Date: 20100302
Docket: T-1048-07
Citation: 2010 FC 241
Ottawa, Ontario, March 2, 2010
PRESENT: The Honourable Mr. Justice Zinn
BETWEEN:
ELI LILLY CANADA INC.,
ELI LILLY AND COMPANY,
ELI LILLY AND COMPANY LIMITED and
ELI LILLY, SA
Plaintiffs
(Defendants by Counterclaim)
and
NOVOPHARM
LIMITED
Defendant
(Plaintiff by Counterclaim)
REASONS FOR ORDER AND ORDER
[1]
Novopharm
Limited (Novopharm) seeks an extraordinary remedy in a unique situation.
[2]
Novopharm
seeks an order in the nature of a Mareva injunction enjoining Eli Lilly Canada Inc. (Lilly
Canada) from transferring its revenues to its parent company, Eli Lilly and
Company (Lilly US). In the alternative, Novopharm seeks an
order requiring Lilly Canada to post security for damages, that have yet to be
quantified, which it asserts it will be awarded pursuant to section 8 of the Patented
Medicines (Notice of Compliance) Regulations, SOR/93-133, as amended (the NOC
Regulations), and an order that Lilly Canada disclose its financial accounts to
Novopharm on a quarterly basis.
[3]
Novopharm’s concern is
that even though they have prevailed over Lilly Canada in a dispute regarding
Canadian Patent No. 2,014,113 (the ‘113 patent), the continued transfer of
revenues to Lilly US may render Lilly Canada judgment-proof by the time the
proceedings in this Court to determine the section 8 damages have been
completed.
[4]
For the reasons that
follow, this motion is dismissed.
Background
[5]
In
response to a Notice of Allegation from Novopharm dated August 5, 2004, Lilly
Canada brought an application (Court file T-1734-04), pursuant to section 6 of
the NOC Regulations, for an order preventing Novopharm from marketing its
olanzapine tablets. This application was subsequently discontinued when
Novopharm withdrew its Notice of Allegation on or about April 21, 2005.
[6]
On
July 20, 2005, Novopharm served Lilly Canada with a second Notice of Allegation
regarding its olanzapine tablets. Lilly Canada filed a
second application pursuant to section 6 of the NOC Regulations (Court File T-1532-05),
again seeking an order preventing Novopharm from marketing its olanzapine
tablets. On June 5, 2007, Justice Hughes rejected Lilly Canada’s application.
He held that Novopharm’s allegation that the ‘113 patent was invalid was
justified: Eli Lilly Canada Inc. v. Novopharm Ltd., 2007 FC 596. The
next day, June 6, 2007, Novopharm received an NOC and began marketing its
product. An appeal of Justice Hughes’ decision was dismissed for mootness, and
leave to appeal to the Supreme Court was dismissed: Eli Lilly Canada Inc. v.
Novopharm Ltd., 2007 FCA 359, leave to appeal to S.C.C. refused, 32415
(March 13, 2008).
[7]
Also
on June 6, 2007, Lilly Canada, along with its parent and Eli Lilly SA, brought
the current action against Novopharm for patent infringement. Novopharm, by
way of counterclaim, brought an action for damages pursuant to section 8 of the
NOC Regulations. Despite the protestations of Novopharm, the Court ordered the
trial of the action to be bifurcated; the counterclaim for section 8 damages
would proceed only if Lilly Canada was unsuccessful at trial.
[8]
Section
8 of the NOC Regulations provides a disincentive
designed to make an innovator pharmaceutical company cautious when considering
whether to institute NOC proceedings. If the innovator loses, then the generic
can sue for damages resulting from any delay in obtaining its NOC caused by the
statutory stay on approval that the proceedings create.
[9]
On
October 5, 2009, Justice O’Reilly dismissed the action against Novopharm,
finding that the ‘113 patent was invalid. He further found that Novopharm was
entitled to relief under section 8 of the NOC Regulations: Eli Lilly Canada
Inc. v. Novopharm Ltd., 2009 FC 1018. An appeal to the Federal Court of
Appeal was filed by the plaintiffs on November 3, 2009 (A-454-09) and has yet
to be heard. The Judgment of Justice O’Reilly of this Court was as follows:
1.
The claims
of the ‘113 patent at issue are invalid;
2.
Lilly’s
action for patent infringement is dismissed;
3.
Novopharm
is entitled to relief under s. 8 of the Patented Medicines (Notice of
Compliance) Regulations to be determined in a separate proceeding, and to its
costs.
[10]
There
was a question as to what paragraph 3 of the Judgment meant. Justice O’Reilly,
in a subsequent Order dated December 16, 2009, addressed that question and in
the course of so doing wrote the following.
I agree with Lilly’s
submission that there are some issues relating to remedies that could have been
decided during the liability phase of the trial (e.g. the start and end
date of any losses suffered by Novopharm). However, there was no requirement
for me to do so. I determined that the question of the duration of any losses,
and other issues directly related to s. 8 relief, should be decided at a
hearing on remedies, and so ordered. Contrary to Lilly’s submission, the
bifurcation order did not specify the issues to be decided at the liability
stage; it identified categories of evidence that should not be
presented.
The proceeding required to determine the
quantum of damages under section 8 of the NOC Regulations has not yet been
scheduled and the materials before the Court indicate that it may not be heard
until 2011.
[11]
Novopharm
submits that a conservative estimation of the damages it will be awarded is in the
range of $86 to $138 million, exclusive of legal costs.
[12]
The
plaintiffs have taken the position that Lilly Canada is the only entity liable
for section 8 damages because Lilly Canada was the only “first person” in the
NOC proceedings. This position, combined with other evidence that will be
referred to below, raised Novopharm’s concern that Lilly Canada may become
judgment-proof. Consequently, Novopharm brought this motion to enjoin Lilly
Canada from transferring its revenues to its parent corporation in the United
States,
and in the alternative, for an order requiring it to post security for damages
and to provide quarterly financial accounts.
Analysis
[13]
Section
44 of the Federal Courts Act and Rule 373 of the Federal Courts Rules
confer jurisdiction to issue a Mareva injunction before liability has
been determined; this is the traditional purpose of Mareva injunctions,
and the Court of Appeal has instructed that this Court does have jurisdiction
to issue such injunctions: Standal Estate v. Swecan International Ltd.,
[1990] 1 F.C. 115 (C.A.). In my view, there can be no serious suggestion that
this Court does not have jurisdiction to issue such an injunction when, as
here, liability has been determined but not quantum.
[14]
The
real issue in dispute between these parties is whether Novopharm has met the
test for the granting of the requested remedy.
[15]
There is a general and
long-standing rule in our common law system that there should be no execution
before judgment: Lister & Co. v. Stubbs, [1886-90] All E.R. 797 (C.A.); Bedell v. Gefaell, [1938] O.R. 726 (C.A.).
The probability that a plaintiff will succeed if a matter proceeds to a
hearing, in and of itself, is not grounds for the defendant to be ordered to
post security.
[16]
Even before the advent
of the Mareva injunction there were exceptions to the general rule
described in Lister: see Aetna Financial Services Ltd. v. Feigelman,
[1985] 1 S.C.R. 2 at 17. However, in Nippon Yusen Kaisha v. Karageorgis,
[1975] 3 All E.R. 282 (C.A.) and Mareva Compania Naviera SA v. International
Bulkcarriers SA, [1980] 1 All E.R. 213 (C.A.)
Lord Denning opened the door to new judicial remedy that would become known as the
Mareva injunction. In Third Chandris Shipping Corporation v.
Unimarine S.A., [1979] 1 Q.B. 645 at 668-669 (C.A.), Lord Denning outlined
the requirements that a plaintiff must meet in order to obtain a Mareva injunction
and thereby freeze the defendant's assets prior to judgment:
(i)
The plaintiff should make full and frank
disclosure of all matters in his knowledge which are material for the judge to
know.
(ii)
The plaintiff should give particulars of his
claim against the defendant, stating the ground of his claim and the amount
thereof, and fairly stating the points made against it by the defendant.
(iii)
The plaintiff should give some grounds for
believing that the defendants have assets here. ….
(iv)
The plaintiff should give some grounds for
believing that there is a risk of the assets being removed before the judgment
or award is satisfied. …
(v)
The plaintiff must, of course, give an
undertaking in damages -- in case he fails in his claim or the injunction turns
out to be unjustified.
[citations omitted]
[17]
The guidelines
described in Third Chandris Shipping Corp. have been cited in Canada with approval in numerous cases: See e.g. Marine
Atlantic Inc. v. Blyth et al. (1993), 113 D.L.R. (4th) 501 (F.C.A.).
[18]
In Chitel et al. v.
Rothbart et al. (1983), 39 O.R. (2d) 513 at 532-533 (C.A.) a significant modification
was made to the fourth requirement described in Third Chandris Shipping
Corp., namely:
The applicant must persuade the court by his material that the
defendant is removing or there is a real risk that he is about to remove his
assets from the jurisdiction to avoid the possibility of a judgment, or that
the defendant is otherwise dissipating or disposing of his assets, in a manner
clearly distinct from his usual or ordinary course of business or living, so as
to render the possibility of future tracing of the assets remote, if not
impossible in fact or in law.
[19]
In summary, in Canada the following requirements for a Mareva injunction
must be established:
1.
The plaintiff must
establish a strong prima facie case for potential success at trial: Aetna
Financial Services Limited at 27;
2.
The plaintiff must meet
the five guidelines set out in Third Chandris Shipping as re-articulated
and modified in Chitel, namely (a) full and frank disclosure, (b) particulars
of the claim, (c) assets within the jurisdiction, (d) risk of removal or
dissipation of assets in order to frustrate judgment, and (e) an undertaking as
to damages; and
3.
The plaintiff must
satisfy the regular tripartite test for an interlocutory injunction described
in RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R.
311 at 334, namely (a) the presence of a serious question to be tried, (a) irreparable
harm should the injunction not be granted, and (c) that the balance of
convenience favours the moving party.
[20]
If the applicant fails
to meet any of these, the Court should refuse the Mareva injunction.
[21]
Novopharm
has not provided any undertaking as to damages. It submits that the Court has discretion
to dispense with such an undertaking and that, in any event, the rationale for
the requirement that the applicant provide an undertaking, does not apply
here. The rationale, it is submitted, is as described by Justice Sharpe in his
book, Injunctions and Specific Performance, loose-leaf (Canada Law Book:
Aurora,
Ontario, 2009) at
2.470:
The rationale for the
undertaking is to protect the defendant from the risk of granting a remedy
before the substantive rights of the parties have been determined. In the
event the defendant succeeds at trial, the interlocutory injunction will have
prevented the defendant from acting in accordance with his or her legal
rights. The undertaking in damages shifts all or a part of that risk to the
party who is asking for a pre-trial remedy.
[22]
Novopharm
provided three submissions as to why no undertaking ought to be required in
this instance. I can do no better than to reproduce its submissions from
paragraphs 75-77 of its factum:
First, Novopharm is not
seeking a pre-trial remedy, so the logic of Justice Sharpe’s analysis is not strictly
and straightforwardly applicable. There is no risk that the injunction will
cause harm to Lilly, as it is a certainty that Lilly will have to pay damages
to Novopharm.
Second, as stated above, the
test is or should be different as the relief sought is a post-judgment
injunction. Again, the fact that Lilly will have to make a payment to
Novopharm is beyond debate, the only open question is in what amount. Just as
Novopharm ought not to have to establish irreparable harm in these
circumstances, it ought also be relieved from any requirement to post an
undertaking in damages.
Considerations should also be
given Justice Hughes’ characterization of s. 8 damages as a form of
“undertaking” by first persons, such as Lilly, given in exchange for the
statutory injunction, which is obtained without having to prove any of the
criteria normally required for a statutory injunction. This Court should not
require Novopharm to provide an undertaking to enforce Lilly’s undertaking.
[23]
I
am not persuaded that in these admittedly unique circumstances, the requirement
of an undertaking from the moving party should be waived.
[24]
I
do not accept Novopharm’s submission that it is not seeking a pre-trial remedy
because the Court has already determined that Novopharm is entitled to section
8 damages. A trial as to those damages remains to be heard. Although Justice
O’Reilly adjudged that “Novopharm is entitled to relief under s. 8 of the
Patented Medicines (Notice of Compliance) Regulations to be determined in a
separate proceeding” this flows directly from the wording of section 8 of the
NOC Regulations which provides, in part, that “if an application made under
subsection 6(1) is … dismissed by the court …the first person is liable to the
second person for any loss suffered during the period.”
[25]
Novopharm
says that “it is a certainty that Lilly will have to pay damages to Novopharm.”
In my view, on the materials before the Court, this is not a certainty.
Section 8(5) of the NOC Regulations provides that “in assessing the amount of
compensation the court shall take into account all matters that it considers
relevant to the assessment of the amount.” Lilly Canada submits that
it is far from certain that Novopharm will be awarded any damages based on the
matters that it will urge the Court to consider when assessing damages.
[26]
Lilly
Canada submits that if Novopharm had not withdrawn its first NOA, it may not
have been delayed in bringing its product to market because the first
proceeding would have been concluded before Novopharm received its Notice of
Approvability from Health Canada. It further submits that Novopharm waived
all or part of its claim for section 8 damages. It points to an affidavit
filed by Novopharm wherein it attests: “The fact that a decision on the merits
of the case has been delayed by the withdrawal of the Notice of Allegation is
entirely to the prejudice of Novopharm (with months lost in reaching marketing
approval, loss of claims to s. 8 damages).” It also points to a subsequent
affidavit wherein Novopharm attests that in withdrawing its first Notice of
Allegation, Novopharm “abandoned its claim to s. 8 damages.” Lilly Canada also submits
that Novopharm should be disentitled to any section 8 damages being awarded
because of “inaccuracies in Novopharm’s NOAs.” Lastly, Lilly Canada raises the
defence of mitigation, submitting that Novopharm has failed to mitigate any damages
it may have suffered in failing to stockpile products and being in a
market-ready position.
[27]
It
may be, following a full trial, that none of these defences and submissions of
Lilly Canada are found to be valid; however, at this point, on an interlocutory
motion, the Court cannot and should not engage in a detailed analysis of the
matters raised by Lilly Canada. What is clear, however, is that it is not a certainty
that Novopharm will be awarded any damages as a result of the section 8
hearing.
[28]
For
these same reasons I reject Novopharm’s second submission that this is really a
post-judgment injunction.
[29]
Lastly,
Justice Hughes did not quite state that section 8 was a form of undertaking
from the innovator. What he said was that it acts like an undertaking:
In many respects, section 8 can be
analogized to the undertaking usually required by a party seeking an
interlocutory injunction from a Court. This Court (Rule 372(2)) and most
other courts in this country require, unless otherwise ordered, that an
undertaking as to damages be provided. An undertaking is a serious matter and
the damages afforded may be substantial, although as stated by the Ontario
Court of Appeal in Debrina Corporation v. Triolet Systems Inc. (2002),
17 C.P.R. (4th) 289 at paragraph 87, they must be reasonably foreseeable at the
time of the granting of the interlocutory injunction and must be caused by
("naturally flow from") the injunction and not something else.
[30]
In
its notice of motion Novopharm sought an order that Lilly Canada not transfer
any profit to “any entity affiliated with or related to Lilly” or, in the
alternative, “post a bond or other security in a form acceptable to Novopharm,
with the Federal Court in an amount sufficient to cover a damage award of
$100,000.000.00 and Novopharm’s costs of this action.” Although the evidence
filed in support of the motion claims the section 8 damages will be between $86
to $138 million, during oral submissions, counsel conceded that if the period
of damages was limited to 3.5 months, as Lilly Canada suggests is warranted,
the damages would be in the order of $20 million.
[31]
Novopharm
has been unable to convincingly establish any amount as the likely award
it will receive. It would be improper and inappropriate to issue the order
requested in that circumstance. It would have a substantial impact on the
business operations of Lilly Canada and also most likely on Lilly US. If, at the
end of the day, the injunction should not have issued, then Novopharm should be
liable for any damages to the plaintiffs that flows from such an order and it
is for that reason that I find that if the injunction were to issue, an undertaking
by Novopharm must be given. None has been offered and thus no injunction, or
the security proposed as an alternative, will issue.
[32]
Further,
the fact that Novopharm has been unable to quantify its damages with any
particularity goes as well to its failure to prove irreparable harm. Irreparable harm must be harm which will
occur in the period between now and the time the damages are quantified and
ordered to be paid. Irreparable harm is harm which cannot be cured, and Novopharm
must establish the harm with clear and convincing evidence and also establish on
a balance of probabilities that the alleged harm is likely to occur. The
evidence must be credible and the harm non-speculative. The harm alleged, its
failure to be able to collect a judgment, meets none of these requirements as
Novopharm can only speculate as to the amount of damages it says that it may
fail to recover.
[33]
I
also find that Novopharm has failed to establish on the balance of
probabilities that Lilly Canada will be unable to satisfy a judgment of the
order it hopes to receive.
[34]
Lastly,
the Chitel test has not been met. Novopharm has failed to persuade me that Lilly Canada is removing
or there is a real risk that it is about to remove its assets from Canada to
avoid the possibility of a judgment, or that it is otherwise dissipating or
disposing of his assets, in a manner clearly distinct from its usual or
ordinary course of business so as to render the possibility of future tracing
of the assets remote or impossible.
[35]
The
only evidence Novopharm has provided in this respect is:
a.
That
Lilly Canada retains no profits but sends all of its profits to Lilly US;
b.
That
Lilly Canada maintains only operating accounts used to maintain its business in
Canada but does not
maintain any investments;
c.
That
after Justice Hughes’ decision when Lilly Canada lost market exclusivity on
olanzapine, Lilly Canada laid off some employees and some described it as being
in a “weakened state;” and
d.
That
Lilly Canada’s General Counsel and Corporate Secretary made statements under
oath that “suggested” that Lilly US would want to divest itself of any liability
to Novopharm.
[36]
This
evidence does not establish, on the balance of probabilities, that Lilly Canada
is about to remove its assets from Canada or that in sending its profits to its
parent, it is acting in anything other than the ordinary and usual course of
business. Further, there is nothing in the record that proves, on the balance
of probabilities, that the plaintiffs would wind up their Canadian operations
rather than pay Novopharm any judgment it is awarded. At best, to use the
wording of Novopharm, the evidence “suggests” and that, quite simply, is insufficient
evidence on which to base the grant of a Mareva injunction.
[37]
For
these reasons the motion is dismissed. In keeping with Justice O’Reilly’s Order
as to costs following the trial, Lilly Canada is entitled to its costs of this
motion at the middle of Column III and is entitled to fees for a second counsel
for attendance at the hearing of the motion.
ORDER
THIS COURT ORDERS that:
1.
The
motion is dismissed; and
2.
Lilly
Canada is entitled
to its costs of this motion at the middle of Column III and is entitled to fees
for a second counsel for attendance at the hearing of the motion.
“Russel W. Zinn”
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