Interlocutory injunction not granted if damages would be adequate remedy

Clane Hospital Ltd and others (applicants) v Voluntary Health Insurance Board (respondent).

Injunction - Interlocutory - Respondent in a dominant position in the market for the provision of private medical insurance and for the provision of private health services - Whether bona fide question raised - Whether applicants had established that the actions of the respondent would result in the closure of the applicants' hospitals - Whether damages an adequate remedy - Whether damage to applicants quantifiable - Competition Act 1991 (No. 24), section 5 - Treaty of Rome, article 86.

The High Court (before Mr Justice Quirke); judgment delivered 22 May 1998.

In an application for an interlocutory injunction, once a fair bona fide question had been established by the applicant, an injunction should be granted unless, on the evidence, damages would provide an adequate remedy for the applicant in the event of his succeeding at the trial or unless the respondent could not be adequately compensated under the applicant's undertaking as to damages.

Mr Justice Quirke so held in holding that the applicants had not established that their hospitals were at risk of closure prior to the date when their entitlement to a permanent injunction would be determined and, consequently, had not established that damages would not be an adequate remedy.

James Connolly SC and Denis McDonald BL for the applicants; Dermot Gleeson SC and Michael Cush BL for the respondent.

Mr Justice Quirke said the applicants were the proprietors and persons responsible for administering five private and independent hospitals within the State. The respondent was the statutory corporation established in 1957 for the principal purpose of providing private medical insurance within the State with the benefit of and subject to certain powers and responsibilities conferred and imposed upon it by virtue of the Voluntary Health Insurance Act, 1957 and the Voluntary Health Insurance (Amendment) Act, 1996.

It was common case the respondent occupied a position of dominance within the market for the provision of private medical insurance within the State and that the State comprises a substantial part of the European Community. It was also common case that a substantial portion of the income of the applicants' hospitals derived from patients whose bills were paid in whole or in part by the respondent.

The applicants claimed that by reason of its dominance in the market for the provision of private medical insurance, the respondent had the ability to control the ancillary market for the provision of private health services with the effect that the respondent occupies a position of dominance within that ancillary market.

The applicants claimed that the respondent had abused its position of dominance in both markets, contrary to the provisions of section 5 of the Competition Act 1991 and of article 86 of the Treaty of Rome, in the following manner -

(a) by seeking to impose upon the applicants prices for services rendered which were unfair and so low as to be uneconomic and less than the cost of the provision of such services;

(b) By seeking to impose upon the applicants trading conditions which were so penal and oppressive as to be unfair and likely to cause the applicants losses of such magnitude as to endanger their survival; and

(c) by unilaterally and with effect from 2 April 1998 withdrawing its agreement to pay various maintenance, technical and ancillary charges for medical services at rates previously agreed in 1996 and refusing to pay prices or charges other than those contained in an entirely new scheme drawn up by the respondent.

The applicants further claimed that by engaging in this conduct the respondent had acted unreasonably, unfairly and inequitably and contrary to the duties and obligations imposed upon it by the 1957 and 1996 Acts.

The applicants were seeking an interlocutory injunction restraining the respondent from replacing the scheme which had been in operation between 1996 and 2 April 1998. Mr Justice Quirke said that as this was an interlocutory application, it was not appropriate for him to seek to determine the issues between the parties: Campus Oil v Minister for Industry and Energy (No 2) [1983] IR 88. The question to be determined rather concerned whether a fair bona fide question had been raised by the applicants.

Mr Justice Quirke said that in his view a fair bona fide question had been so established and he was fortified in his view by the fact that this had been conceded by the respondent. A series of questions had been raised for determination at trial -

(a) whether the respondent had abused its position of dominance in the market for medical insurance;

(b) whether the respondent had abused its position of dominance in the ancillary market of the provision of medical services;

(c) whether the respondent had abused its position of dominance by imposing unfair prices and unfair trading conditions;

(d) whether the respondent had acted unreasonably, unfairly and inequitably contrary to the duties and obligations imposed upon it by the Voluntary Health Insurance Act 1957, as amended; and

(e) whether the respondent could be deemed to have imposed a system of prices or charges upon the applicants having as their object or effect the distortion of competition within the State contrary to section 4 of the Competition Act 1991, and article 85 of the Treaty of Rome.

Mr Justice Quirke said that it now fell to him to exercise his discretion to grant or refuse interlocutory relief. The matters which could be appropriately considered in the exercise of this discretion were those referred to by Lord Diplock in the case of American Cyanamid v Ethicon Ltd [1975] AC 396, at page 407. Those principles had been approved on numerous occasions by the Irish courts: Campus Oil v Minister for Industry and Energy (No 2) [1983]> IR 88; Irish Shell v Elm Motors Ltd [1984] ILRM 595; Ferris v Ward (unreported, Supreme Court, 7 November 1995).

In the light of the case law, it was clear that if, on the evidence, damages would provide an adequate remedy for the applicant in the event of his succeeding at the trial or the respondent could not be adequately compensated under the applicant's undertaking as to damages if the respondent were to succeed at the trial, then no injunction should be granted.

The applicants had contended that they could not be adequately compensated by an award of damages because the application of the new scheme by the respondent would force all of the applicants to trade at a loss, causing them irreparable harm and placing their future in jeopardy. In any event, the loss suffered by the applicants would be impossible to quantify.

The respondent argued that there was no evidence before the court which could give rise to an inference that any of the applicants were in danger of bankruptcy before the case came to trial, which would be between six weeks and six months from the date of this application. Furthermore, any losses could be quantified by reference to documentation disclosing the levels of remuneration, charges and prices applicable prior to 2 April 1998, and the charges applied by the respondent thereafter.

Mr Justice Quirke said that the evidence disclosed that for some considerable time the respondent had been endeavouring to provide for its subscribers a full indemnity, i.e. "fully covered care' in respect of the cost of health care. The respondent had engaged in negotiations with various hospitals with a view to agreeing levels of charges, prices and remuneration payable by the respondent to the hospitals for the medical services provided by the hospitals. In early 1996, many hospitals, including each of the applicants, were unwilling or unable to agree appropriate rates and from that time, the applicants and various other hospitals came into a category known by the respondent as "partially participating" hospitals.

The respondent continued to negotiate with these hospitals and during these negotiations, the respondents paid benefits to its members for attendance at "partially participating" hospitals at daily maintenance rates equivalent to those which had been paid to the same hospitals for providing "fully covered care" in 1995 together with payment for additional items known as ancillaries at a rate of 7.4 per cent less than had previously been paid in respect of such items. The hospitals recovered the remaining costs of provision of health services by a system of "balance billing" whereby they invoiced patients (invariably VHI subscribers) for the difference between the rates deemed by the hospitals to be sufficient to cover their costs and the rates actually paid by the respondent. While some of the hospitals reached agreement with the respondent, the applicants did not.

In early 1998, the respondent advised the applicants of its intention to notify its subscribers that it had not reached agreement with the applicants for the provision of "fully covered care" and of its intention to implement its new rates for "fully covered care" with effect from 2 April 1998, and new rates in respect of "partially participating' hospitals with effect from the same date. These latter rates were apparently significantly less advantageous to the applicants than those which were applied by the respondent to "partially participating" hospitals between early 1996 and April of 1998. The applicants contended that this necessitated a higher level of "balance billing" and, together with the notification by the respondent to its subscribers that the applicants were not in a position to provide "fully covered care" would result in a very substantial reduction in the use by VHI subscribers of the applicants' hospitals leading to a downward spiral in revenue for hospitals which were already financially unstable. There would be no means to provide for onward investment which was critical for the provision of appropriate medical care and the need to provide appropriate standards of care and services meant that cutbacks and reductions were impossible.

Mr Justice Quirke said that these arguments did not address the question of whether or not the applicants had established a real risk that their hospitals faced closure before the date when the applicants' entitlement to a permanent injunction would be determined. The substantive issue could be tried within six months and while the applicants' evidence was to the effect that they were suffering difficult financial circumstances, the applicants had not established that they faced closure in the short term or within any particular period of time. If the hospitals owned by the applicants were facing such imminent closure as was suggested, then the Boards of Directors of the applicants affected would have met (possibly in crisis) or, at the very least, financial institutions would have been approached with the view to providing support sufficient to enable the survival of the institutions concerned or some other measures signifying crisis would have been taken.

Mr Justice Quirke said that he was satisfied on the evidence that the nature and character of the applicants' hospitals was such that if they were forced to close by reason of the introduction by the VHI of the new scheme then the damage to the hospitals would be such as to be incapable of remedy by way of an award of damages. In the case of Curust Financial Services Ltd and Another v Loewe-Lack-Werk Otto Loewe GmbH & Co., KG and Another [1994] 1 IR 450 the Supreme Court held that where it is argued that damages will not be an adequate remedy by reason of the real risk of the financial collapse of a commercial concern then that risk must be established as a matter of probability. Since the applicant in that case was a commercial entity and since the loss apprehended was clearly a commercial loss and since there was no doubt about the capacity of the respondent to pay any damages awarded against them, then clearly damages were appropriate as a remedy. However, in this case, while there were strong commercial aspects to the applicants activities there were also substantial social and charitable aspects to their activities and objectives. That might justify a slightly different onus of proof in this case. However, the applicants had not adduced evidence of imminent closure of the hospitals prior to the trial.

Mr Justice Quirke said that in relation to the possibility or otherwise of quantifying damages if the injunction were not granted, that claim was based on an averment on affidavit that it would be impossible to quantify damage done to the applicants by having to "balance bill" patients. Clearly, the increase in the amount of "balance billing" could be readily calculated. However, if it was suggested that patients would choose other hospitals, then that was not wholly accurate because the applicants had been engaged in "balance billing" since 1996 so that the change noticed by patients would be an increase in the level of "balance billing" together with the effect of notification by the respondent that the applicants could not provide "fully covered care." The inter partes correspondence disclosed that the applicants kept detailed record in order to access budgetary requirements. It was also clear that comparative figures were available and careful projections had been made relative to the numbers of patients treated in the past and the numbers likely to require treatment in the immediate future, together with the nature and extent of such treatment. Furthermore, the rates paid by the respondent were as matter of record. Mr Justice Quirke said that he could not see any difficulty in the calculation of the applicants losses arising from the application of the new scheme.

Since damages were an adequate remedy, it was unnecessary to consider the adequacy of the applicants' undertaking as to damages or to any other matters affecting the "balance of convenience."

Solicitors: Arthur Cox (Dublin) for the applicants; McCann Fitzgerald (Dublin) for the respondent.