS?

The Commonwealth had the burden of proving the counter-factual. That is, the Commonwealth needed to prove that Apotex would have sought and obtained listing of its clopidogrel products on the PBS on 1 April 2008, and launched its generic product, if it had not been subject to the interlocutory injunction.

In considering the counter-factual, the High Court majority held that the only facts that should be removed from the inquiry were the order by Justice Gyles on 25 September 2007 granting the interlocutory injunction, and anything that is inextricably connected with that order, such as the reasons that his Honour gave for the decision. The focus, the High Court said, is on what Apotex would have done, absent that order and anything inextricably connected with it.

In applying this approach, the High Court majority found that two issues arose:

1. the concurrent findings of the primary judge and the Full Court (that the Commonwealth had failed to prove the counter-factual) were open, and were not clearly wrong; and
2. in any event, it was not open to the Commonwealth on the appeal to revisit many of the factual findings that it sought to reopen.

In that regard, the majority found that before considering whether such an alleged error required correction, the High Court would need to be satisfied on a prima facie basis that the error was particularly clear, especially when the alleged injustice does not involve threats to liberty, bodily integrity, reputation, or livelihood.

On the facts of this case, no such clear error was found in the concurrent factual and counterfactual findings of the primary judge and the Full Court. The High Court identified four key reasons why these concurrent findings were not only open to those courts below, but were compelling:

3. Dr. Sherman's (Apotex's) decision to launch at risk in September 2007 (which precipitated the preliminary injunction) was conditional, influenced by ongoing litigation in the United States and Canada. Although Apotex's Dr Sherman reconsidered his position later, key communications were redacted for legal professional privilege and left critical gaps in understanding his intentions. His absence as a witness left unanswered questions about his decision-making process, such as reliance on risk/reward analyses and responses to hypothetical scenarios, undermining the Commonwealth’s argument that his intention was firm. These evidentiary gaps highlighted the challenges that any third party, such as the Commonwealth, faces in proving causation for loss that is premised on hypothetical conduct of the party that was restrained.
4. Two unexpected events in late September 2007 altered the feasibility of Apotex launching at risk. These events revealed that the PBS listing date would be just weeks before the final trial, with judgment expected in four months. Dr. Sherman was unaware of the significance of these events at the time of the interlocutory injunction hearing and had not considered their impact. The absence of clear evidence supporting his firm intention to launch at risk, along with discrepancies in the affidavit evidence, further complicated the Commonwealth's claim.
5. without the injunction, a risk/reward analysis would likely have deterred Apotex from launching at risk due to the substantial downside risks outweighing the modest upside. The estimated downside, ranging from $166–650 million, far surpassed the potential $10–20 million upside. Dr. Sherman, not fully aware of these risks at the time, undermined the Commonwealth's argument that Apotex knowingly accepted significant financial risk. Later analyses, though conducted under different circumstances, confirmed Apotex’s consistent concerns about financial exposure and its prioritisation of avoiding losses.
6. Apotex's doubts about launching at risk. The most relevant analogy to the counterfactual scenario was not the litigation in Canada or the United States, but the events leading to Justice Gyles' orders in August 2008. At that point, even after Sanofi's patent appeared potentially to be invalid, Apotex expressed doubts about launching at risk. This suggested that, had the interlocutory injunction not been granted, Apotex would have approached the situation with similar caution. These findings, upheld by the primary judge and Full Court, were compelling and free from error, supporting the dismissal of the appeal.

Sanofi’s notice of contention

Although the High Court majority did not consider it strictly necessary to address Sanofi’s notice of contention, it chose to do so because the issues it raised highlighted two key points: first, the difficulty of revisiting findings from lower courts without the full record, and second, the inconsistency between the Commonwealth’s claimed $325 million loss and the primary judge's unchallenged finding of a maximum $11 million loss.

Although not all grounds in the notice of contention were addressed, the following were of particular significance:

Directness issue

Sanofi argued that the Commonwealth’s alleged loss did not "flow directly" from the interlocutory injunction, as it depended on Apotex obtaining PBS listing for its clopidogrel products. However, the Court rejected this argument, concluding that the Commonwealth’s loss, arising from a 12.5% price reduction on PBS-listed clopidogrel, was within the scope of the undertaking, as it was reasonably contemplated at the time. The extent of such losses remains a factual question, which underscores the challenges of reassessing issues with only partial disputes presented before the Court.

Was the Commonwealth a person “adversely affected” by the interlocutory injunction?

Sanofi contended that the Commonwealth was not "adversely affected" within the meaning of the usual undertaking as to damages, due to its unique status and role as a "polity". Specifically, Sanofi argued, the Commonwealth is not an "ordinary litigant" and does not experience loss in the usual sense when it pays PBS subsidies in line with the laws it has enacted and the policy objectives it has set, under a regime that it governs.

The High Court rejected this argument, finding that it misconstrued the constitutional position of the Commonwealth, which, as a legal person, is generally treated like any other person under the law. Sanofi's undertaking did not exclude the Commonwealth from its scope. Rather, the context in which the undertaking was given involved express recognition that the Commonwealth of Australia was contemplated as within the scope of the undertaking.

Is the Commonwealth precluded from claiming on the undertaking as to damages?

In this appeal, Sanofi argued that, because the Commonwealth has established a specific legal regime for claiming compensation when an innovator pharmaceutical company obtains an interlocutory injunction by wrongly asserting patent rights, it follows that the Commonwealth cannot claim under the usual undertaking as to damages in the absence of such wrongdoing.

The specific legal regime Sanofi referred to is contained within the Therapeutic Goods Act 1989 (TG Act), which governs, among other things, the registration of therapeutic goods on the Australian Register of Therapeutic Goods (ARTG). Under that regime, in most innovator-versus-generic pharmaceutical patent cases where an interlocutory injunction is sought, the patentee must give a certificate under section 26C that the proceedings are commenced in good faith, have reasonable prospects of success, and will be conducted without unreasonable delay. If the court later finds that the certificate was false or misleading, or is breached, the court has the power to order the innovator to compensate the Commonwealth for any damages or costs resulting from the interlocutory injunction. Sanofi argued that this regime means that the Commonwealth is implicitly excluded from claiming compensation on the usual undertaking as to damages.

Sanofi’s attempts to raise this issue failed at the outset. This very argument was made by Sanofi, and then considered and rejected by a differently constituted Full Court, in an earlier episode of the long-standing clopidogrel litigation in 2015 (in a judgment from which the High Court had denied Sanofi's application for special leave to appeal). The attempted rehashing of this argument was therefore deemed to be an abuse of process, and no exceptional circumstances justified revisiting the point.

The dissent

Justices Jagot and Beech-Jones each delivered separate, dissenting reasons for judgment.

Justice Jagot considered that the Commonwealth's appeal on ground 2 should succeed, while Sanofi’s notice of contention should fail. In her dissenting opinion, her Honour identified "clear errors" in the reasoning of both the primary judge and the Full Court, which necessitated the High Court’s intervention on the evidentiary issues.

In particular, Justice Jagot took issue with the use of reconstructive hypothetical evidence:

“The fundamental problem with any witness giving hypothetical evidence about what they would have done in a past hypothetical situation is the human condition.”

Unlike ordinary testimony regarding past perceptions or intentions, reconstructing past actions is complicated by the fact that a witness cannot unlearn knowledge or experiences gained since the event in question. This issue becomes more pronounced when the event occurred many years ago and under complex circumstances.

In this case, Mr. Millichamp's testimony – the Managing Director of Apotex Australia – about his recollection of instructions from Dr. Sherman, which was central to the case, was inconsistent with other documentary evidence. The Full Court had highlighted this inconsistency with emails. For Justice Jagot, this demonstrated the limitations of reconstructive hypothetical evidence and underscored the importance of contemporaneous records in establishing the facts of a past event.

Justice Beech-Jones agreed with Justice Jagot, concluding that the Commonwealth convincingly demonstrated that, had the injunction been refused, Apotex would have listed and launched its products on 1 April 2008. His Honour was apparently attracted to the argument that, because Sanofi obtained the preliminary injunction on the basis of Sanofi alleging Apotex would launch in the absent of a restraint, it should not be permitted to argue, in the context of a claim on the undertaking, that absent that restraint Apotex actually would not have launched. His Honour found that the primary judge and Full Court had failed to properly address the merits of the Commonwealth’s case, resulting in clear error and plain injustice. As a result, his Honour considered in dissent that the Commonwealth’s appeal on this ground should have been upheld.