Date: 20061107
Docket: T-753-99
Citation: 2006
FC 853
Ottawa, Ontario,
November 7, 2006
PRESENT: The Honourable Mr. Justice Lemieux
BETWEEN:
MERCK
& CO., INC. and MERCK FROSST CANADA & CO.
Plaintiffs
and
NU-PHARM
INC., BERNARD SHERMAN and RICHARD BENYAK
Defendants
REASONS FOR ORDER AND ORDER
Introduction
[1]
Bernard
Sherman (Dr. Sherman), a defendant in this action, appeals part of Prothonotary
Roza Aronovitch’s (the Prothonotary) April 19, 2006 Order (the Compliance
Order) upon motion made by Merck & Co, Inc. and Merck Frosst Canada &
Co.(Merck or the Plaintiffs) seeking an order to compel Dr. Sherman to comply
with the Prothonotary’s June 24, 2002 Production Order (the Production Order).
[2]
Prothonotary
Aronovitch, as part of her Compliance Order, compelled Dr. Sherman to produce
all documents in the power, possession and control of Brantford Chemicals Inc.
(BCI), a wholly-owned subsidiary of Apotex Pharmaceutical Holdings Inc. (APHI)
which in turn, owns all of the issued and outstanding shares of Apotex Inc.
(Apotex). She further ordered the production of specific documents sought
by the Plaintiffs in six productions requests which Dr. Sherman had refused at
discovery.
[3]
The
Prothonotary ordered Dr. Sherman to produce the BCI documents because she found
BCI was included within the meaning of the expression the “Apotex group of
companies” referred to in paragraph 2 of the Production Order.
Background
[4]
On April
29,1999, the Plaintiffs issued an amended statement of claim against the
defendants seeking a number of declarations and damages in respect of the
infringement of Canadian letters Patent 1,275,349 (the 349 Patent) and, in
particular,:
1.
A
declaration the 349 Patent was infringed by the acquisition and sale of dosage
form enalapril maleate tablets (the tablets) by the defendant Nu-Pharm Inc.;
2.
A
declaration that, by the defendant Nu-Pharm engaging in, and the defendants
Sherman and Benyak using and inducing the defendant Nu-Pharm to engage, in the
acquisition and sale of the tablets with the knowledge the 349 Patent and the
judgments of the Federal Court of Canada holding the Patent to be valid and
infringed and granting a permanent injunction against its further infringement,
the defendants Nu-Pharm, Sherman and Benyak have knowingly and wilfully engaged
in activities in infringement of the 349 Patent; and
3.
A
declaration that as a result of the activities of the defendants Sherman and
Benyak in using and inducing the defendant Nu-Pharm to infringe the 349 Patent
and to breach the permanent injunction of the Federal Court of Canada, the said
defendants are personally liable for the said infringing activities of the
defendant Nu-Pharm.
[5] The Prothonotary issued the Production Order in
June of 2002 as a result of a motion by Merck for the delivery of further and
better affidavits of documents by the defendants, requiring the defendant Dr.
Sherman to disclose documents in the power, possession or control of any
corporations controlled either directly or indirectly by him, and requiring the
defendants to submit to cross-examination on their affidavits of documents
pursuant to Rules 227 and 225 of the Federal Court Rules, 1998 (the
Rules).
[6] Rule 225 of the Rules
reads:
|
Order for disclosure
225.
On motion, the Court may order a party to disclose in an affidavit of
documents all relevant documents that are in the possession, power or control
of
(a)
where the party is an individual, any corporation that is controlled directly
or indirectly by the party; or
(b)
where the party is a corporation,
(i)
any corporation that is controlled directly or indirectly by the party,
(ii)
any corporation or individual that directly or indirectly controls the party,
or
(iii)
any corporation that is controlled directly or indirectly by a person who
also directly or indirectly controls the party.
[Emphasis
mine]
|
Ordonnance
de divulgation
225. La Cour peut, sur requête, ordonner à une partie de
divulguer dans l’affidavit de documents l’existence de tout document
pertinent qui est en la possession, sous l’autorité ou sous la garde de l’une
ou l’autre des personnes suivantes :
a)
si la partie est un particulier, toute personne morale qui est contrôlée
directement ou indirectement par la partie;
b)
si la partie est une personne morale :
(i) toute personne morale qui est contrôlée
directement ou indirectement par la partie,
(ii) toute personne morale ou tout particulier qui
contrôle directement ou indirectement la partie,
(iii) toute personne morale qui est contrôlée
directement ou indirectement par une personne qui contrôle aussi la partie,
directement ou indirectement.
|
[7] Prothonotary Aronovitch issued an endorsement in
conjunction with the Production Order in which she said she essentially
endorsed the representations made by Merck in the context of its motion.
[8] Prothonotary Aronovitch found Merck had demonstrated “the
insufficiency of the affidavits of documents by reference to the pleadings.”
She found Merck also “provided sufficient factual foundation to demonstrate
to my satisfaction, the availability of further relevant documents that have
not been produced.” [Emphasis mine]
[9] She stated “certain deficiencies in the affidavits of documents
are patent, as for example the paucity of documentation internal to Nu-Pharm.”
In her assessment, Nu-Pharm “has taken an unjustifiably minimalist approach.”
She agreed with the Plaintiffs “that the arguments advanced throughout on
behalf of Nu-Pharm take a view of relevance which is unduly and inappropriately
narrow.” In her view, for the purposes of documentary production, relevance is
to be broadly construed by reference to the pleadings as a whole. On this
point, she concluded:
“Thus, as an example, Merck alleges in
the amended statement of claim that Nu-Pharm was set up and used as a vehicle
to obtain an NOC in order to bring an infringing product to the market, with
the involvement and for the benefit of the defendants. In light of these
allegations, I find no merit in the argument that documents relating to the
acquisition or disposal on of any interest in Nu-Pharm that preceded the date
of issuance of the NOC to Nu-Pharm need not be produced.” [Emphasis
mine]
[10] She rejected Nu-Pharm’s argument that production
ought to be left to be dealt with on discovery. She stated it would be
prejudicial to Merck: “to come to discovery, cap in hand, on the basis of
production that is evidently insufficient. This is not a matter of a few
documents but whole classes of documents that are broadly relevant and are
known or may be presumed to exist.” [Emphasis mine]
[11] In her endorsement, Prothonotary Aronovitch also
dealt with Dr. Sherman’s affidavit of documents. She agreed that it was an
appropriate case for the exercise of her discretion pursuant to Rule
225(a) since “as I have concluded that a relationship of direct or indirect
control exists between Sherman and the “Apotex group of companies.”
[Emphasis mine]
[12] She then defined the “Apotex group of companies”
in the following manner in section 2 of the Production Order:
“This includes Apotex Inc. and the chain
of companies described by Sherman as follows: Apotex Inc. and the various chain
of companies that own it, all the way down to a trust of which I am trustee,
which is the beneficial owner of the shares of the holding company that holds
Apotex through this chain of companies. I have effective control personally
over the chain of companies, and I exercise that control.”
“In addition to the pleadings and
corporate documentation that may be presumed to exist, I find that there is
persuasive evidence that documents relevant to the litigation as ordered below
are available for production pursuant to Rule 225(a).” [Emphasis mine]
[13] It was pointed out to me during argument, the
description of the “Apotex group of companies” came from an answer Dr. Sherman
gave when being cross-examined on an affidavit he had affirmed on September 30,
1999.
[14] Dr. Sherman had been asked whether there was any agreement in place
with Apotex Inc. where the voting rights that have accrued to the shareholder
have been transferred to another person. Dr. Sherman answered no. Counsel for
Merck then asked “Is the same answer true with respect to Apotex Pharmaceutical
Holdings Inc.? Dr. Sherman (motion record of Dr. Sherman, tab 4, page 53),
“Yes, I have told you that I control this whole chain of companies. Apotex
Inc., and the various chain of companies that own it, all the way down to a
trust of which I am the trustee, which is the beneficial owner of the shares of
the holding company that holds Apotex through this chain of companies. I have
effective control personally over the chain of companies; and I exercise that
control.”
[15] After describing the “Apotex group of companies” in her endorsement,
Prothonotary Aronovitch denied part of Merck’s request as being overbroad:
“…that said, Merck’s request in respect
“any corporation” controlled directly or indirectly by Sherman is overbroad
and imprecise. I decline to grant it on that basis. I do not say that
production on that account is irrelevant and cannot be requested at discovery.
I merely leave the matter for discovery. While some corporations connected
with Sherman are referenced in Merck’s production, Merck has not
provided a sufficient evidentiary basis for an order that is as general and
comprehensive as requested.” [Emphasis mine]
[16]
In paragraph 2 of the Production Order, Prothonotary Aronovitch ordered as
follows:
“The
defendants deliver further and better affidavits of documents listing all
documents in their power, possession and control, including, in the case of
Sherman, those in the power, possession or control of the “Apotex group of
companies” and produce such documents unexpurgated, in respect of the following
subject to any claim of privilege.”
[17]
Prothonotary Aronovitch then listed nine classes of documents and concluded in
paragraph 3 that “the parties shall not be foreclosed by reason of this motion
and order from bringing further motions regarding the productions of documents
after the close of pleadings and the delivery of further affidavits of documents.”
[18] In
respect of this issue in her Compliance Order issued on April 19, 2006, the
Prothonotary wrote:
“This
Court finds that the phrase the “Apotex group of companies” as contained in the
June 24th Order included Brantford Chemicals Inc. (BCI), a
wholly-owned subsidiary of Apotex Pharmaceutical Holding Inc. (APHI), and
accordingly, Dr. Sherman is required to produce all documents in the power,
possession and control of BCI in accordance with paragraph 2 of the June 24
Order (the BCI Ruling).”
[19] She
provided no reasons in support of her ruling.
[20] On the other hand, however, Merck in its motion record before her
included documentation which Dr. Sherman had produced which purported to show
BCI had some involvement in the introduction of a generic version of enalapril
on the Canadian market.
[21]
During his cross-examination in September of 1999, Dr. Sherman admitted:
1. APHI in 1997 owned all of the shares
of Nu-pharm and that he controlled Nu-Pharm through APHI which he controlled;
2. BCI is a wholly-owned subsidiary of
APHI which he controls.
[22] Dr. Sherman was examined on discovery over a period of eight days
from April 26 to May 5, 2004. He refused to produce the documents Merck seeks
in the Compliance Order taking the position the Production Order had been
complied with.
Analysis
[23] Counsel for Dr. Sherman argues Prothonotary
Aronovitch erred in including BCI as a member of the “Apotex group of
companies” because ownership in Apotex Inc. is a necessary defining characteristic
of that class. She argues BCI does not fit into that class because it is not
the parent of Apotex Inc. It is only a sister company of Apotex Inc. both
being a wholly-owned subsidiary of APHI, the parent.
[24] To come to the conclusion she did, counsel for Dr. Sherman argues
the Prothonotary must have erred in one of three ways:
(a) she made an unsupportable finding of
fact that BCI holds a direct or indirect ownership in Apotex Inc.;
(b) she misinterpreted and misapplied the
production order as not containing the ownership interest requirement in the
definition of the “Apotex group of companies” and/or;
(c) she effectively varied the Production
Order to include BCI when there was no motion to vary under Rules 225,
397 or 399 of the Rules.
[25] Insofar as ordering production in answer to six production requests
which were refused, counsel for Dr. Sherman argues the Prothonotary erred in
compelling answers to those requests because none of them fit within the scope
of any of the nine categories of subject-matters provided for in section 2 of
the Production Order.
1. The
Standard of Review
[26] Both counsel agree the part of the Prothonotary’s April 19, 2006
order which is the subject of this appeal did not involve the exercise of her
discretion and therefore fell outside the well-known test in R.v. Aqua-Gem
Investments Ltd. [1993] 2 F.C. 425.
[27] In the circumstances, counsel for Dr. Sherman argues the normal
appellate standard of review is applicable to appeals from a Prothonotary involving
non-discretionary orders: correctness for questions of law and for findings of
fact those made in a perverse or capricious manner or to be the result of some
palpable and overriding error citing Canada (Minister of National Revenue) v.
Corriveau Estate 2004 (FC) 1 C.T.C 104.
[28] Counsel for Merck approach on this question is more nuanced. He
states the jurisprudence holds a determination that involves the application of
a legal test to a set of facts is a question of law. He argues although the task
of constructing the Production Order is a question of law, the task of
determining whether or not certain documents must be produced pursuant to the
Production Order is a question of mixed fact and law relying on Housen
v. Nikolaisen [2002] 2 S.C.R. 235 and Elder Grain v. Ralph
Misener 2005 FCA 139.
[29] He advances the proposition a question of mixed fact and law is
subject to the standard of a palpable or overriding error unless it is clear
that the Prothonotary made some extricable error in principle with respect to
the characterization of the legal test, in which case, the error may amount to
an error of law, citing Housen, supra and Corriveau Estate, supra.
[30] In the context of this particular case, I do not see there is much
difference between the parties on the standard of review.
[31] Counsel for Merck recognizes where a question of mixed law and fact
exists the standard of correctness may apply where there was “the application
of an incorrect standard, a failure to consider a required element of a legal
test or a similar error in principle.”, (see Housen, supra at paragraph
36).
[32] He argues the Prothonotary applied the correct test the “Apotex
group of companies” to a set of available facts concerning the ownership and
control of BCI to determine whether BCI fell within it.
[33] Counsel for Dr. Sherman, on the other hand, argues the Prothonotary
did not apply the correct test – the ownership test or made a palpable and
overriding error of fact when determining BCI had an ownership interest in
Apotex Inc.
[34] I am satisfied the main issue in this appeal is whether the
Prothonotary applied the proper legal test – a question of law – to be gauged
on the correctness standard and any factual finding is assessed on the palpable
and overriding standard.
2.
Discussion and Conclusions
[35] The Prothonotary issued her Compliance Order while case managing
this action. Recently, Justice Evans confirmed the approach to be taken on
appeal of decisions of a case management judge in Sawridge Band v.
Canada 2006 FCA 228 at paragraphs 21, 22 and 23:
¶ 21
First, this Court is very reluctant to interfere with decisions made by a judge
in the course of managing a matter prior to trial, particularly one as complex,
lengthy and difficult as this one. As a result of living with the matter over
time, the case management judge will have acquired an overall understanding of
it which an appellate court, on the basis of hearing an appeal on a particular
issue, cannot possibly match in either depth or breadth.
¶ 22
When performing essentially case management functions judges are appropriately
given "elbow room" by appellate courts, so that they can get on with
what is often a difficult job, calling for a mix of patience, flexibility,
firmness, ingenuity, and an overall sense of fairness to all parties. These
qualities are very evident in the way in which both Hugessen and Russell JJ.
have performed their tasks in the present matter.
¶ 23
In my opinion, the Court should bear the above considerations in mind when both
determining and applying the standards of review appropriate to the different
aspects of Russell J.'s decision by virtue of Housen v. Nikolaisen, [2002] 2
S.C.R. 235, 2002 SCC 33.
[36] I would apply this approach to case management decisions of
Prothonotaries and, in this respect, follow Justice Gibson’s decision in Microfibres
Inc. v. Annabel Canada Inc. et. al. (2001) 16 C.P.R. (4th)
12.
(a)BCI as part of the “Apotex group of companies”
[37] Counsel for Dr. Sherman stated the Prothonotary’s Production Order
should be strictly construed and its words “Apotex group of companies” should
be given a plain and ordinary meaning citing: Re Afton Food Group
Ltd. [2006] O.J. No. 1950 S.C.J. and New Era Cap Co. v. Capish?
Hip-Hop Inc., [2006] FCA 66.
[38] Counsel for Merck argues for a contextual and purposive
interpretation to the Production Order relying upon the Alberta Court of
Appeal’s decision in: Re Smoky River Coal Limited [2001] ABCA 209.
[39] I favour the contextual and purposive approach to the interpretation
of the Prothonotary’s Production Order.
[40] The Prothonotary has been case managing this action for over six
years now. It is a complex case and the Production Order’s purpose was to
remedy what she perceived to be a problem of disclosure of documents by the
defendants, documents which were relevant to the action and were presumed to
exist. Moreover, and of considerable importance, is the fact the Prothonotary
relied upon Rule 225 to order Dr. Sherman’s production because of his
control over the “Apotex group of companies”.
[41] The issue on this branch of the appeal is what test governs the
interpretation of the Production Order – the ownership test as suggested by
counsel for Dr. Sherman or the control test as advocated by counsel for Merck
to define those companies within the “Apotex group of companies” which were not
specified but which she appreciated were circumscribed by an answer Dr. Sherman
gave on cross-examination.
[42] I have no hesitation in concluding the Prothonotary applied the
correct test in coming to the conclusion, when issuing her Compliance Order,
BCI was included in the “Apotex group of companies” which were defined as those
companies which Dr. Sherman controlled in the chain of companies that owned
Apotex Inc., including its direct parent, APHI.
[43] The Production Order was issued pursuant to Rule 225 which is
framed in terms of control. The purpose of the Production Order was to clear
the log-jam with respect to the production of documents by the defendants in
the action. The Prothonotary found as a fact Dr. Sherman controlled the
“Apotex group of companies”. As noted, undoubtedly, APHI is part of that group
and, on the facts of this case, it would include its wholly-owned subsidiary,
BCI which Dr. Sherman also controls just as he admitted at the relevant time he
controlled Nu-Pharm Inc., a sister company to BCI. As noted, the fact BCI was
a wholly-owned subsidiary to APHI was admitted to by Dr. Sherman during his
cross-examination on his September, 1999 affidavit.
[44] Moreover, in my view BCI was specifically contemplated in the
Prothonotary’s Production Order where she ordered in paragraph 2 that “the
defendants deliver further and better affidavits of documents listing all the
documents in their power, possession or control, including, in the case of
Sherman, those in the power, possession or control of the “Apotex group of
companies”. Clearly, on the facts of this case, BCI was under the control of
APHI.
(b)The Classification Issue
[45] In her
Compliance Order of April 19, 2006, the Prothonotary ordered Dr. Sherman to
produce documents in the possession, power or control of BCI in respect to
productions requests by Merck.
[46] Counsel for Dr. Sherman has taken objection to six items which she
said could be conveniently dealt with in two groups, group A which concerns
items 116, 151, 176 and 199 and group B which concerns items 146 and 152. She
argues the Prothonotary’s rules were overbroad and not within the contemplation
of the nine categories identified in the Production Order.
[47] Group A items all concern BCI and related to its certificates of
analysis concerning enalapril granulation or compounds, its test results
related to enalapril, its raw material receiving logs in respect of any
enalapril products and the transference of an enalapril tablet active
ingredient to BCI.
[48] Group B items again relate to BCI and concern accounting records and
cash payments to identified companies.
[49] The rulings of the Prothonotary fall within the heartland of her
case management jurisdiction and will only be interfered with in the clearest
of cases.
[50] Having regard to the evidence which was before the Prothonotary on
the Compliance motion and further regard to the Production Order of 2002 and
the fact the Prothonotary was intimately familiar with the history and details
of the action, in my view, Dr. Sherman has failed to meet the heavy burden he
had in seeking to overturn the Prothonotary’s rulings.
[51] Moreover, as counsel for Merck pointed out category (iv) of
paragraph 2 of the Production Order is broad in scope and could be called into
play to also support her rulings not to mention the additional fact the
introductory language to paragraph 2 is quite wide.
[52] In my view, Dr. Sherman’s appeal must fail.
POSTSCRIPT
[1] These Reasons
for Order are un-redacted from confidential Reasons for Order which were issued
on July 6, 2006 pursuant to a Protective Order dated October 4, 1999.
[2] The Court
canvassed counsel for the parties whether they had concerns if the reasons were
issued to the public without redactions.
[3] Counsel for Dr.
Sherman requested that I redact a number of paragraphs from the confidential
version principally on the basis that these paragraphs have as their source a
cross-examination of Dr. Sherman which occurred several years ago but whose
transcript is marked confidential.
[4] I decline to
give effect to counsel for Dr. Sherman’s request for the following reasons.
[5] First, this
action has been the subject of many procedural decisions by members of this
Court. None of the reasons have been redacted. Second, counsel for Dr.
Sherman has not persuaded me the test set out by the Supreme Court of Canada in
Sierra Club of Canada v. Canada (Minister of Finance) [2002] 2
S.C.R. 522, has been met.
[6] I do not see in
this case how any harm to Dr. Sherman, which I consider minimal, trumps the
principle of openness in judicial proceedings.
ORDER
THIS COURT ORDERS that the appeal from the
Prothonotary’s Compliance Order of April 19, 2006, is dismissed with costs.
“François
Lemieux”
Email this Content