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Pharmacy owners hoping for clarity concerning the permissible structure of franchise, partnership, and funding arrangements were left disappointed after the New South Wales Supreme Court handed down its decision in Blooms the Chemist Management Services Ltd v Pharmacy Council of NSW 1 ('Blooms'), which stopped short of delivering definitive answers.
The restriction on non-pharmacists holding a 'financial interest' in a NSW pharmacy is a fundamental compliance hurdle for any pharmacy business operated under support, management or franchise-style arrangements, however, the National Law's2 definition of 'financial interest' leaves room for interpretation. There were high hopes that Blooms would give the Court an opportunity to provide the industry with practical guidance as to the practical reality of a 'financial interest', however, those hopes were ultimately dashed as the Court declined to make a binding decision on jurisdictional grounds, remitting the issue back to the NSW Civil and Administrative Tribunal ('NCAT').
The implications of Blooms reach far beyond NSW, as Queensland pharmacists had hoped the judgment would serve as the guiding authority for the roll out of the new Pharmacy Business Ownership Act 2024, designed to increase scrutiny around who can own, control, or benefit from a pharmacy business, and bring the state's regulations in closer alignment with the National Law.
Ultimately, Blooms leaves the industry with hints, but not a binding answer, and there will be many more judicial decisions on this issue before the industry can be comfortable that any hard and fast rules have been established. This article discusses the facts of the Blooms case and explains the consequences of the Court's decision for pharmacy owners.
What was Blooms about?
The central issue in the dispute was whether Blooms the Chemist Management Services ('Blooms the Chemist'), a well-known franchisor and supplier of branding, systems, and business support, held an impermissible 'financial interest' in a pharmacy located in Cronulla South ('the Pharmacy Business').
Under the National Law, only registered pharmacists (or corporations of which a registered pharmacist is the principal) may hold a financial interest in a pharmacy business.3 Blooms the Chemist is not a pharmacist-owned entity and therefore is not allowed to hold such an interest.
The Pharmacy Business was owned in equal shares by a "Working Partner" and a "Consulting Partner," and the Consulting Partner's 50% interest was funded by a loan from Blooms the Chemist at a fixed interest rate of 20%. Blooms also had an extensive Optimised Service and Licence Agreement ('OSLA') with the Pharmacy Business which gave Blooms significant influence over branding, operations, merchandising, and business management.
When the Consulting Partner applied to register its own interest with the Pharmacy Council of NSW ('the Council'), the Council refused on the basis that this would also effectively give a prohibited indirect financial interest to Blooms the Chemist. Blooms the Chemist applied for a review of the Council's decision in the NCAT, and these NCAT proceedings are still afoot.
In the meantime, Blooms the Chemist sought a binding Declaration from the Supreme Court of NSW that the registration of the Consulting Partner's interest would not thereby cause Blooms the Pharmacy itself to also obtain a financial interest. This Supreme Court decision is the matter with which this article is concerned.
What the Court Decided, and Why it Matters
The Supreme Court refused to issue the Declaration.
Although the Judge indicated that there was a fair argument that Blooms the Chemist did in fact, have an impermissible financial interest in the Pharmacy Business, the refusal was not made on this basis. Rather, the Court declined to make the Declaration because doing so would interfere with the NCAT proceedings already afoot, and thus risk inconsistent outcomes.
Essentially, the Court did not decide whether Blooms the Chemist had a 'financial interest' in the Pharmacy Business and thus did not provide a binding precedent as to what a 'financial interest' means in practise.
Despite this, the Court did make several useful observations indicating clues as to how a 'financial interest' may be decided in future cases, and this does provide some level of guidance for pharmacy owners looking to ensure their business arrangements are structured in compliance with the NSW National Law and new Queensland legislation.
The Court:
- Suggested that the meaning of financial interest should be interpreted broadly.
- Emphasised that this is a substance over form inquiry: what matters is the practical commercial relationship, not the content of any written agreement.
- Suggested that it may amount to a prohibited financial interest
if a non-pharmacist entity:
- has influence or control over a pharmacy's operation; and
- has structured its arrangements with the pharmacy such that its financial interests are tied with the pharmacy's profitability, such as through its loan terms and/or fee structure.
Why Blooms failed to provide the expected clarity
- It did not create a binding precedent as to the meaning of 'financial interest'
The Court declined to make the declaration on a jurisdictional, rather than a substantive basis, so it does create a binding legal test for what constitutes a 'financial interest'.
- It emphasised that determining the existence of a 'financial interest' will continue on a case-by-case basis
The Court made it clear that determining whether a 'financial interest' exists is a highly fact-specific inquiry. This means:
- There is no decided franchise or management structure that is guaranteed to avoid the risk.
- Small differences in the operation of different pharmacies under similar franchise models could produce differing outcomes.
Why Blooms still provides useful guidance
While the decision was not the affirmative answer hoped for by the industry, it did give some indications as to possible contributing factors to the existence of a 'financial interest'.
The decision also affirmed the fact-specific nature of the enquiry, providing guidance as to the manner and extent to which certain facts should be treated.
The Court strongly signalled that arrangements giving both operational control and an interest in the pharmacy's profitability to a non-pharmacy entity are likely to amount to a prohibited indirect financial interest, including:
- Service and licensing agreements granting the non-pharmacy entity effective control over merchandising, purchasing, marketing, and pricing, particularly where any discretion not to use its products or services is impractical or economically unviable for the pharmacy.
- Loan arrangements linking the non-pharmacy entity's loan recovery to the pharmacy's value or profitability, and which control how the pharmacy interest may be sold.
The Court also emphasised that it is the commercial reality of the relationship which determines the existence of a 'financial interest.' The Court will not rely on the form or wording of the contractual arrangements alone but will look to the substance and practical operation of the relationship.
Why Blooms Matters in Queensland
Queensland's new Pharmacy Business Ownership Act 2024 (Qld) will soon impose stricter ownership and licencing requirements. The state will now scrutinise 'material interests' in pharmacy businesses in a similar way to NSW and Victoria.
As pharmacy businesses will now be required to renew their existing licence on an annual basis,4 every pharmacy's compliance with the 'material interest' requirements will soon be scrutinised, and the Queensland Pharmacy Council will likely look to Blooms for clues as to how this should be enforced.
What this Means for Your Pharmacy Business
If your pharmacy structure involves franchising, brand licensing, management support services, or loan financing arrangements, now is the time to review it.
We strongly recommend that pharmacy owners:
- Re-examine ownership structures
Focus on whether any non-pharmacist entity has influence over profit, business value, or operational decisions.
- Review loan, financing, and support services agreements
Pay particular attention to fee structures, interest mechanisms, and operational control measures.
- Do not rely on contractual disclaimers
Clauses baldly asserting that a non-pharmacy entity does not have any financial interest are not enough.
- Seek advice before entering new partnership/ franchising arrangements
Higher scrutiny of pharmacy business arrangements should be expected.
If you are unsure whether your current structure could be at risk under the new rules, we strongly recommend seeking advice.
Our firm advises pharmacy owners across Australia. If you would like to discuss how this decision may affect your pharmacy business, contact us.
Blooms – a bitter pill
Blooms was meant to be a much-needed dose of clarity for pharmacy business owners, but instead, the industry remains in the dark as to how compliance with ownership requirements can be guaranteed. Until a binding precedent emerges, the sector must accept that regulatory ambiguity is, for now, a bitter pill to swallow.
Footnotes
1 Blooms the Chemist Management Services
Ltd v Pharmacy Council of NSW [2025] NSWSC 1211.
2 Schedule 5F of the Health Practitioner Regulation
National Law.
3 Schedule 5F of the Health Practitioner Regulation
National Law, clause 5.
4 Pharmacy Business Ownership Act 2024, s
31.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
