Date: 20100218
Citation: 2010FC182
Ottawa, Ontario,
Thursday, this 18th day of February 2010
PRESENT: MADAM PROTHONOTARY MIREILLE TABIB
Docket:
T-644-09
BETWEEN:
APOTEX INC.
Plaintiff
- and -
SANOFI-AVENTIS
Defendant
Docket:
T-933-09
BETWEEN:
SANOFI-AVENTIS and
BRISTOL-MYERS SQUIBB SANOFI
PHARMACEUTICALS HOLDINGS PARTNERSHIP
Plaintiffs
- and -
APOTEX INC.
APOTEX PHARMACHEM INC. and
SIGNA SA de CV
Defendants
REASONS FOR ORDER AND ORDER
[1]
Apotex Inc. started action T-644-09 in May 2009, seeking a declaration
that the product it intends to manufacture and sell in Canada, made with
clopidogrel bisulfate and/or clopidogrel besylate, will not infringe
Sanofi-Aventis’ Canadian Patent ‘777, and seeking a declaration that the said
patent is invalid. One month later, Sanofi-Aventis and Bristol-Myers Squibb
Sanofi Pharmaceutical Holdings Partnership (jointly “Sanofi”) sued Apotex Inc.
and Apotex Pharmachem Inc. (jointly “Apotex”) alleging that Apotex is already
manufacturing and exporting for sale in various countries a clopidogrel
bisulfate product, infringing the ’777 patent. Both parties requested that
early trial dates be set. The actions were consolidated and trial dates have
been set aside for the trial to begin in April 2011.
The motion:
[2]
By this motion, Apotex seeks to “consolidate” its statement of claim in
T-644-09 and its defence to the T-933-09 action into a single defence and
counterclaim to the T-933-09 action, as well as to:
(a)
Make several cosmetic and definitional changes
intended to clarify the pleadings, without affecting their substance.
(b)
Add certain factual admissions about the
activities of Apotex relating to the manufacture and sale of clopidogrel-containing
products.
(c)
Include additional pieces of prior art in the
schedule to its pleading.
(d)
Specifically plead the experimental use and
related exceptions to infringement provided for in the Patent Act and at
law.
(e)
Include its claim for a declaration of non-infringement
with respect to three salt forms of clopidogrel in its counterclaim to the
T-933-09 action, including with respect to a new salt form, the hydrobromide
salt.
(f)
Add a defence of limitation based on the
application of the Ontario Limitation Act 2002, S.O. 2002 c.24.
(g)
Add a defence of set-off based on the “break
fee” contained in the “March 2006 Agreement”.
(h)
Add a defence of set-off based on the tort of
deceit.
(i)
Add a defence of set-off based on abuse of
process.
(j)
Add details about the circumstances giving rise
to the “2006 Agreements” already pleaded and the legal effects of certain
provisions as they related to the action.
(k)
Add details as to a defence of disentitlement to
monetary remedies.
[3]
Sanofi objects in principle to Apotex “consolidating” into a counterclaim
to the T-933-09 action the action for impeachment and declaration of
non-infringement originally brought by Apotex Inc. in the T-644-09 action. As
to the modifications and additions themselves, Sanofi:
·
Takes no issue with those set out in paragraphs
(a), (b) and (c) above.
·
Agrees to the addition of details for the
experimental use and other exemptions ((d)), provided that Apotex be ordered to
provide particulars as to the quantities and specific exemptions to be applied.
·
Objects to the addition of a declaration of
non-infringement in respect of salts other than the besylate as a counterclaim ((e)),
as being based on a mere intention and therefore premature and having no
practical effect.
·
Objects to the addition of a limitation defence
((f)) as not disclosing a reasonable defence and failing to plead all relevant
facts necessary to its application.
·
Objects to the addition of the claims for
set-off ((g), (h) and (i)) on the basis that they are outside the Court’s
jurisdiction, are not properly pleaded, disclose no reasonable defence or cause
of action and are scandalous, frivolous and vexatious.
·
Objects to the addition of circumstances giving
rise to the 2006 Agreements ((j)) as seeking to contravene the parole evidence
rule and as being an attempt to improperly broaden discoveries, to the
prejudice and inconvenience of Sanofi.
·
Objects to item (k) insofar as it relates to the
new allegations relating to set-off (for the same reasons as given above) and
insofar as they purport to apply to Sanofi’s claim for damages pursuant to the Patent
Act.
Preliminary observations:
[4]
Not a
single one of Apotex’s proposed new allegations could not have been made at the
time Apotex filed its original pleadings. I repeat here the comments made in
the Reasons for Order issued in this consolidated action on January 22, 2010 (Apotex
Inc. v. Sanofi-Aventis, 2010 FC 77):
“[7] The Court’s early trial
initiative was a response to the frustration expressed by a significant number
of litigants and members of the bar, very notably in the specialized field of
intellectual property, that matters were taking too long to get to trial. As
the Court began experimenting with this initiative on a case-by-case basis a
few years ago, it quickly became obvious that it is not realistic, practical or
reasonable to merely shorten the time between the filing of a statement of
claim and the start of the trial if the parties and their counsel do not also
adapt their litigation practice and strategies to the shorter time frames. Litigation
that dragged on for five years or more typically featured three or more
“rounds” of discoveries as well as numerous amendments to pleadings, often
resulting in more discoveries and affidavits of documents. Attempting to
shoe-horn into two years the never-ending discovery and amendments process that
used to take five to ten years is simply unsustainable for most litigants and
most lawyers, not to mention the limited resources of the Court.
[9] I make these lengthy
observations because they inform and highlight the consequences of both
parties’ expressed intention to avail themselves of the Court’s streamlining
and early trial initiative. In pressing for and committing to a trial in
the spring of 2011, intended to last five weeks, the parties and their counsel
have committed to a schedule that does not allow infinite time for discoveries
and to a trial of fixed duration. The parties themselves are extremely
sophisticated litigants, with extensive experience before this Court. Their
respective counsel are knowledgeable and experienced trial lawyers. One
expects and must demand from such parties that with a trial expected to begin
in less than 15 months, with pleadings now closed and with the known history of
litigation in this and other jurisdictions over the drug at issue, they have a
clearly developed and articulated theory of their respective case, of what is
required to prove it at trial, and how they intend to do so. There is no time
in this schedule – and indeed, precious little trial time – for embarking on
fishing expeditions, for cobbling up a strategy as one goes or for being unable
to articulate a coherent theory of the case until all discoveries are completed
or until the eve of trial.
[10] In ruling on these motions, I
have assumed from the parties that level of professionalism, and I intend, in
managing this case to trial, to consistently expect this higher standard. The
parties themselves should be able to expect and rely upon the same standard
from their opponent. How that assumption will impact the case management of
this matter will become apparent as I deal with the various aspects of these
motions.”
(Emphasis added)
[5]
Either
Apotex is only belatedly taking these comments to heart, and the proposed
amendments reflects a now clearly developed and articulated theory of
the case, or this new pleading represents the very illustration of the fishing
expeditions, cobbled strategy and inability to articulate a coherent theory of
the case which the Court then censured.
Prejudice:
[6]
Apotex has
taken the view that its amendments are sought at an “early stage”, and cannot
prejudice Sanofi or the conduct of these proceedings. Apotex takes this view,
it appears, because discoveries have not yet been completed (Apotex has had
discovery of the inventors and of Sanofi on scientific issues, but some three
days of discoveries are contemplated with a representative of Sanofi on
non-scientific issues and the discovery of Apotex by Sanofi has not yet
commenced). Apotex also asserts that the amendments, if allowed, would not
require more than the three days already contemplated to complete discovery of
Sanofi and would not require any additional trial time over and above the five
weeks already set aside.
[7]
I must
disagree with Apotex on its characterization. As a streamlined proceeding, a
schedule was set whereby the “first round” of discoveries of all parties was
meant to have been completed by February 1, 2010. Two motions for further and
better affidavits of documents have already been heard and determined. As a result
of the outcome of one of these motions, the discovery of Apotex by Sanofi would
have been slightly delayed, but completion of Sanofi’s discovery by Apotex
should not have been affected. The very filing of Apotex’s motion to amend, on
January 25, 2010, has caused the discoveries
to be further delayed. If the amendments are permitted, discoveries will be
delayed even more by the need for Sanofi to prepare and file amended pleadings
in response and the need for the parties to serve supplementary affidavits of
documents relating to the amendments. Notably, some of the amendments now
proposed would require the documents sought by Apotex on its motion for a
further and better affidavit of documents, found irrelevant on the basis of
Apotex’s then pleadings, to be considered anew for relevance. Even in the best-case
scenario, the earliest the “first round” of discoveries could be concluded
would be the end of March 2010, a delay of two months from the initial
schedule, with barely twelve months left before the trial, and with motions
arising out of discoveries, re-attendances, further motions thereon and expert
reports still to be done.
[8]
If this
litigation is still in its “early stages”, it should not be. The extensive
amendments now sought to be made would cause the litigation to remain at this
“early stage” well passed the time where discoveries should be winding down.
[9]
The delay,
in turn, will inevitably compress the schedule for the remaining months before
trial. It will leave even less margin for unforeseen events. It will put more
pressure on the parties, including Sanofi, to complete discoveries and prepare
for trial in a shorter time frame, and on the Court to schedule and determine
interlocutory motions.
[10]
As to the
time required for trial, unless it is suggested that both parties knowingly
inflated the time they estimated necessary for trial when it was originally
set, it is plain that the extensive new facts alleged by Apotex will require more
evidence at trial than originally contemplated, and should therefore require
some additional trial time over and above the time already contemplated.
Apotex’s assertion that no more than the already scheduled time will be
required implies that Apotex is prepared to make compromises in its use of its
portion of the allotted trial time, either to cram in imperfectly all of its
evidence or to scrimp on that evidence it had initially intended to bring when
the issues were narrower. It is certainly at liberty to do so, but adding all
these issues without extending the trial time – or at least Sanofi’s portion of
the trial time – would force Sanofi to make similar compromises as to its use
of its own allotted trial time. Apotex therefore cannot claim that Sanofi will
not be prejudiced by the addition of all of these new facts if the trial time
is to remain the same. Nor is it an answer for the trial simply to be
adjourned or for additional weeks to be scheduled. These trial dates were set
aside over six months ago; other trials have since been fixed before and after
them. The trial cannot be extended without re-scheduling previously scheduled
hearings or causing serious inconvenience to the administration of this Court.
As to adjourning the dates, both parties had specifically requested early
hearing dates and accepted the resulting obligation upon them to do what was
required to meet theses dates and keep to them. The Court accommodated their
request. If, by their conduct, the parties make it impossible to keep the
dates set aside, they cannot expect the Court to simply accommodate them again,
by again reserving in advance of a formal pre-trial conference dates that could
be used for trials that are actually ready to proceed. To the extent Sanofi shared
Apotex’s desire for early trial dates, an adjournment would therefore also
cause prejudice to Sanofi as it would delay trial by as much as one year.
[11]
Despite
the lack of any direct evidence on record by Sanofi as to how it might be
prejudiced by the amendments, I am satisfied, on the basis of the observations
made above, that if all of the amendments proposed by Apotex are allowed,
Sanofi is more likely than not to be prejudiced, either as a result of a compressed
schedule and of having to fit more evidence into the same allotted trial time,
or as a result of a delayed trial.
[12]
That is
not to say that the amendments should be denied for that reason. There are
several groups of amendments, some of which are discrete and involve few facts,
some of which are interrelated and call upon a substantial body of facts. The
likelihood of prejudice depends on the number and nature of the amendments that
are, otherwise, permissible (i.e. that should not otherwise be refused as
disclosing no reasonable defence or being frivolous or vexatious).
[13]
Furthermore,
even if all or most of the amendments were found to be proper, the prejudice
identified above could be avoided or mitigated by imposing other conditions,
such as restricting discoveries by Apotex or re-bifurcating the issues so that
the subject matter of the new amendments be reserved to be dealt with at the
“damages” stage, after the issues going very specifically to infringement and
invalidity have been resolved.
[14]
It is
therefore appropriate to consider, in turn, each proposed group of amendments
to determine whether, apart from the potential prejudice to Sanofi, they are
otherwise appropriate.
Experimental use and other exemptions:
[15]
The
proposed paragraphs to be added by Apotex read as follows:
“83. Further, the Apotex Defendants
plead and rely upon the common law “experimental use” exception to
infringement. The Apotex Defendants also plead and rely upon subsections
55.2(1) and (6) of the Patent Act, as they read at all material times,
dealing with the manufacture, construction, use or sale (collectively, for the
purposes of paragraphs 83 to 84, “use”) of a patented invention relating to the
development of regulatory submissions, private use and experimental use.
84. In this respect, the Apotex
Defendants state that one or more of the foregoing exceptions would exempt from
infringement the following uses of clopidogrel:
(a)
use of
clopidogrel for research and development purposes;
(b)
use of
clopidogrel for internal and external quality control purposes; and
(c)
use of
clopidogrel in compliance with regulatory requirements specified in the Food
and Drug Regulations (Canada), provincial regulatory requirements (section
6 of Regulation 935, Drug Interchangeability and Dispensing Fee Act (Ontario)
and foreign regulatory requirements.”
[16]
It As
mentioned, Sanofi does not object to an amendment that would specifically plead
these exemptions, and indeed, the parties’ representations in earlier motions seemed
to assume that these exemptions would be relied upon. Sanofi however argues
that the proposed pleading “is deficient in that insufficient particulars,
including the quantities and specific exemptions to be applied, have not been
provided”. I agree. The pleading as proposed is no more than a bare recital
of “one or more” of the common law or statutory exceptions that “would” exempt
certain uses of clopidogrel from infringement. It does not allege that the
exemptions in fact apply, in that it does not allege that Apotex in fact used
any clopidogrel for any exempted use. It does not provide any material fact as
to any particular research and development purpose, any particular internal or
external quality control or identify for which foreign regulatory requirement(s)
clopidogrel was used. It does not state the quantities for which each
exemption is sought.
[17]
This is
not a matter for discovery, especially not in a streamlined proceeding.
Pleadings are meant to define the facts a party intends to prove at trial.
They also frame and define the scope of discovery. As proposed, the pleading
leaves entirely unclear whether the exemptions are sought in respect of one
kilogram or one ton of clopidogrel, of one percent or of ninety percent of
Apotex’s production and whether there are any material facts that would support
Apotex’s contention that any of those quantities were actually used for any of
the purposes alluded to. It leaves open for potential questioning on discovery
the use of every gram of clopidogrel produced by Apotex. It negates any
possibility that Sanofi could, upon considering the quantities and purposes
defined and finding them reasonable, narrow the pleadings and the scope of
discovery by admitting all or parts of the exemptions sought. The amendments
are therefore permitted, but on condition that Apotex provide particulars of
the quantities claimed for each exemption, and of the material facts in support
of each exemption.
Declaration of non-infringement with
respect to other salts:
[18]
A
declaration of non-infringement in respect of the besylate salt was already sought
on the basis of the same allegations of “intent” in Apotex’s T-644-09 action.
Sanofi did not move then to strike the pleading, and it is not appropriate for
it to seize the opportunity presented by Apotex’s desire to transport the same
allegations from its statement of claim in T-644-09 action to its counterclaim
in T-933-09 to mount a belated challenge to the sufficiency of these
allegations. Similarly, Sanofi’s motion for a further and better affidavit of
documents was heard on the understanding that the parties had agreed between
themselves that Apotex would and could amend its pleadings in T-644-09 to add a
declaration of non-infringement in respect of the hydrobromide salt, in all
appearances on the same allegations of intent as were made for the besylate.
Sanofi’s belated objection is untimely and improper.
[19]
Although
it was not raised by Sanofi on this motion, I note that in moving the claim for
a declaration of non-infringement from the T-644-09 action (where only Apotex
Inc. was the plaintiff), to a counterclaim in the T-933-09 action (where Apotex
Inc. and Apotex Pharmachem Inc. are defendants), Apotex has included Apotex
Pharmachem Inc. in the scope of its declaration of non-infringement:
“121. The Apotex Defendants (plaintiffs
by counterclaim) seek:
(b)
An order
that their clopidogrel (…) will not infringe (…)”.
(Emphasis mine)
[20]
Yet the factual
allegations supporting this request, imported from the T-644-09 action, are in
respect of Apotex Inc.’s product and intended manufacture only. There is no
allegation whatsoever relating to Apotex Pharmachem’s proposed manufacture or
sale. A declaration that Apotex Pharmachem’s product will not infringe is
therefore plainly and obviously unsustainable, as there are no material facts
pleaded with respect to Apotex Pharmachem. The amendment at paragraph 121(b)
would therefore have to be modified to be restricted to Apotex Inc.
The defence of limitation:
[21]
Although
section 55.01 of the Patent Act provides for a six year limitation
period, it is common ground between the parties that the transitional
provisions relating to this section could arguably be read as excluding from
its application actions for infringement of patents issued under the “Old Act”.
Sanofi of course argues that properly interpreted, the transitional provisions
provide for the application of section 55.01 in this case, but it properly
conceded at the hearing that Apotex’s position to the contrary is at least
arguable.
[22]
Apotex
wishes to plead that if section 55.01 does not apply, then the two year
limitation provided by the Ontario Limitations Act applies, as “the
cause of action” arose entirely in the province of Ontario. To this effect, it seeks to
add the following allegations of fact:
“59. Any manufacture, sale or use of
clopidogrel or any clopidogrel-containing product by Apotex Inc. or Apotex Pharmachem
took place in and only in Ontario. Any manufacture, sale or
use of clopidogrel or any clopidogrel-containing product by Apotex Inc. or Apotex
Pharmachem outside of Ontario, which is denied, does not constitute
infringement of the ‘777 patent.
60. Specifically with respect to
the U.S., the Apotex Defendants state that, at all times prior to June 9, 2007,
the Plaintiffs knew that the U.S. Apo-clopidogrel Product:
(a)
Did not
involve Apotex Pharmachem in any manner; and
(b)
Was
manufactured, sold and used (if at all) by Apotex Inc. solely in Ontario, Canada.”
[23]
Sanofi
argues that for a provincial limitation period to apply, all constituent
elements of a cause of action must have occurred in the province, including the
damage suffered and the act that caused the damage (Canada v. Maritime Group
(Canada) Inc., [1995] 3 F.C. 124). It argues that the proposed pleading is
deficient and insufficient because it fails to address where exportation (an
act of infringement specifically pleaded) occurred, and fails to address where
the damage was suffered.
[24]
As to
where damage occurred, Sanofi asserts, but does not point to any authority to
support its assertion, that damage is necessary located at the place where the plaintiff
resides. Assuming – but without deciding – that this proposition is plain and
obvious at law, what is not plain and obvious is that the “cause of action” in
a patent infringement action requires, as a necessary or essential component,
that damage be suffered. Canada v. Maritime Group involved a tort, and
it was specifically found that damage (in that case, the loss of a ship on the
high seas) was indeed an essential element of the tort without which the cause
of action would not arise. It is not plain and obvious to me that a monetary
loss is an essential element or requirement for a cause of action for patent
infringement to arise. Indeed, an injunction is one of the remedies available
in a patent infringement action, regardless of whether or not a loss was
suffered. It is true that Sanofi here also claims damages, but I cannot agree
that the mere fact that damages are an available remedy must, plainly and
obviously, mean that for the purpose of section 39(1) of the Federal Courts
Act, those damages can be characterized as a constituent element of the
cause of action, such that the place where they were suffered determines the
applicable limitation.
[25]
The
pleading is therefore not plainly and obviously deficient at law for failing to
allege that the damage was suffered in Ontario.
[26]
I now turn
to the pleading’s failure to address the place where the export, as an alleged
act of infringement, occurred. The proposed pleading contains a clear statement
to the effect that any sales of clopidogrel by Apotex occurred in Ontario and in
Ontario only. As such, Apotex’s
position on the pleadings negates and denies any export by Apotex, and its
defence of limitation would accordingly be complete without reference to the
place where export, which is essentially denied, occurred.
[27]
The proposed
pleadings contain new admissions to the effect that Apotex Pharmachem has
manufactured the bulk product in Ontario and sold and delivered same to Apotex
Inc. in Ontario (paragraph 6), that Apotex Inc. has made a clopidogrel bulk
product into tablets in Ontario, that neither Apotex Inc. nor Apotex Pharmachem
have marketed or sold clopidogrel in the U.S. (paragraph 7) and that, rather,
sales in the U.S. were made by Apotex Corp. (not a party to this action) using
Apotex Inc.’s product (paragraphs 7, 15 and 19). It becomes inescapable on the
pleadings as proposed, that as Apotex Inc. admits that any sale it has
made was made in Ontario, any sales by Apotex Inc. of
product eventually sold in the U.S. were made in Ontario, either directly to
Apotex Corp. or to an intermediary, and that any export was therefore made by Apotex
Corp. or this intermediary.
[28]
The
proposed pleading at paragraph 59 is not limited to product eventually sold in
the U.S., but is general and
absolute. It also covers sales of product eventually sold in other jurisdictions.
I am mindful that there is a potential ambiguity with the allegations found in
paragraph 16, relating to other jurisdictions. It is said in that paragraph
that “the Apotex defendants deny that the plaintiffs have been harmed by the
sale in Hong Kong, New
Zealand, Iran, Libya, Malaysia and Singapore of clopidogrel bisulfate made in Canada. Any export by Apotex
Inc. to the aforementioned countries did not result in a sale in Canada”. Read alone, these
sentences could be thought to imply a recognition that Apotex Inc. might have
exported the product to those other countries, and perhaps there sold it, but with
the contention that such sales were not made in Canada. However, the clear,
unambiguous and most recent amendments that “any(…) sale(…) by Apotex Inc.(…)
took place in and only in Ontario”, and that “any(…) sale(…) by Apotex outside Ontario, which is denied(…)”
take precedence over and resolve such potential ambiguity. Paragraph 16 must
therefore be read as a mere pleading that if Apotex were to be found to
have exported the product, the resulting sales in foreign countries
(necessarily by a third party since Apotex denies any sale outside Ontario) cannot equate to sales in Canada. This is quite consistent
since, according to paragraph 59, Apotex’s sale of the product, and its loss of
ownership of the product, would have taken place in Ontario, prior to export.
[29]
I am
therefore satisfied that, even as regards the alleged export of clopidogrel for
sale in countries other than the U.S., Apotex’s failure to plead the location
of the alleged export is not a fatal flaw to its plea of limitation.
[30]
I note in
passing that the new pleadings and the admission that all sales of clopidogrel
by Apotex were made in Canada have the potential to substantially narrow the
issues in dispute and the scope of discoveries, at least to the extent Sanofi
were to accept the admissions of Apotex that all its sales took place in Ontario. Indeed, I understand that
much documentary discovery has been concerned with pinpointing the place where
sales were made, inasmuch as Apotex’s previous pleadings appeared to deny any
sale by Apotex in Canada.
Set off: Jurisdiction and general
principles:
[31]
Apotex’s
proposed amendments seek to introduce three new defences of set-off: One based
on an alleged debt for a “break fee” arising out of the March 2006 Settlement
Agreement, one based on the tort of deceit, and one based on the tort of abuse
of process.
[32]
Counsel
for Apotex at the hearing conceded that the tort of deceit and the claim for
the “break fee”, would not, if brought as independent actions or as
counterclaims, fall within the jurisdiction of this Court. However, Apotex
argued that these two claims, because they are pleaded here as a defence of
set-off rather than as independent counterclaims, can validly be heard and
adjudicated by the Court regardless of the Court’s lack of jurisdiction over
their subject matter.
[33]
I agree
that cross-claims arising out of matters over which the Court would not have
jurisdiction could perhaps arguably be raised as a defence of set-off in this
Court, but if, and only if, they meet the jurisprudential criteria to qualify
as a defence of equitable set-off.
[34]
General
speaking, set-off is the process whereby two mutual claims for money are
set-off against each other to produce a balance before any party is called upon
to execute its obligation. The essence of a set-off is the existence of
cross-demands, that is, the existence – or assertion of – a mutual claim for
money.
[35]
Canadian
law recognizes two general types of set-off: Legal or statutory set-off, and
equitable set-off. Whereas it seems that equitable set-off may be a
substantive defence, it is plain that legal, or statutory set-off is a
procedural defence and not a substantive defence to an action.
[36]
The
history of the development of the law of set-off, and particularly, of legal
set-off, as set out in the leading Supreme Court decision of Holt v. Telford
[1987] 2, S.C.R. 193, and as discussed in Kelly R. Palmer, The Law of
Set-Off in Canada, (Aurora: Canada Law Books Inc., 1993 at pages 5 to 9),
shows clearly that it was created and continued to evolve as a procedural means
to allow the resolution in a single hearing and a single judgment of separate
monetary claims mutually asserted between parties so as to prevent multiplicity
of litigation, much like the procedural right to assert a cross-claim by way of
counterclaim. Its procedural nature is confirmed by the fact that while it was
originally promulgated by specific statute in England, it is now generally found, both in
Canada and in England, in the applicable judicature
acts or rules of Court, as it is indeed found in our Federal Courts Rules
at Rule 186. As telling is the fact that statutes establishing the right to
assert a monetary cross-claim as a “defence” of set-off generally allow the
choice of asserting this claim as a defence or as a counterclaim, the main
practical difference being that whereas a counterclaim will result in a
separate judgment, with its own award of costs, a cross-claim asserted as a
defence of set-off will result in a single judgment and cost award.
[37]
That a
procedural means is developed for a particular right to be determined does not
elevate that procedural means into a substantive right or defence. The right to
assert a monetary claim as set-off does not detract from the fact that the debt
so asserted remains to be heard and adjudicated by the Court, and that this
debt, if found to be valid, is effectively enforced by reducing the amount of
the judgment that would otherwise be pronounced in favour of the plaintiff.
The provision of a procedural means to assert a right does not vest the Court
with jurisdiction it would not otherwise have to hear, determine and enforce
the substantive matter brought before it through that procedural means. To
allow any monetary cross-claim to be asserted and determined in defence to an
action before this Court when it could not be asserted and determined as a counterclaim,
merely because the procedural vehicle is contemplated in Rule 186 of the Federal
Courts Rules, would allow the Court to do indirectly what it cannot do directly
and to accept that the Court can give itself jurisdiction not otherwise given
to it by statute, through a simple rule of procedure.
[38]
As
mentioned above, it is at least arguable that a defence of set-off that meets
the criteria for equitable set-off could be considered a substantive defence to
a claim, and thus be amenable to be considered and determined by the Court even
though it would not independently fall within its jurisdiction.
[39]
The
criteria for equitable set-off, as found in Coba Industries Limited v.
Millie’s Holdings (Canada) Limited and Tsang [1985] 6 W.W.R. 14 at page 22,
and approved by the Supreme Court of Canada in Holt v. Telford, at page
213, are the following:
“1. The party relying on a set-off must show some equitable ground
for being protected against his adversary's demands: Rawson et al v. Samuel
(1841), Cr. & Ph. 161, 41 E.R. 451.
2. The equitable ground must go to the very root of the plaintiff's
claim before a set-off will be allowed: British Anzani.
3. A cross-claim must be so clearly connected with the demand of
the plaintiff that it would be manifestly unjust to allow the plaintiff to
enforce payment without taking into consideration the cross-claim: Federal
Commerce & Navigation Ltd.
4. The plaintiff's claim and the cross-claim need not arise out of the
same contract: Bankes v. Jarvis, [1903] 1 K.B. 549; British Anzani.
5. Unliquidated claims are on the same footing as liquidated claims: the Newfoundland case.”
(Emphasis mine)
[40]
It appears
that the requirement that the equitable ground go to the very root of the
Plaintiff’s claim is what raises equitable set-off to the level of a
substantive defence, allowing it to be asserted even where the cross-claim is
not otherwise enforceable by reason of limitations (unlike statutory set-off,
which is affected by expiration of a limitation period, see Canada Trustco.
Mortgage Co. v. Pierce Estate; Pierce v. Canada Trustco. Mortage Co. (2005) 254 D.L.R. (4th)
79, 197 O.A.C. 369) and allowing it to be used even against an assignee,
avoiding the requirement of mutuality which is a condition of statutory
set-off, as was the case in Holt v. Telford. The possibility of
equitable set-off having the status of a true substantive defence, tentatively
discussed in Canada in The Law of Set-Off in Canada at pages 9 to 12,
now appears to have been generally accepted (see most recently Eli Lilly and
Co. v. Apotex Inc. 2009 FC 991 at paragraphs 636 to 639. For further
discussion, see R. Derham, The Law of Set-Off (Oxford: Oxford University Press, 2003 at pages
93 to 105). While it remains to be specifically determined whether the status
of equitable set-off as a substantive defence would overcome the Court’s lack
of jurisdiction over the subject matter of the cross-claim, I am satisfied that
the issue is at least arguable, considering the discussions in Innovation
and Development Partners/IDP Inc. v. Canada, [1992] F.C.J. No. 203, Castlemore
Marketing Inc. v. Intercontinental Trade and Finance Corp., [1996] F.C.J.
No. 302 and Bristol-Myers Squibb Co. v. Apotex Inc., 2008 FC 1196,
amongst others.
[41]
Accordingly,
I am satisfied that to the extent any of Apotex’s claims for set-off could
arguably constitute equitable set-off, it is not plain and obvious that this
Court would not have jurisdiction to consider same as a defence to Sanofi’s
action for infringement. However, if it is plain and obvious that a claim of
set-off does not meet the requirement of equitable set-off and is not otherwise
within the Court’s jurisdiction, then the Court would lack jurisdiction to hear
and determine same and the claim will be struck.
[42]
I now turn
to consider each individual claim of set-off proposed to be pleaded by Apotex.
The “break fee” arising out of the March
2006 Agreement:
[43]
Apotex
alleges that Sanofi and it entered into a series of related agreements (the
“2006 Agreements”) to settle litigation between them in the U.S. involving clopidogrel, the drug at issue
in this action. The 2006 Agreements were pleaded in Apotex’s original
statement of defence, but for the proposition that the May 2006 Agreement
barred Sanofi from claiming against Apotex in this Court in relation to U.S.
sales of clopidogrel, and for the proposition that Sanofi’s action for “alleged
harms governed by this contractual relationship” was an abuse of process,
Sanofi having successfully objected to the Ontario Court’s jurisdiction when
Apotex earlier attempted to enforce the “break fee” arising out of the March
2006 Agreement.
[44]
It is this
very “break fee” which Apotex now wishes to set-off against Sanofi’s claim for
damages for infringement.
[45]
While the “break
fee” is part of the 2006 Agreements by which Apotex submits Sanofi agreed to
limit any claim “related to” infringing U.S. sales, it is clear that the
alleged “break fee”, claimed to be due pursuant to the March 2006 Agreement,
has nothing whatsoever to do with any sales in the U.S. and therefore, with any
alleged or actual infringement. According to the March 2006 Agreement, as
pleaded, the “break fee” became due simply as a result of the State Attorney
General declining to approve the March 2006 Settlement Agreement, irrespective
of whether Apotex decided to launch “at risk” in the U.S. or not. It is plain
and obvious that the contractual claim for payment of the “break fee” has no
connection whatsoever with the claim for infringement asserted by Sanofi. It
is equally clear that there is no equitable ground to that claim and that the
fact that the “break fee” is allegedly due to be paid to Apotex in no way
impeaches Sanofi’s claim. It is therefore plain and obvious that the defence
of set-off based on the alleged “break fee” cannot amount to an equitable
set-off.
[46]
As
conceded by Apotex’s counsel at the hearing, the claim for the “break fee” is
contractual in nature and this Court would have no jurisdiction to hear and
determine that claim as a counterclaim or as an independent action. For the
reasons given above, I am satisfied that the Court has equally no jurisdiction
to hear and determine same in the context of a defence of set-off.
[47]
Even if I
am wrong in this, raising a claim based on the “break fee” as set-off in this
action is clearly abusive and vexatious. Apotex’s pleadings admit that Apotex
attempted to have this very claim litigated before the Ontario Courts, and that
the Ontario Superior Court, affirmed on appeal, found both that it did not have
jurisdiction to hear it and that Ontario
was forum non conveniens. Apotex’s proposed pleadings further admit
that Apotex has since instituted proceedings in the Superior Court of New
Jersey, over twelve months ago, to recover from Sanofi that very debt, and that
it is currently proceeding with that action. There is no conceivable reason
why this Court should be asked to consider and rule upon a claim which is
already being actively prosecuted in another jurisdiction, with the obvious
risk of contradictory judgments. For Apotex to seek to submit this dispute to
this Court for parallel adjudication is all the more clearly abusive that the
New Jersey Court has been found to be the most appropriate Court to determine
that dispute, not only by the Ontario Superior Court but by the United States’
Federal Court, as admitted by Apotex itself in its proposed pleading.
[48]
Apotex’s
proposed amendment to include a claim for the “break fee” as set-off is clearly
abusive and vexatious.
The tort of deceit:
[49]
Apotex’s
initial defence alleges that the 2006 Agreements govern any claims, including
those asserted by Sanofi in this action, related to sales in the U.S. of clopidogrel made by Apotex in Canada. Specifically, it alleges
that Sanofi, through the “Liability Exposure Provision” found in the May 2006
Agreement, has agreed that its recovery in respect of sales in the U.S. of
infringing clopidogrel made by Apotex in Canada is to be limited to fifty
percent of Apotex’s net sales of clopidogrel in the U.S. The proposed amended
pleading adds numerous particulars going to Apotex’s contention that either
explicitly, by contextual interpretation or by implied terms, the Liability Exposure
Provision applies to this action in respect of clopidogrel ultimately sold in
the U.S.
[50]
The claim
for set-off based on tort is an alternative plea to this defence. In essence,
it alleges that if the Liability Exposure Provision does not apply to
limit Sanofi’s recovery as argued, then Apotex will suffer damage equivalent to
the difference between the amount awarded to Sanofi in this action for
clopidogrel ultimately sold in the U.S. and the amount to which it was entitled
in respect of these sales in the U.S. litigation applying the Liability Exposure
Provision. Apotex alleges that Sanofi breached a duty of care towards Apotex
by misleading it as to the meaning and application of the Liability Exposure Provision,
in that Sanofi led Apotex to believe that the Liability Exposure Provision
would apply to infringement actions outside the U.S., such as the present one,
and, knowing that Apotex erroneously believed that it did, failed to take steps
to dissuade Apotex from that belief. Apotex then alleges that had Sanofi not
so misled it, i.e. had Apotex known that the Liability Exposure Provision did
not apply in a Canadian infringement action, Apotex would not have launched its
product in the U.S., and would therefore not be
subject to recovery of damage for those sales.
[51]
Apotex
characterizes these pleadings as allegations sounding in the tort of deceit.
Counsel for Apotex, while acknowledging that the tort would not fall within the
Court’s jurisdiction if brought as a counterclaim, asserted that it amounts to
a substantive defence of equitable set-off and can therefore in any event be
pleaded as a set-off. Apotex essentially argues that, had deceit not occurred,
Apotex would simply not have infringed, so that there is a clear connection
between the claim of infringement and the deceit alleged to have been practised
by Sanofi, going to the very root of Sanofi’s claim and making it unjust to
allow Sanofi to recover for these claims.
[52]
I have
very serious doubts as to whether this claim would constitute an equitable
set-off, as despite the cause and effect pleaded by Apotex, the alleged tort
does not impeach the claim for patent infringement, or in any way deny that
infringement did take place. It does not allege that Sanofi encouraged or
induced the infringement itself, or that the infringement was justified.
Rather, it essentially accepts that Apotex voluntarily launched at risk and
that both parties contemplated that at least one claim for damages for
infringement would result from its launch. The alleged deceit goes not to
whether the patent was valid or would be infringed but merely to how much money
Apotex would be required to pay in compensation when and if it was determined
that the patent was valid and infringed. I do not however need to determine
whether Apotex’s contention that its alleged tort of deceit arguably constitutes
a substantive defence of equitable set-off, as I am otherwise convinced that
Apotex’s claim cannot succeed on the facts as pleaded, and is, furthermore,
scandalous and vexatious.
[53]
The tort
of deceit is distinct from the tort of negligent misrepresentation, in that it
includes a necessary element of fraud or moral wrongdoing. Indeed, liability
for economic loss arising out of deceit was accepted over eighty years before
the Courts finally recognized that economic loss could be recoverable for mere
negligent misrepresentation. The essential elements of the tort of deceit are
the following: A false statement, knowledge of the falsity, an intention to
deceive, reliance by the plaintiff and damage caused by the reliance (G.H.L. Fridman,
The Law of Torts in Canada, 2nd ed., Toronto: Carswell, 2002 at page 747).
[54]
Unlike
negligent misrepresentation, which might, in appropriate cases, contemplate
negligent advice or promises, “Deceit involves statements of fact, not opinion,
estimates, advice or promise” (Fridman, page 748).
[55]
There is
strictly no allegation anywhere in the proposed pleadings of any statement of
fact, let alone of a false one, having been made by Sanofi either directly or
by omission at any time. The pleadings therefore fail to plead an essential
component of the tort of deceit and cannot possibly succeed.
[56]
While
Apotex has not argued before me that the pleadings might otherwise sustain a
claim based on the tort of negligent misrepresentation, I will nevertheless
consider the pleadings from that angle.
[57]
The
constituent elements of the tort of negligent misrepresentation are: A duty of
care based on a special relationship between the representor and the
representee, an untrue, inaccurate or misleading representation, negligence in
making the misrepresentation, reasonable reliance and damages resulting
therefrom (Fridman, page 610).
[58]
The
proposed pleadings state that Apotex and Sanofi “were in a relationship of
sufficient proximity that it was reasonably foreseeable that if [Sanofi] misled
Apotex about the Liability Exposure Provision (…) harm to Apotex would ensue”.
There are, however, no facts pleaded in the section of the proposed pleading
identified as going to this claim of set-off upon which a special relationship
or reasonable foreseeability of harm might be found. There are, further, no
allegations, general or specific, to the effect that Apotex in fact relied on
Sanofi’s representations as to the effect of the Liability Exposure Provision,
or as to why such reliance would be reasonable.
[59]
Reading
the pleadings as a whole and giving them as generous an interpretation as
possible, the only factual allegations that might go to the relationship, the
foreseeability of harm, the reliance or the reasonability thereof are the facts
pleaded in paragraphs 23 to 55. Essentially, these paragraphs state that
Apotex and Sanofi had been engaged in litigation in the U.S. over the validity
and infringement of the U.S. counterpart of the patent at issue since 2002,
that in January 2006, the parties entered into negotiations to settle the
litigation, that four negotiation meetings occurred between January 31, 2006
and March 2006 (all with counsel for both parties in attendance), that during
those meetings, Apotex expressly demanded as a condition of settlement that
provision be made to limit its monetary liability in the event that it
proceeded to commence potentially infringing sales in the U.S., that Sanofi
expressed a willingness to negotiate such a condition, that the March 2006
Agreement resulted from the negotiation, that regulatory approval was declined
with respect to that Agreement, and that further negotiations took place
resulting in the May 2006 Agreement.
[60]
The
relationship described by these facts is plainly that of two pharmaceutical
companies engaged as adversaries in litigation, negotiating and arriving at an
agreement to settle the litigation, each assisted by their respective counsel.
[61]
As
mentioned, the alleged deceit or misrepresentation is not with respect to any
fact imparted by Sanofi to Apotex, but with respect to the effect and
application of the clauses of the agreements resulting from these
negotiations. There is no reasonable possibility that a Judge could conclude
that these facts give rise to a relationship wherein Sanofi could foresee that
Apotex would rely on any representations it might have made as to the effect of
any clause of the agreement to be negotiated, or that such reliance would be
reasonable. Parties engaged in an adversarial situation cannot be expected to
know or foresee that their representations will be relied upon blindly by their
opponent, especially on matters of law or construction of contract. (Fridman,
page 362, and see for example Dorsch v. Weyburn (City) (1985) 23 DLR (4th)
379 (Sask.) at par. 35 and Silzinger
v. C.K. Alexander Ltd., [1972] 1 O.R. 720).
[62]
There is,
further, no allegation of any representation made by Sanofi other than the
representation that Sanofi was willing to negotiate Apotex’s demand for a
limitation to its monetary liability, which representation was made before the
first agreement was concluded.
[63]
An
expressed willingness to negotiate a demand asserted by the other party to a
negotiation cannot, by any stretch of the imagination, be equated with an
expression of agreement to that demand or a representation that any contract
ultimately concluded will satisfy the demand. The pleadings therefore fail to
plead any fact upon which a finding of untrue, inaccurate or misleading
misrepresentation could be made.
[64]
It is also
to be noted that Apotex does not plead that it was misled into executing or
entering into the March 2006 or May 2006 Agreements or that it has suffered
damage as a result of entering into these Agreements. Apotex does not plead
that, had it not been for Sanofi’s misrepresentation, it would not have entered
into the Agreements. Rather, Apotex pleads that had Sanofi not misled it as to
the effect of these Agreements, it would have chosen not to launch at risk or
begin sales in the U.S. and therefore would not have
infringed. Sanofi cannot possibly have misled Apotex, or made any
representation to it, as to the interpretation and effect of a contract before
that contract had been reduced to writing or executed. Sanofi could therefore
not possibly have made a representation as to the effect or application of the
May 2006 Agreement prior to its conclusion. As there is no allegation
whatsoever of any interaction having taken place between Apotex and Sanofi
after the conclusion of the May 2006 Agreement and before Apotex’s first sales
in the U.S., it is plain and obvious that the pleadings fail to plead any
material fact upon which a Court could find that Sanofi made any
misrepresentation to Apotex as to the effect of the contract as executed. In
the end, the pleadings do no more than state that Apotex misconstrued or was
mistaken as to the effect or application of the Liability Exposure Provision,
without pleading any material fact from which one could conclude that this
misconception or error was in any way induced by Sanofi.
[65]
Finally, Apotex’s
proposed plea is to the effect that, as a result of Sanofi’s breaches of duty,
“Apotex changed its position” and that “Apotex would not have launched at risk
in the U.S.” had it known that Sanofi did not agree that the Liability Exposure
Provision applied to actions other than in the U.S. This plea is in direct opposition to the
express allegation that in October 2005, Apotex advised Sanofi that “it
intended to launch its product as soon as possible after FDA approval”
(par. 28 of the proposed pleading). Apotex’s admission that it specifically
advised Sanofi of its intention to launch its product at risk negates any
possibility that Sanofi could have foreseen that Apotex would rely on its
representations in deciding whether or not to launch at risk.
[66]
I am
therefore satisfied that Apotex’s claim of set-off on the basis of the tort of
deceit or negligent misrepresentation has not the slightest chance of success,
and is frivolous and vexatious.
Abuse of process:
[67]
Apotex
wishes to plead that Sanofi’s within action is an abuse of process having
caused it damages that should be set-off against any award made in favour of
Sanofi.
[68]
It is unnecessary to consider whether the abuse of process asserted
here amounts to equitable set-off, or whether, if it does not, there is
sufficient authority in Tractor Supply Co. of Texas, LP v. TSC Stores LP,
2009 FC 154; [2009] F.C.J. No. 199 (upheld on appeal at 2009 FCA 352) to hold
that this Court arguably has jurisdiction over any counterclaim sounding in
abuse of process, as I am satisfied that the proposed pleading fails to plead
the required element of unlawful or improper purpose, and therefore cannot
possibly succeed.
[69]
The facts
pleaded in support of this claim are essentially that Sanofi did not believe it
had a right to take the present action in view of the Liability Exposure
Provision and did not intend to take this action until Apotex sought a
declaration of non-infringement and invalidity in the T-644-09 action, that
Sanofi’s real purpose in taking this action was to discourage Apotex’s action
and that Sanofi’s predominant purpose in taking this action is to financially
injure Apotex by making it pay more than the amount of liability contemplated
in the Liability Exposure Provision. Apotex concludes that as a result, it has
suffered damage in the form of any liability it might incur over and above the
liability that would have been contemplated had the Liability Exposure
Provision applied.
[70]
As with
the alleged set-off based on the torts of deceit or misrepresentation, this
claim is in the alternative to the defence based on the application of the
Liability Exposure Provision. Indeed, if the Liability
Exposure Provision is interpreted as barring any claim “related” to U.S. sales, there can be no damage, and therefore no tort.
[71]
The tort of abuse of process requires that the litigation
be pursued, not for the legitimate purposes of the claim asserted, but “for an
ulterior or collateral purpose. It is defined as the misusing of the process
of the courts to coerce someone in some way entirely outside the ambit of
the legal claim upon which the court is asked to adjudicate”. (Levi Strauss
& Co. v. Roadrunner Apparel Inc. (1997) 76 C.P.R. (3d) 129 (FCA), emphasis
added).
[72]
The Federal Court of Appeal in Levi Strauss goes on
to state:
“A review of the
authorities shows that the essential element of the tort of abuse of process is
that the abuser must have used the legal process for a purpose other than
that which it was designed to serve, in other words for a collateral,
extraneous, ulterior, improper or illicit purpose. The gist of the tort is the
misuse of or perversion of the Court’s process and there is no abuse when a
litigant employs regular legal process to its proper conclusion, even with bad
intentions.”
(Emphasis
added)
[73]
The alleged improper purpose, as pleaded, is “discouraging
Apotex’s challenge to the validity of ‘777 patent”, the very patent which
Sanofi claims has been infringed by Apotex, and to “financially injure the
Apotex defendants and, more particularly, to subject them to monetary liability
in excess of the amounts contemplated by the Liability Exposure Provision”,
which is the very right and proper conclusion sought by Sanofi in this action.
It is plain and obvious that there can be no abuse where an action is taken, as
here, to assert a right in response to an action by which the very foundation
of the right is sought to be impugned, or to extract from the defendant the
very sum for which the action properly seeks to recover. Apotex has pleaded no
collateral, extraneous, ulterior, improper or illicit purpose, and its defence
of set-off is bound to fail.
Further
details as to the negotiations leading to the 2006 Agreements
[74]
These amendments are contained in paragraphs 23 to 56 of
the proposed amended pleading. As mentioned in an earlier decision rendered in
this matter, Apotex’s pleadings, as they originally stood, relied exclusively
on the express terms of the May 2006 Agreement to assert the effect of the
Liability Exposure Provision. In this new pleading, Apotex seeks to introduce
facts going to the circumstances surrounding the negotiation and conclusion of the
2006 Agreements to support a conclusion that the May 2006 Agreement also
implicitly limits the Plaintiff’s available monetary recovery in respect of
sales related to the U.S., that if ambiguous, the terms of the May 2006 Agreement,
when read in context, are to be construed as precluding any claim outside the
U.S. relating to U.S. sales, or that if it does not have this effect, then it
is an implied term of the May 2006 Agreement that claims for monetary relief
for such sales outside the U.S., including this action, should be precluded.
Apotex would also use those new facts to argue that preclusion of action
outside the U.S. should be an implied term of the May 2006 Agreement, based on
the presumed intention of the parties, in order to give it business efficacy or
as necessary to a fair functioning of the Agreement.
[75]
Most of the proposed amendments do indeed flesh out the
circumstances in which the 2006 Agreements came to be negotiated and concluded.
Sanofi’s first objection to these new allegations was to the effect that the May
2006 Agreement is clear and unambiguous and that external circumstances are
both unnecessary and inadmissible to aid in its interpretation. I indicated at
the hearing that I was not prepared to hold that it was plain and obvious that
the May 2006 Agreement is so clear and unambiguous that evidence of the context
in which it was negotiated and concluded would be irrelevant. On that basis,
counsel for Sanofi conceded that paragraphs 23 to 29 would be proper.
[76]
Sanofi however maintains its objection to paragraphs 30 to
43, as it says that they can only go to the introduction of evidence as to the
state of mind of the parties when they negotiated the settlement. Sanofi
argues that on the basis of the Supreme Court decision in Eli Lilly and Co.
v. Novopharm Ltd., [1998] 2 S.C.R. 129 (particularly, at par. 58), evidence
as to the subjective intentions of the parties at the time of drafting is
inadmissible by virtue of the parole evidence rule.
[77]
I would agree with Sanofi if any of the impugned paragraphs
indeed went to the subjective intentions of the parties at the time they
negotiated or signed the agreements. However, with the exception of some
possible ambiguities in the wording of paragraphs 42 and 43 of the proposed
pleading (which are specifically addressed and resolved below), I am satisfied
that paragraphs 30 to 43 of the proposed pleadings do not plead or bring into
issue the subjective intentions of either Apotex or Sanofi.
[78]
Paragraphs 30 to 38, as conceded by counsel for Sanofi, are
purely factual. Paragraph 39 is the paragraph wherein it is alleged that
Apotex expressed a demand that, as a condition of settlement, provision be made
to limit its monetary liability for U.S.-related sales. Apotex, however, does
not state that it in fact intended to make that demand a condition of
settlement, but merely that it declared having that intention. There is
a large difference between the two, and I cannot find that it is plain and
obvious that what was said and expressed in the course of negotiations
cannot be possibly be relevant to interpreting the contract or ascertaining the
parties’ intentions in case of ambiguity.
[79]
As to paragraph 40, it asserts that Sanofi indicated a
willingness to negotiate the condition “demanded” by Apotex. Again, the
allegation does not assert anything other than what Sanofi communicated to
Apotex. Allegations of what the parties negotiated may be relevant, if
only to establish that the parties in fact discussed the issue. Such
allegations do not assert or go to any party’s subjective intentions or state
of mind. In the same vein, paragraph 41 sets out the various mechanisms that
were discussed relating to that issue, clearly without asserting, alleging or
raising any party’s subjective intentions.
[80]
Paragraphs 42 and 43, as mentioned above, are unfortunately
worded. In particular they use words like “the parties’ agreement to limit
Apotex’s monetary liability” and “it was clear to all that the condition to
be agreed upon was meant to (…)”. Such expressions might be thought to
include or imply allegations putting in issue whether the parties had actually
“agreed to agree” on the condition demanded by Apotex, whether they agreed as
to what it meant or agreed to limit Apotex’s liability as suggested.
[81]
It is appropriate to consider proposed pleadings carefully
in order to ascertain their true intent, meaning in scope, prior to amendments
being granted, especially in the context of a streamlined proceeding such as
this one, as the pleadings will define the scope of the discoveries.
[82]
Having extensively questioned counsel for Apotex as to what
these paragraphs meant or did not mean, I am satisfied that paragraph 42 refers
solely to the agreement of the parties as set out in the March 2006
Agreement, and that neither paragraph 42 nor paragraph 43 allege, imply or
raise an independent oral agreement between the parties or seek to put in issue
the parties’ subjective intents. Further, as to paragraph 43 specifically, it
is to be understood as a conclusory paragraph, containing the conclusions which
Apotex will argue are to be drawn from the particular facts specifically
pleaded elsewhere. It is not intended to contain or raise any self-standing
allegation, or to imply or raise as an issue that Sanofi had undertaken to
include Apotex’s demand in the ultimate agreement. I reach this conclusion
from the specific representations of counsel for Apotex at the hearing, but
also on the basis that, where specific facts and allegations are made in a
pleading (as they are made in great details in paragraphs 19 to 41), they are
to be taken to be exhaustive so that general or vague allegations which do not
refer to or plead any specific facts must be taken to be particularized by
those other specific pleadings. It is also to be noted that, had I not been
satisfied that paragraphs 42 and 43 did not refer to the parties’ intent and
did not expand the scope of the facts pleaded elsewhere, I would not have
permitted the amendment, as being insufficiently particularized allegations of a
state of mind, contrary to Rule 181(b) and likely to embarrass the conduct of
the proceedings.
[83]
Sanofi has no specific objection to paragraphs 44 and 45,
and indeed, paragraph 44 merely sets out Apotex’s position as to the substance
of the March 2006 Agreement and paragraph 45 is purely factual.
[84]
Paragraph 46 and 47 relate solely to the allegation that
Sanofi is indebted to Apotex for the “break fee”, and relates directly and
solely to Apotex’s claim for set-off based on the “break fee”, which I have
ruled should not be allowed. These paragraphs are accordingly irrelevant and
cannot be included in the proposed new pleading.
[85]
Paragraphs 48 to 51 are purely factual and relate to the
circumstances of the negotiation of the May 2006 Agreement and set out Apotex’s
position as to its substance. They are as such proper.
[86]
Paragraph 52 pleads an oral agreement, in addition to the
May 2006 Agreement, whereby: (a) Sanofi would have agreed not to launch an
authorized generic during Apotex’s period of exclusivity (if the May 2006
Agreement was approved) and (b) whereby Apotex’s signing of the May 2006
Agreement was not to be taken as a waiver of Apotex’s “vested right” to the
“break fee”. While I am puzzled as to the relevance of Sanofi’s alleged
agreement not to launch an authorized generic, it is at this point not plain
and obvious that it may not have some relevance to the overall circumstances.
However, that part of the alleged oral agreement whereby it was allegedly
agreed that Apotex’s signing of the agreement would not constitute a waiver of
Apotex’s right to the “break fee” can have no possible relevance in view of the
determination that the “break fee” cannot be asserted in these proceedings.
Paragraph 52(b) therefore cannot be included in the proposed amendment.
[87]
Paragraph 53 sets out certain facts which Apotex asserts
had been “understood and agreed” by the parties throughout the negotiations
leading to the March and May 2006 Agreements. In the course of the hearing,
counsel for Apotex agreed to modify the opening sentence of paragraph 53 so as
to remove the words “and agreed” so that the paragraph be restricted to facts
that were understood by the parties in the course of the negotiations. Counsel
for Apotex further clarified that paragraph 54 contains the particulars of the
facts upon which Sanofi is to be taken as having understood the facts set out
in paragraph 53. With that modification and clarification, the pleading is
proper. Paragraph 55 is a recitation of certain elements of the 2006 Agreements
which Apotex alleges assist in its interpretation, and is proper.
[88]
Finally, paragraphs 56 to 56E set out the basis upon which
Apotex concludes, on the facts alleged in the previous paragraphs, that the
Liability Exposure Provision has, explicitly or by implied terms, the effect of
limiting or precluding Sanofi’s claim in respect of U.S. sales. These allegations are proper.
Details of a defence of disentitlement to monetary remedies:
[89]
Paragraphs 117 to 119 set out, but by strict reference to
the specific facts pleaded earlier in the proposed amended pleadings, arguments
as to why Sanofi should be disentitled to any monetary relief, or to an
accounting of profits, in connection with U.S. sales or in connection with sales in other jurisdictions. Sanofi’s objections
with respect to those amendments, insofar as they relate to the claims of
set-off, have been dealt with as I have found that the proposed amendments
relating to the claims of set-off should not be allowed.
[90]
Sanofi further objects to these paragraphs insofar as they
purport to apply to Sanofi’s claim for damages (as opposed to its claim for the
equitable relief of an accounting of profits). The bulk of these paragraphs
pleads conclusions of law from facts that are otherwise properly pleaded and
relevant to other allowable defences. There is little usefulness in enquiring
into and determining whether the proposed conclusions of law are tenable if the
facts on which they are based are otherwise properly pleaded. There is no harm
and no prejudice to Sanofi in allowing Apotex to also assert, as a matter of
law, that the same facts would also preclude recovery of damages. A
determination at this stage would not change the factual issues framed in the
pleadings or the scope of discovery or trial, and the matter is therefore one
to be left to the Judge hearing the trial on the merits.
[91]
I should note, for completeness, that whereas the other
paragraphs and sub-paragraphs in that grouping do not plead additional facts
but refer specifically to such facts as are alleged elsewhere in the statement
of defence and counterclaim, paragraph 118(c) does plead additional facts,
being the availability to Apotex of alternatives for the manufacture and sale
of clopidogrel in the U.S. which would not have constituted an infringement of
the ‘777 patent. Sanofi has not raised any particular objection to these
allegations, and I see no reason why they would be improper.
“Consolidation” of the action in T-644-09 into a defence and counterclaim
to T-933-09:
[92]
The basis of Sanofi’s objection, in principle, to Apotex
transporting the substance of its action in T-644-09 into a counterclaim to
Sanofi’s action in T-933-09 is that it is unnecessary, but also, that it would
effectively change Apotex’s status from that of a plaintiff to that of a
defendant, removing from it the burden of having the carriage of the
litigation, and shifting the burden of proof.
[93]
I agree that consolidation is unnecessary, although I can
see one potential benefit of the proposed consolidation: to avoid having to
amend two sets of pleadings if further amendments are eventually proposed to be
made in respect of facts pleaded in both actions, such as, for example,
Apotex’s proposed addition of additional prior art. As such, consolidation is
not necessary, but it might be procedurally convenient.
[94]
As to Sanofi’s principal objection, to the effect that it
shifts from Apotex to Sanofi the burden of carrying the litigation and,
possibly, the burden of proof, I cannot agree with Sanofi’s assessment. First,
Apotex’s counsel had made it clear at the hearing that Apotex is not seeking to
remove from the record its original statement of claim or to resile from its
status as the original plaintiff in the original action. That status is,
otherwise, reflected in the style of cause of this consolidated action, which
style of cause I see no reason to change. As case management Judge, I am also very
well aware of the origins of this action and the evolution of the pleadings
cannot detract or subtract from that history. Finally, I cannot agree that by
moving the allegations originally made in its statement of claim in T-644-09 to
a counterclaim in T-933-09, Apotex removes from itself any burden of proof it
would otherwise have had. The pleadings still make it clear that Sanofi’s
claim of infringement is with respect to past manufacture and sale of
clopidogrel bisulfate by Apotex, and that Apotex’s counterclaim for a
declaration of non-infringement is with respect to intended future production
of clopidogrel bisulfate, clopidogrel besylate and clopidogrel hydrobromide.
Apotex still has both an independent action (in the form of a counterclaim) for
impeachment and a defence of invalidity. The burden of proof in the actions,
counterclaim and defence is not affected by the fact that Apotex’s initial
action is reprised as a counterclaim; it is, indeed, clear from the rules of
the Court that a claim asserted as a counterclaim remains a separate and
distinct cause of action. As to the order in which evidence is to be led at
trial, it remains within the complete discretion of the trial Judge whether
evidence relating to the counterclaim is to be led before the evidence relating
to the action, just as the trial Judge would have had discretion to determine
whether evidence related to the T-644-09 action should be led after the
evidence related to the T-933-09 action. In the circumstances of this case, I
can see no reason why consolidation necessarily affects the order in which
evidence is to be led at trial.
[95]
In conclusion, while the advantages of consolidating the
pleadings are extremely minimal, I cannot see any prejudice being suffered by
Sanofi as a result of the proposed consolidation that cannot be compensated by
costs. As to costs, Apotex would be required, as a condition of being allowed
to made the amendment, to pay to Sanofi the costs of preparing, serving and
filing a responding pleading, in any event of the cause.
Conclusion:
[96]
Having concluded that Apotex’s proposed new grounds of defence
relating to set-off cannot be allowed and considering that these proposed
defences appeared, by far, to involve the most far reaching allegations of
fact, it is not certain at this point that allowing the other amendments would
cause substantial additional delays in the prosecution of this action or would prejudice
the presentation of Sanofi’s case at trial within the time currently
contemplated. Indeed, although the factual allegations relating to the
circumstances surrounding the 2006 Agreements are detailed and intricate, it is
too early to know whether those facts are controversial. Discovery and
evidence at trial could be radically contained if Sanofi’s amended reply admits
all or most of those facts. In addition, there is a real possibility that the
scope of discovery and of trial could be reduced if Sanofi accepts Apotex’s new
admission as to the place where all of its sales took place.
[97]
On final analysis, I am not convinced that allowing the
amendments which I have found proper will effectively cause prejudice to Sanofi
that cannot be compensated by costs. Further, to the extent it becomes
apparent, after the close of the pleadings as amended, that there are
significant facts in controversy and that it is neither practical nor
reasonable to expect the parties to complete full discoveries on those facts
within the time remaining before trial or that there will be insufficient time
to canvass these issues at trial, the possibility of bifurcating the new issues
to the second phase of the trial can be revisited.
[98]
In ending, I should mention that Sanofi had also argued, in
opposition to this motion, that the proposed amendments were a disguised and
improper attempt by Apotex to obtain discovery relating to the negotiation and
interpretation of the 2006 Agreements, which discovery had been specifically
denied to it in the context of U.S. litigation, which discovery Apotex had
specifically stated was necessary to it when it attempted to enforce the “break
fee” before the Courts of Ontario, and which discovery I had only last month
denied Apotex in the context of its motion for a further and better affidavit
of documents. As I have resolved the issues raised by this motion on different
grounds, I have not felt it necessary to address this specific argument. I
will note, however, that the circumstances and timing of Apotex’s motion to
amend, the convoluted nature of the proposed amendments involving inquiries
into the state of mind of Sanofi and their general lack of reasonable
foundation would tend to support Sanofi’s contention that for a large part,
Apotex’s motion to amend was driven more by the desire for unrestricted
discovery of all aspects of the negotiation of the 2006 Agreements than by the belief
in the existence of a reasonably arguable case.
Costs:
[99]
The lateness of Apotex’s motion, the unreasonable nature of
a large part of the amendments sought and the generally accepted principle that
the costs of amendment should be borne by the amending party all militate in
favour of awarding the costs of this motion to Sanofi, at the high end of
Column IV of the Tariff, and including a provision for the assistance of second
counsel.
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