German Court Upholds $20M Arbitration Award in Valsartan Contamination Case
The German Federal Court of Justice (Bundesgerichtshof, BGH) has upheld an arbitral award in favor of pharmaceutical firms Hexal and Sandoz. The ruling confirms their right to compensation after a major drug contamination scandal in 2018. The case centered on tainted Valsartan supplies from a Chinese manufacturer, Baoyao Company Ltd.
The Valsartan scandal erupted in June 2018 when contaminated active ingredients were discovered in blood pressure medications. The impurity, NDMA—a probable carcinogen—forced Hexal and Sandoz to recall 2,308 batches of their generics across 23 countries. By December 2019, all shipments containing the affected ingredient had been halted.
In April 2020, Sandoz took legal action against Baoyao, demanding over $8.6 million in damages. An additional $12.2 million was sought for potential future liabilities. The Chinese supplier contested the arbitration tribunal’s jurisdiction, arguing that individual purchase orders were separate from the master supply agreement. The BGH rejected this claim, ruling that the orders were not standalone transactions. The court also found that Baoyao’s interests had been properly represented during negotiations, ensuring no imbalance in bargaining power. As a result, the arbitration award in favor of Hexal and Sandoz remains in force.
The decision secures compensation for Hexal and Sandoz after the widespread Valsartan recalls. Baoyao’s attempts to avoid liability have failed, leaving the arbitral award intact. The ruling brings closure to a dispute stemming from one of the largest pharmaceutical contamination cases in recent years.
