Valsartan scandal ends as court upholds $20M arbitration ruling against Chinese supplier
A long-running legal dispute over contaminated blood pressure medication has reached its final stage. The Valsartan scandal began in June 2018 after dangerous impurities were found in widely used generics. Two major drugmakers, Hexal and Sandoz, later recalled thousands of batches across Europe and beyond.
The case centred on claims against a Chinese supplier, Zhejiang Huahai Pharmaceutical, which faced demands for tens of millions in compensation.
The scandal unfolded when traces of NDMA, a probable carcinogen, were detected in Valsartan-based drugs. Hexal and Sandoz responded by pulling 2,308 batches from 23 countries. Multiple recall waves followed as regulators investigated the contamination source.
In April 2020, Sandoz took legal action against its supplier, seeking over $8.6 million for past damages and $12.2 million for future liabilities. The Chinese manufacturer contested the arbitration process, arguing that individual purchase orders fell outside the master supply agreementâs terms. It claimed the arbitration clauses did not apply to routine transactions.
Germanyâs Federal Court of Justice (BGH) ultimately rejected this challenge. The judges ruled that the master agreement governed all orders, regardless of their individual nature. They also found that the drugmakersâ subsidiaries had been properly represented during contract negotiations, ensuring no unfair advantage in the original deal.
The BGHâs decision confirmed an earlier arbitral award in favour of Hexal and Sandoz, bringing the dispute to a close.
The contaminated ingredient originated from Zhejiang Huahaiâs production facilities in China. Regulators worldwide later tightened oversight of generic drug suppliers following the incident.
The ruling secures compensation for Hexal and Sandoz while reinforcing the validity of their supply contracts. Stricter quality controls for pharmaceutical ingredients were introduced after the scandal. The case also sets a precedent for how international arbitration clauses are interpreted in long-term supply agreements.
