Unicare initiated court proceedings yesterday against the German group Gehe, which abandoned its $152 million (€175.7 million)acquisition of the pharmacy chain on Wednesday.

Unicare served a statement of claim in the High Court against Gehe to enforce what it said were "contractual entitlements". Gehe's spokesman said it would vigorously defend any legal action.

With both sides claiming to be confident of success in the courts, a lengthy legal battle is likely. With Unicare seeking a $127 million payment up-front and a further €25.4 million in earn-outs, the stakes are high. Unicare's owners, who include some of the State's largest pharmacy chains, are believed to be very unhappy about the collapse of the sale.

Led by Mr Fergus Hoban, they have claimed that their contracts with Gehe provided for the possibility of liberalisation in the manner taken by the Government. While this has an impact on the sale price, sources said it was minimal.

It is understood that the conditions were inserted in the contracts because the Tánaiste, Ms Harney, stated last year that the market would be opened in the lifetime of the Government. Sources close to Unicare have said that Gehe could not have been unaware of the possibility of deregulation. In a statement, the company said: "Unicare regrets that it has been necessary to issue these proceedings but is confident of a successful outcome."

The company had said earlier that it would take the "necessary steps" to ensure completion of the contract.

But Gehe claims that relaxation of the regulatory regime meant it was "impossible" for Unicare to deliver what had been contracted. It said on Wednesday that the situation was unsatisfactory and frustrating and followed a review of the liberalisation.

Unicare has denied that it could not deliver the deal, stating that all preconditions laid out in the contract had been satisfied.

The Government eased restrictions on the number of chemists entitled to manage State contracts on January 31st, days after a Competition Authority report to the Tánaiste said the acquisition should go ahead without preconditions. Senior figures in the State sector with knowledge of regulations have expressed surprise that the Government moved when it did.

The Unicare purchase would have cleared the way for Gehe to dominate the pharmacy business both throughout the State and in Dublin. The group also owns Cahill May Roberts, the second-largest pharmaceutical wholesaler in the State.