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Supreme Administrative Court backs entrepreneurs. Defeat of the pharmaceutical inspection and pharmaceutical corporation in the 1% case



The Supreme Administrative Court confirmed that the principle of universal succession refers to licences to run pharmacies, and pharmacy licences acquired through capital acquisitions are by law transferred to the purchaser. Thus, the Court confirmed the rights of entrepreneurs who over the last several years had been buying pharmacies, also from the State Treasury. The judgment undermines the interpretation pursued by the pharmaceutical inspection and the pharmaceutical corporation, which in recent years have acted against entrepreneurs, trying to change the meaning of the provisions on 1%, after a dozen or so years of their validity, without changing the regulations.

At the hearing on February 27th, 2018, the Supreme Administrative Court dismissed the cassation appeal of the Chief Pharmaceutical Inspectorate against the verdict of the Voivodeship Administrative Court in Warsaw of February 27th, 2017 in Case VI SA/Wa 559/16. The Inspectorate’s cassation complaint was dismissed and the decision of the Supreme Administrative Court (II GSK 2510/17) is a breakthrough as it ends the interpretive chaos surrounding the principle of universal succession on the grounds of licence to operate a pharmacy.

In 2004, the legislator introduced to Art. 99 par. 3 of the Pharmaceutical Law, the provision according to which the licence to operate a pharmacy “is not issued if the entity applying for a licence carries out in the voivodeship more than 1% of generally accessible pharmacies”. For more than a decade, it was consistently assumed that the one percent rule applies, as is clear from the quoted provision, only in cases in which the entrepreneur requests a new licence to run a pharmacy. It does not mean, however, a general ban on having more than 1% of pharmacies, for example, through capital acquisitions.

For a decade, many state institutions in official documents stated that there was no ban on having more than 1 percent of pharmacies in a voivodeship. These institutions included, among others, the Ministry of Health, the President of the Office of Competition and Consumer Protection, and the Ministry of Treasury, which basing of these provisions sold the state-owned Cefarm pharmacies and their pharmacy chains for over PLN 0.5 billion to private entrepreneurs.

Moreover, the amending drafts that were proceeded that were to introduce such a ban (the ban eventually did not come into force). In the justification of those amendments, it was clearly indicated that the then (and current) provision applies only to the stage of issuing a licence.

“Suddenly, at the end of 2014, the pharmaceutical inspection, under the pressure of the authorities of the pharmacy self-government, concluded that from the wording “licence is not issued if” results in an absolute ban on anyone having more than 1% in the number of pharmacies in a voivodeship. As a result, an administrative procedure was started to undermine and revoke existing licences, including a procedure for refusing to change licences in the case of capital mergers,” said Tomasz Duraj of the law firm DurajReck.

In the case covered by the decision of the Supreme Administrative Court, the entrepreneur, after the acquisition of another company, applied to the Chief Pharmaceutical Inspectorate for a change of the permit to run a pharmacy. The entrepreneur referred to the principle of universal succession, according to which the acquiring company enters into the entire rights and obligations of the acquired company as of the merger date. The Inspectorate refused to change the licence to operate a pharmacy, claiming that the entrepreneur exceeded the permissible threshold of 1% of pharmacies owned in the voivodeship. The CPI stated that in such a situation Art. 99 par. 3 of Pharmaceutical Law. In the Inspectorates opinion, this article constitutes an exception to the principle of universal succession specified in the Code of Commercial Companies, and therefore, the licence did not pass to the entrepreneur.

The case was transferred to the Voivodeship Administrative Court in Warsaw. Admittedly, the VAC dismissed the entrepreneur’s complaint, but in its justification questioned the interpretation of the provisions of the Pharmaceutical Law the CPI used in its decision. In the VAC’s opinion, the licence to operate a pharmacy is subject to the principle of universal succession and was passed by law onto the complainant. The Inspectorate disagreed with the interpretation presented by the VAC in Warsaw and filed a cassation complaint with the Supreme Administrative Court.

The Supreme Administrative Court dismissed the Chief Pharmaceutical Inspectorate’s complaint. “By dismissing the cassation appeal, the Court first emphasised that the body’s duty is primarily to follow the wording of the provision, and not to perform the “law-making” function. The SAC pointed out that Art. 99 par. 3 of the Pharmaceutical Law does not regulate legal succession at all and must not be treated as an exception to the principle of universal succession,” said Marcin Jaworski of the law firm Tomasik Jaworski representing the PharmaNET Pharmaceutical Entrepreneurs Union. “As the Court pointed out, if there are no provisions providing for the exclusion of the application of the universal succession principle, there is no basis for the authority to interpret that the licence was not transferred. As a result, the principle of universal succession applies in this case and the entrepreneur took over the licence by virtue of law,” he added.

The Supreme Administrative Court pointed out that the Chief Pharmaceutical Inspectorate had committed an unacceptable interpretation extending the competences conferred on it by the legislator. The competences granted by the legislator to the Inspectorate only in the scope of the proceedings regarding the issuance of a licence to operate a pharmacy, the CPI unjustifiably extended to proceedings concerning the change of a licence.

“The Supreme Administrative Court also made it clear by the way what it thought about the CPI’s behaviour in the context of patient protection and public health’” said Mateusz Grzech of the law firm DurajReck, who leads the case of the aggrieved entrepreneur, and added “Of significant importance was the question the SAC asked the representative of the Inspectorate whether if in a voivodeship, there were only one pharmacy, would the CPI close it down, as the entrepreneur would then own 100% thus exceeding the 1% limit?”

Today’s sentence is ground-breaking for several reasons. The previous rulings at the level of Voivodeship Administrative Courts in matters related to changing the licence to run a pharmacy were inconsistent. However, the decision of the Supreme Administrative Court introduces an intelligible interpretation of the Pharmaceutical Law provisions referring to the classic rules for the interpretation of law and the actual wording of the provisions. The attempts by the Chief Pharmaceutical Inspectorate to create artificial rules regarding the succession of licences were cut off.

“We are glad that the Supreme Administrative Court clearly stated that the absurd interpretation of the 1% threshold, pushed through by the pharmacy self-government and applied by the Chief Pharmaceutical Inspectorate, has no legal basis. The decision of the SAC is pleasing, because it is a clear signal that the provisions governing the principles of conducting business must be read literally, according to their content, and not interpreted in an extensive way,” summed up Marcin Nowacki, vice president of the Union of Entrepreneurs and Employers.

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