Date: 20110131
Dockets: A-401-10
A-486-10
Citation: 2011 FCA 34
CORAM: BLAIS
C.J.
EVANS
J.A.
STRATAS
J.A.
Docket:
A-401-10
BETWEEN:
APOTEX INC.
Appellant
and
BRISTOL-MYERS SQUIBB COMPANY and
BRISTOL-MYERS SQUIBB CANADA INC.
Respondents
Docket: A-486-10
BETWEEN:
BRISTOL-MYERS SQUIBB COMPANY and
BRISTOL-MYERS SQUIBB CANADA CO.
Appellants
and
APOTEX INC.
Respondent
REASONS FOR JUDGMENT
STRATAS J.A.
[1]
There are
two appeals before us:
(1) The
first appeal (A-401-10):
an appeal by Apotex Inc. from an order of Justice Boivin of the Federal
Court. The Federal Court judge upheld an order of Prothonotary Aronovitch
dated July 30, 2010. In that order, the Prothonotary granted a motion brought
by Bristol-Myers Squibb Company and Bristol-Myers Squibb Canada Co.
(collectively “Bristol-Myers”) to strike out certain pleading amendments of
Apotex. She held that Apotex was entitled to make consequential amendments to
its pleadings without leave in response to certain amendments by Bristol-Myers
to its pleadings. However, Apotex’s amendments were more than consequential.
Therefore, she invited Apotex to bring a motion amending its pleadings. Apotex did
so. Its motion is the subject-matter of the second appeal.
(2) The
second appeal (A-486-10): an appeal by Bristol-Myers from an order of Justice
Tremblay-Lamer of the Federal Court. The Federal Court judge overturned an
order of Prothonotary Aronovitch dated October 26, 2010. The Prothonotary
refused Apotex leave to amend its pleading. The proposed amendments were exactly
the same as those considered in the first appeal. As a result of the Federal
Court judge’s order, Apotex is allowed to amend its pleadings.
[2]
These are
my reasons for judgment in both appeals; a copy will be placed in each court
file. These appeals arise within a patent infringement proceeding. In this
proceeding, Bristol-Myers alleges that Apotex’s manufacture, use and sale of
the compound nefazodone hydrochloride infringes certain claims of its patent,
no. 1,198,436 (the “’436 Patent”). In its proposed amendments, Apotex alleges
that the claims of the ’436 Patent are invalid for lack of sound prediction and
inutility.
[3]
A trial of
this proceeding is scheduled to start in little more than a month from now.
These motions and appeals have placed a cloud over the trial.
Analysis
(1) The legal test
[4]
The
parties substantially agree on the legal test to be applied in assessing
whether Apotex should be granted leave to amend its pleadings. A pleadings
amendment should be allowed for the purpose of determining the real questions
in controversy, provided that allowing the amendment would not result in an
injustice to the other party that is not capable of being compensated by an award
of costs and the amendment would serve the interests of justice: Canderel
Ltd. v. Canada, [1994] 1 F.C. 3 at page 10 (C.A.).
[5]
The burden
is “heavier when the amendments at issue purport to withdraw substantial
admissions and would result in a radical change in the nature of the questions
in controversy”: Merck & Co., Inc. v. Apotex Inc., 2003 FCA 488 at
paragraph 32, [2004] 2 F.C.R. 459. In Merck at paragraph 33, this Court
emphasized that a Judge or Prothonotary, faced with a motion to amend, “has the
duty to consider all relevant factors.”
(2) The standard of
review
[6]
The
standard of review on an appeal from a Prothonotary’s decision that raises a
question vital to the final issue of the case is de novo review: Canada
v. Aqua-Gem Investments Ltd., [1993] 2 F.C. 425 at pages 462-463 (C.A.); Merck, supra at
paragraph 19. The parties agree that the proposed amendment is an issue vital
to the final issue of the case: if Apotex’s proposed amendments are denied, it
will not be able to advance a potential defence to the infringement action.
Therefore, under Aqua-Gem and Merck, when the Federal Court
reviewed the Prothonotary’s decisions, it was obliged to do so de novo.
[7]
In this
Court, the standard of review is different. We may interfere with the Federal
Court’s decisions where that Court “had no grounds to interfere with the
Prothonotary’s decision or, in the event such grounds existed, if [the judge’s]
decision was arrived at on a wrong basis or was plainly wrong”: Merck, supra
at paragraph 20, citing Z.I. Pompey Industrie v. ECU-Line N.V., 2003 SCC
27, [2003] 1 S.C.R. 450 at paragraph 18. If we do set aside the Federal Court’s
decision, then we must render the judgment the Federal Court should have
rendered. This means that if, as here, the Prothonotary’s decision raises a
question vital to the final issue of the case, in accordance with Aqua-Gem
and Merck, we must review it de novo.
[8]
Bristol-Myers
submits that we should reassess this aspect of Aqua-Gem and Merck
and, instead, defer to the factual findings and assessments of the Prothonotary
even where they raise a question vital to the final issue of the case.
Bristol-Myers submits that the Prothonotary has a superior appreciation of the
proceeding because she has managed it for a decade. It notes that in the cases
at bar, if a judge made the factual and mixed fact and law assessments that the
Prothonotary made, we would be driven to a deferential posture by Housen v.
Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, a decision that postdates Aqua-Gem.
But Aqua-Gem and Merck take us in a different direction.
[9]
I am
attracted to Bristol-Myers’ submission. It is in accordance with the normal appellate
standard of review in Housen, supra. The Court of Appeal for Ontario has now held that there is no reasoned basis to
distinguish between the decision of a master and that of a judge for the
purposes of the standards of review on appeal: Zeitoun v. The Economical Insurance
Group, 2009 ONCA 415, aff’g (2009), 91 O.R. (3d)
131 (Div. Ct.). As the Divisional Court noted at paragraph 41, there
is “no compelling reason for adopting differing standards of review on appeal
depending solely on the place in the judicial hierarchy occupied by the
decision maker whose decision is under appeal.” However, it is unnecessary to
decide this point in these appeals.
(3) Distilling the four decisions
to their essence
[10]
The most
important decisions are those in the second appeal: the decision of Prothonotary
Aronovitch on October 26, 2010 to deny Apotex leave to amend its pleadings, and
the decision of Justice Tremblay-Lamer (hereafter, the “Federal Court judge”),
reversing the Prothonotary’s decision. Those decisions concern the propriety of
Apotex’s proposed amendment.
[11]
The
decisions that are the subject of the first appeal (the Prothonotary’s decision
of July 30, 2010 and Justice Boivin’s decision on appeal from that) arose from
a motion to strike amendments made by Apotex without leave. Those amendments
are the same as those the Prothonotary later considered on October 26, 2010, in
the motion for leave to amend. In her decision striking the amendments, the
Prothonotary did express substantive views about Apotex’s amendments but she
repeated those views in her later October 26, 2010 decision.
[12]
Therefore,
it makes sense to focus on the Prothonotary’s decision of October 26, 2010
decision and Federal Court judge’s decision on the appeal from it (i.e.,
the second appeal, A-486-10).
(4) Appeal A-486-10
[13]
In my
view, the decision of the Federal Court judge was arrived at on a wrong basis
and should be set aside. The decision of the Prothonotary dated October 26,
2010, rejecting Apotex’s amendments, should be restored.
[14]
The
Federal Court judge unduly constrained her inquiry. She did not consider
whether Apotex’s amendments would serve the interests of justice, as required
by Canderel Ltd., supra, nor did she consider all of the
circumstances, as required by Merck, supra. This is seen by the
Federal Court judge’s statement, in paragraph 21, that only “two main questions
arise”:
First do the amendments at issue result
in a “radical change” thus increasing the burden for Apotex to justify its
proposed amendments; and second, will allowing the amendments result in an
injustice to [Bristol-Myers] that is not capable of being compensated by an
award of costs?
[15]
Unlike the
Prothonotary, the Federal Court judge did not consider certain circumstances
relevant to the interests of justice. She also did not consider certain
circumstances relevant to determining how “radical” the proposed amendments
are. Under Merck, she was bound to consider all of the relevant
circumstances. These circumstances are considered below and include the vague,
unparticularized nature of Apotex’s 2004 amendment, Apotex’s pre-trial
memorandum in 2007, what took place during the discoveries, and recent events
in the litigation. Therefore, I would set aside the decision of the Federal
Court judge.
[16]
After the
decision of the Federal Court judge is set aside, our task is to stand in the
shoes of the Federal Court and render the decision it should have made. In
accordance with Aqua-Gem, supra and Merck, supra,
this means that we must conduct a de novo analysis of the issue without
any deference to the Prothonotary’s findings and conclusions in her decision of
October 26, 2010.
[17]
I reach
the same conclusion as the Prothonotary substantially for the reasons she gave.
Apotex should be denied leave to amend its pleadings.
[18]
Apotex
says that amendments it made to the pleading in 2004 put in play the issues of
lack of sound prediction and the broad inutility of nefazodone and its salts. It
alleges that the breadth of the wording of the 2004 amendments encompasses
these issues. I disagree. Events just before and just after the 2004 amendments
suggest otherwise.
[19]
The
initial pleading, as particularized, was clear. Apotex alleged that all of the
compounds covered by the ’436 Patent, with the exception of nefazodone and its
salts, lacked utility. Discoveries confirmed that only that subject-matter was
in play (see answers to questions 267-269, 293-296, 303-304, 310, 333 and
339-340).
[20]
In 2003,
Bristol-Myers voluntarily withdrew nefazodone hydrochloride from the market. It
did so because of reports that certain patients experienced liver-related
adverse side effects when they took nefazodone hydrochloride.
[21]
Apotex
applied for leave to amend its pleadings in 2004. In particular, in paragraph
21, it sought to add the words, “…even if one or more of the compounds of the
’436 Patent have the utility promised by the ’436 Patent, which is not admitted
but denied…”. Today, Apotex relies on the breadth of this wording. I agree
with the Prothonotory who observed, in her decision of October 26, 2010, that
“[n]o particulars were mentioned or given on that occasion about any other fact
to support lack of utility and sound prediction.” The words added in the 2004
amendments might have been seen as not satisfying the requirement in Rule 174
that material facts be pleaded. They are vague and unparticularized. However, the
Prothonotary regarded these words as being aimed at only a narrow issue. In
allowing Apotex to amend its pleading in 2004, she found that Apotex’s
amendments were based only on “recent actions” by Bristol-Myers: see the order
of the Prothonotary dated July 28, 2004. The recent actions were the withdrawal
of nefazodone hydrochloride from the market due to reports of liver-related
side effects. In a later order relating to the scope of discoveries, the
Prothonotary described the “amended pleas of inutility” introduced by the 2004
amendment as relating to “liver related side effects” and nothing else: see the
order of the Prothonotary dated April 4, 2005. Finally, in her decision of
October 26, 2010, the Prothonotary referred to those words as only supporting a
“specific ground of inutility (liver toxicity).”
[22]
If Apotex
felt that the Prothonotary’s interpretations in her 2004 and 2005 orders was
wrong, it should have clarified the situation through a motion to amend its
pleadings. It chose not to do so.
[23]
Today,
Apotex tells us that the decision of the Supreme Court in Apotex Inc. v.
Wellcome Foundation Ltd, 2002 SCC 77, [2002] 4 S.C.R. 153 changed the law
and, therefore, necessitated the 2004 amendments to its pleadings. If that was
the case, it could have addressed Wellcome with specific and well-particularized
amendments, but did not do so. In this regard, I agree with the following
comments of the Prothonotary:
That appeal was decided in 2002. To the
extent that the “new law” affected the scope of the pleading as understood by
Apotex, and give rise to new pleadings on sound prediction, or utility, the
time to make those amendments, withdraw admissions made, or to add particulars
to sustain a pleading based on lack of utility or sound prediction was in 2003.
That is even more so that pleadings were amended to add clear particulars of a
specific ground of inutility (liver toxicity) in 2004. No particulars were
mentioned or given on that occasion about any other fact to support lack of
utility and sound prediction even though [Wellcome] was decided two
years prior.
[24]
After the
pleadings amendment in 2004, discoveries ensued. The issues of lack of sound
prediction and the broad inutility of nefazodone and its salts were not in play
in those discoveries. In discoveries conducted on September 2, 2005, Apotex
gave an undertaking that if it was going to allege other bases for inutility,
it would advise (see question 975). Nearly twenty months later, Apotex did so
advise.
[25]
On April
30, 2007, in an answer to this undertaking, Apotex did advise of other bases
for inutility: “contrary to the assertions of the ’436 Patent, nefazodone does
not produce ‘effective antidepressant effects without causing any harmful or
untoward side effects’ and is not an ‘improved antidepressant with minimal side
effect potential’ as promised.” However, even though it knew of the
Prothonotary’s interpretations in 2004 and 2005 that the 2004 amendments were
narrower than this, and even though that answer to the undertaking suggested a
broader interpretation, Apotex did nothing to clarify the situation. It did not
amend its pleading at that time.
[26]
Normally,
this would be of small moment. The answer to the undertaking mentioned in the
preceding paragraph did serve to place Bristol-Myers on notice of the potential
breadth of the allegation. In those circumstances alone, a later amendment to
clarify the pleading might have been met with approval.
[27]
However,
seven months later, there was another important development: the parties filed
their pre-trial memoranda. In paragraph 27 of its pre-trial memorandum,
Bristol-Myers complained
that Apotex has not particularized its allegation of inutility on the basis of
side effects. In
paragraph 8(a) of its pre-trial memorandum, Apotex identified only one issue of
inutility: inutility relating to the liver-related side effects that led to the
withdrawal of the product.
[28]
This exchange
of pre-trial memoranda matters. Although the parties should be clear and candid
at all times during the litigation about what issues are in real dispute, they
certainly must come clean and be perfectly clear at the time of the pre-trial
conference. In their pre-trial memoranda, there has to be full and frank
discussion about all live, real issues so that “the Court [can] canvass …
whether the issues to be determined at trial … have been properly considered
and identified”: Wenzel Downhole Tools Ltd. v. National-Oilwell Canada Ltd.,
2010 FC 669 at paragraph 19 (Proth.). This prevents surprise
or ambush at trial. This also prevents the Court from wasting its scarce
resources by scheduling matters for trial when they are not ready. Due to the
seriousness of the representations made in the pre-trial memorandum and the
importance of the objectives of a pre-trial conference, parties can later be
held to what they say or do not say at the pre-trial conference: Wenzel,
at paragraph 20. In the pre-trial memorandum and in the discussions at the
pre-trial conference, there
is no place for strategic non-disclosure or purposeful non-clarification. If an
issue is not placed squarely on the table, all are entitled to assume that it
is not on the table.
[29]
The
place for Apotex to identify the issues of lack of sound prediction and the broad
inutility of nefazodone and its salts was in its 2007 pre-trial memorandum and
at the pre-trial conference – not in a pleadings amendment sought, despite the
absence of any further discoveries or new facts, roughly three years later on
the eve of trial. “New facts or other compelling circumstances” might allow a
party to add new issues after a pre-trial conference (Wenzel, at
paragraph 24) – and even then there might be a significant burden to discharge
– but there are no new facts or compelling circumstances here.
[30]
Approximately
two years after the pre-trial conference, Apotex filed expert reports that gave
Bristol-Myers the impression that Apotex was now raising issues of sound
prediction and inutility beyond the scope of the pleadings. Bristol-Myers
objected and these motions and appeals resulted. Now in a recently-served notice to
attend, Apotex shows that it now wants to conduct discoveries on the length and
breadth of the entire development of nefazodone, and it seeks a further and
better affidavit of documents from Bristol-Myers.
[31]
In
evaluating these recent developments, we must return to the pre-trial
conference. First,
Rule 258(4) contemplates that at the pre-trial conference a party should
provide expert reports that are intended to be used
at trial and that may be of assistance at the pre-trial conference. Apotex
provided none addressing the assertion of broad inutility and lack of sound
prediction. That happened only two years later, in 2009. Second, in order for a pre-trial
conference to be held, a party must certify that “all examinations for
discovery that the party intend to conduct have been completed”: Rule 258(2).
By the time of the pre-trial conference in this case, the parties had conducted no
discoveries on the issues of lack of sound prediction and the broad inutility
of nefazodone and its salts. In the words of the Prothonotary:
There was also no discovery in respect of
the sound prediction of nefazodone, ever, including following the 2004
amendments….It remains to be conducted, at this late date…
Indeed, throughout the period of
discovery, including the third round discovery relating to amendments regarding
alleged adverse effects on the liver, the only issue that went forward relating
to utility was that nefazodone does not meet the promise of the patent due to the
withdrawal of the product as a result of these alleged [liver] effects. There
were no particulars, amendments, discussion, or discovery relating to the lack
of sound predicted utility of nefazodone or its salts, and of the inutility of
nefazodone based on side effects other than liver toxicity.
[32]
Now, in this Court, Apotex asks us to accept that the 2004
amendments were broad and encompassed the issues of lack of sound prediction and
the broad inutility of nefazodone and its salts. If that is true, why are
discoveries being started on these issues only now, well after the pre-trial
conference, a conference that is to be held when discoveries have been
completed? Why were these issues not clearly identified in the 2007 pre-trial
conference memorandum, a memorandum which, as we have seen, is a most serious
document that is relied upon by the Court and all parties? Why did Apotex offer
in these late motions what the Prothonotary describes as “amendments that have
yet to be particularized” and allegations whose “facts…are not known”? I agree
with the Prothonotary that “misunderstanding or ‘inadvertence’” cannot explain
what has happened here.
[33]
It is true
that pleadings amendments should be allowed for the purpose of determining the
real questions in controversy. Indeed, I note that pleadings amendments can be
made at any time to achieve that purpose – even after the trial has begun, and sometimes
even very late in the trial. I also acknowledge that under the Canderel
test last minute clarification amendments, or amendments to bring the pleadings
into accord with discovery or trial evidence, should often be allowed. Even in
a case such as this – where a major new issue has been sprung into the
proceeding at the last minute without justification, well after the pre-trial
conference where all parties were obligated to come clean – I am obligated to
give significant weight to the need for the real questions in controversy to be
determined. I have done so. However, in my view, leave for Apotex to amend its
pleadings should still be refused.
[34]
For
roughly an entire decade, Apotex has conducted itself in a way that suggested
that the issues of lack of sound prediction and the broad inutility of
nefazodone and its salts
were not real questions in controversy. If they were real questions in
controversy, they would have been addressed meaningfully at least at some time,
if not constantly, during this decade-long litigation. Instead, those questions
were no part of the discoveries or the pre-trial memoranda. Now, only at this late
date – years after the exchange of pre-trial memoranda – and without any significantly
new developments in the litigation, Apotex seeks a further and better affidavit
of documents from Bristol-Myers and embarks upon what the Prothonotary called a
“fishing expedition” concerning “the length and breadth of the development of
nefazodone.” Finally, as the Prothonotary also found, even now on the eve of
trial Apotex cannot articulate these supposedly “real questions in controversy”
with acceptable particularity.
[35]
The countervailing
considerations of injustice to Bristol-Myers and the overall interests of
justice strongly support denying leave to Apotex to amend its pleadings. In
this regard, I substantially agree with the reasons of the Prothonotary and
adopt them as my own, along with the additional reasons I have given.
[36]
In
considering the overall interests of justice, I note that, except for Justice
Boivin, who issued an order with rudimentary reasons set out in the preambles
to his order, every judicial officer who has touched the record in this case
has made strong findings concerning these countervailing considerations. The
Prothonotary concluded that for Apotex “to have delayed this long…with obvious
prejudice to [Bristol-Myers] is not in the interests of justice,” is “contrary
to the right of the parties to the orderly progression of matters to trial” and
“ought not to be countenanced.” The Federal Court judge concluded that “Apotex
was aware of [Bristol-Myers’] misapprehension and purposefully, for strategic
reasons, decided not to clarify the matter for [Bristol-Myers].” She added that
“[t]his type of strategic manoeuvring is directly contrary to the purpose and
spirit of discovery and is looked upon very unfavourably by this Court.” She
made these observations even though she did not place much relevance on the
pre-trial conference, a matter that is actually quite central to this matter
and that, in my view, substantially undercuts Apotex’s position.
[37]
Complex,
high-stakes intellectual property proceedings are governed by procedural rules
aimed at fairness, full and timely disclosure, and efficiency. Purposeful,
strategic conduct involving non-disclosure, non-clarification or inaction, as
the Prothonotary and the Federal Court judge found here, disrespects these
rules and their aims. Those who disrespect the rules and their aims can hardly
expect courts to smile upon them when they look for a favourable exercise of
discretion under those rules.
[38]
The result
in this case is even clearer if we apply the admonition in Merck, supra,
that the burden under the Canderel test is heavier when “the amendments
at issue…would result in a radical change in the nature of the questions in
controversy.” In light of the Prothonotary’s interpretation of Apotex’s 2004
amendments as being restricted to liver issues and in light of the foregoing
analysis, the proposed amendments would indeed result in a radical change to
the nature of the questions in controversy.
[39]
Therefore,
in appeal A-486-10, I would allow the appeal, set aside the decision of the
Federal Court judge, restore the decision dated October 26, 2010 of the
Prothonotary, and award costs to Bristol-Myers here and below.
(5) Appeal A-401-10
[40]
In appeal
A-401-10, it follows from the foregoing analysis that there are no grounds to
interfere with Justice Boivin’s decision that upheld the Prothonotary’s
decision of July 30, 2010 that refused Apotex’s proposed amendments. Therefore,
in that file, I would dismiss the appeal, with costs to Bristol-Myers here and
below.
“David
Stratas”
“I agree
Pierre Blais C.J.”
“I agree
John M. Evans J.A.”
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