Docket: A-204-15
Citation:
2015 FCA 155
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CORAM:
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NADON J.A.
TRUDEL J.A.
STRATAS J.A.
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BETWEEN:
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APOTEX INC.
and APOTEX
PHARMACHEM INC.
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Appellants
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and
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ALLERGAN, INC., ALLERGAN SALES, LLC.
ALLERGAN USA,
INC. and KYORIN PHARMACEUTICAL CO., LTD.
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Respondents
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REASONS
FOR JUDGMENT
STRATAS J.A.
[1]
Some time ago, the
respondents, Allergan, Inc. et al., brought an action in the Federal
Court against the appellants, Apotex Inc. et al., for patent
infringement.
[2]
Later, the parties discussed
settlement. At one point, Allergan concluded that a settlement had been
reached. Apotex disagreed. So Allergan moved in the Federal Court for an order
enforcing what it says are the terms of settlement. Apotex opposed.
[3]
The Federal Court (per
Hughes J.) found that the parties had settled the litigation. On March 24, 2015
it issued an order enforcing the terms of the settlement: 2015 FC 367.
[4]
Apotex appeals to this
Court. It submits that the Federal Court erred in principle in finding that
there was a settlement agreement. I agree with Apotex’s submission. Therefore,
I would allow the appeal, set aside the Federal Court’s order, and grant Apotex
its costs here and below.
A.
Basic facts
[5]
Allergan brought an action
in the Federal Court (file T-1267-10) alleging that Apotex has infringed
Canadian Patent No. 1,340,316 by selling, manufacturing and exporting products
containing gatifloxacin.
[6]
Settlement discussions took
place from April 2012 to March 2014. The record before us contains an initial
set of letters, emails, draft Minutes of Settlement enclosed with emails, and
reporting letters to the Federal Court, which was managing the action.
[7]
Later in these reasons, I
shall look at some of what the parties said in some of these documents. For
present purposes, I shall focus on the documents the Federal Court relied upon
to find that the parties had settled the action.
[8]
The Federal Court found (at
paras. 44-50) that a settlement had been reached. In the course of its reasons,
it examined two sets of documents:
•
The initial exchange:
three letters and an email. A
couple of years after Allergan started the action, Apotex sent Allergan a
letter offering to settle it. Allergan replied by letter, seeking clarification
“to advance this case towards settlement.”
Apotex supplied that clarification. An email followed that was silent
concerning the clarification. These three letters and one email were all sent
in April 2012. The Federal Court suggests (at paras. 44-46) that as a result of
these communications an agreement was essentially in place and all that
happened afterward was minor and non-essential.
•
The January 13, 2014 - February
24, 2014 exchange. Following
the initial exchange, twenty-three months of emails followed. The parties also exchanged
a number of draft Minutes of Settlement. In the end, discussions broke off.
However, the Federal Court found that an email sent by counsel for Allergan on
February 24, 2014 accepted the terms contained in draft Minutes of Settlement
enclosed with an email counsel for Apotex sent on January 13, 2014. The Federal
Court concluded (at paras. 48-51) that this was a matching offer and acceptance
as to all terms.
[9]
In October 2014, six months
after negotiations fell apart, Allergan moved for an order enforcing the
settlement agreement it thought it had reached. In its view, although the
parties did not place signatures on a formal agreement, the parties had reached
agreement on all essential terms.
[10]
The Federal Court concluded
that the parties had reached a settlement agreement and so it granted
Allergan’s motion.
B.
Analysis
(1)
The jurisdiction of the
Federal Courts to consider whether the parties have reached a settlement
agreement
[11]
Before the Federal Court, the
parties accepted that it had jurisdiction to decide the motion. Nevertheless,
knowing its status as a statutory court and recognizing that it had to be certain
of its jurisdiction, the Federal Court prudently considered this issue.
[12]
The Federal Court held that
it had jurisdiction to determine whether a patent infringement action had been
settled and, if so, to enforce the settlement agreement (at paras. 32-33). It
cited the Federal Court’s jurisdiction over patent infringement actions under
s. 20 of the Federal Courts Act, R.S.C. 1985, c. F-7, ss. 54(2) of the Patent
Act, R.S.C. 1985, c. P-4 and several authorities confirming its
jurisdiction, such as Kellogg Co. v. Kellogg, [1941] S.C.R. 242, [1941] 2 D.L.R. 545 and Flexi-Coil Ltd. v.
Smith-Roles Ltd. (1980), [1981] 1 F.C. 632,
50 C.P.R. (2d) 29 (T.D.).
[13]
On the issue of
jurisdiction, I agree with the Federal Court and substantially adopt its
analysis. I would add the following. Contract law, when viewed in a vacuum, is
normally under provincial jurisdiction. However, the Federal Court has
jurisdiction when the contract law issue before the Court is part and parcel of
a matter over which the Federal Court has statutory jurisdiction, there is
federal law essential to the determination of the matter, and that federal law
is valid under the constitutional division of powers: ITO-Int’l Terminal Operators v. Miida Electronics, [1986] 1 S.C.R. 752, 28 D.L.R. (4th) 641; Canadian
Transit Company v. Windsor (Corporation of the City), 2015 FCA 88, 384
D.L.R. (4th) 547.
[14]
The Federal Court had
jurisdiction for another reason. The existence or non-existence of a settlement
agreement affects the status of proceedings before this Court. If the former,
the action subsists; if the latter, it does not. As part of its plenary powers,
this Court has jurisdiction to rule upon whether or not a proceeding subsists: Canada (Human Rights Commission) v. Canadian
Liberty Net, [1998] 1 S.C.R. 626,
157 D.L.R. (4th) 385 at paras. 35 to
38; Canada (National Revenue) v. RBC Life Insurance Company, 2013
FCA 50, 443 N.R. 378 at paras. 35-36; Mazhero v. Fox, 2014 FCA 226 at
para. 9.
[15]
Where both the Federal Court
and a provincial superior court have concurrent jurisdiction over the matter,
the Federal Court may decline jurisdiction, stay the matter before it, and give
way to the provincial superior court because it considers the provincial
superior court to be a more appropriate forum: Federal Courts Act,
above, s. 50.
(2)
The requirements for a
settlement agreement
(a)
General principles
[16]
This case concerns whether a
settlement agreement has been reached in a common law jurisdiction. The
following summary of the requirements for a settlement agreement is restricted
to common law jurisdictions. The requirements in Québec, in particular under
ss. 1385-1396 of the Civil Code of Québec, C.Q.L.R., c. C-1991, should
await a future case.
[17]
After canvassing some of the
jurisprudence concerning the formation of settlement agreements, the Federal
Court set out the requirements as follows (at para. 41):
• for
there to be a binding contract, there must be an offer and acceptance wherein
the terms of the offer are matched by the terms of the acceptance;
• the acceptance must be unequivocal;
• there
can be an offer and acceptance so as to create a binding contract even where
the parties contemplate the execution of a more formal document;
• negotiations
as to the more formal document do not necessarily mean that an offer or
acceptance has been repudiated.
[18]
As shall be seen from the
discussion below, the first proposition needs to be qualified. A settlement
agreement arises once there is a matching offer and acceptance on all essential
terms; continuing disagreement over unessential terms is immaterial. This
notion of essential terms, in fact, is quite central to the law concerning
settlement agreements. Indeed, it is quite central to the outcome of this case.
[19]
I do not disagree with the
remaining propositions, stated in their generality. However, they do not supply
all the principles necessary to decide this case or other such cases.
[20]
A court will find that a
settlement agreement has been reached when certain requirements are satisfied.
I have grouped these into five separate matters to be considered.
– I –
[21]
First, the court must find
on the evidence before it that, objectively viewed, the parties had a mutual
intention to create legal relations.
[22]
The test is whether a
reasonable bystander observing the parties would conclude that both parties, in
making a settlement offer and in accepting it, intended to enter into legal
relations: see, e.g., McCabe v. Verge (1999), 182 Nfld. &
P.E.I.R. 135 at para. 13 (Nfld. C.A.); British Columbia (Minister of
Transportation & Highways) v. Reon Management Services Inc., 2001 BCCA
679, 208 D.L.R. (4th) 175 at para. 24.
[23]
The requirement of an objective,
mutual intention to create legal relations does not mean that there must be
formality. Settlements need not be reached through counsel or in pre-planned, formal
discussions.
[24]
Indeed, many cases show
that—sometimes much to the surprise of clients and lawyers alike—seemingly idle
conversations can have binding, legal consequences. Binding settlements can
arise from impromptu, informal communications in relaxed, non-business
settings. See, e.g., McCabe, above at para. 11; UBS Securities
Canada, Inc. v. Sands Brothers Canada Ltd., 2009 ONCA 328, 95 O.R. (3d) 93
(C.A.); Ward v. Ward, 2011 ONCA 178, 104 O.R. (3d) 401 at para.
64; RTS Flexible Systems Limited v. Molkerei Alois Muller Gmbh, 2010
UKSC 14, [2010] 1 W.L.R. 753 at para. 45.
– II –
[25]
Second, like all other
agreements, a settlement agreement must satisfy the requirement that there be
consideration flowing in return for a promise. In settlement agreements, this
is almost certainly never a problem—by definition, settlements are compromises,
and so there will be consideration flowing both ways.
–III –
[26]
The Court must also find, as
an objective matter, that the terms of the agreement are sufficiently certain:
see, e.g., Bawitko Investments Limited v. Kernels Popcorn Limited
(1991), 53 O.A.C. 314, 79 D.L.R. (4th) 97 at pp. 103-104 at p. 104 (Ont. C.A.);
Olivieri v. Sherman et al., 2007 ONCA 491, (2007), 86 O.R. (3d) 778 at
para. 49 (C.A.). Where the parties “express themselves
in such fashion that their intentions cannot be divined by the court…the
agreement will fall for lack of certainty of terms”: John McCamus, The
Law of Contracts (Toronto: Irwin Law, 2005) at p. 91. Another way of
putting this is that the court must be satisfied that the parties were
objectively ad idem or were objectively of a common mind.
[27]
It is not for the courts to
amend the parties’ offer and acceptance and make the terms certain. The Court
will not make “a new agreement for the parties”
where they “were never ad idem”: Kelly
v. Watson (1921), 61 S.C.R. 482, 57 D.L.R. 363.
[28]
That being said, where the
parties were objectively of a common mind and “intended
some legal relationship to exist between them,” often their reasonable
expectations can be discerned and “courts will
generally strive to give effect to [them]”: Hunt River Camps/Air
Northland Ltd. v. Canamera Geological Ltd. (1998), 168 Nfld. & P.E.I.R.
207, 517 A.P.R. 207 at pp. 217-18 (Nfld. C.A.); see also, e.g., Canada
Square Corp. v. Versafood Services Ltd. (1982), 34 O.R. (2d) 250, 130
D.L.R. (3d) 205 (C.A.); Olivieri, above at para. 50.
[29]
Lack of certainty of terms
leading to a finding that there was no agreement is something quite different
from the presence in an agreement of words that have a range of meaning. For
example, words like “disparage” or “scientific” may have a range of meaning but as long
as a court can divine a meaning from those terms in the circumstances of a
particular case, the agreement is not void for uncertainty: see Olivieri,
above at para. 49.
– IV –
[30]
An agreement does not arise
until there is matching offer and acceptance on all terms essential to the
agreement: Olivieri, above at para. 32; Fieguth v. Acklands
Ltd. (1989), 59 D.L.R. (4th) 114, 37 B.C.L.R. 62 (C.A.) at para. 35; Bawitko,
above at pages 103-04. Disagreement, objectively assessed, on an essential term
will mean that there is no agreement: Reon Management Services Inc.,
above at para. 34.
[31]
How does a court decide what
terms are essential and what terms are not?
[32]
The court is to view the
specific facts of the case objectively in light of the practical circumstances
of the case and ask whether the parties intended to be legally bound by what
was already agreed or, in other words, whether an “honest,
sensible business[person] when objectively considering the parties’ conduct
would reasonably conclude that the parties intended to be bound or not”
by the agreed-to terms: G Percy Trentham Ltd v Archital Luxfer Ltd (1992),
[1993] 1 Lloyd’s Rep 25, 63 B.L.R. 44 (C.A.) at paras. 50 and 86; Ward
at para. 61; Hughes v. City of Moncton, 2006 NBCA 83, 304 N.B.R. (2d) 92
at para. 6. Put another way, looking not through the eyes of lawyers, but
through the eyes of reasonable businesspeople stepping into the parties’ shoes,
was there something essential left to be worked out? See Investors
Compensation v. West Bromwich Building Society, [1998] 1 All E.R. 98;
[1998] 1 W.L.R. 896 (H.L.); Chartbrook v. Persimmon Homes, [2009] UKHL
38, [2009] A.C. 1101; Re Sigma Finance, [2009] UKSC 2, [2010] 1 All E.R.
571. Another way of putting it is to ask how “a
reasonable [person], versed in the business, would have understood the
exchanges between the parties”: Bear Stearns Bank plc v. Forum Global
Equity Ltd., [2007] EWHC 1576 (Q.B.D. Comm.) at para. 171.
[33]
When courts find that there
has been an agreement on essential terms, they will often imply non-essential
terms into the agreement: McCabe, above at para. 20; Fieguth,
above; Hughes, above at para. 6. The lack of agreement on non-essential
terms will not stand in the way of a finding of an agreement. Put another way, “it is not necessary that the original contract include all
the ancillary terms that are already implicit in its content”: Ward,
above at para. 54. “Even if certain terms of economic
or other significance to the parties have not been finalized, an objective
appraisal of their words and conduct may lead to the conclusion that they did
not intend agreement of such terms to be a pre-condition to a concluded and
legally binding agreement”: RTS Flexible Systems, above at para.
45. For example, assuming an agreement on essential terms is otherwise in
place, courts can imply terms concerning the granting of a release, the manner
of payment and the timing of payment: Fleguth, above at para. 21;
Hodaie v. RBC Dominion Securities, 2012 ONCA 796 at para. 3; Imperial
Oil Ltd. v. 416169 Alberta Inc., 2002 ABQB 386, 310 A.R. 338. Often these
will be “mere formalities or routine language”: Bawitko,
above at p. 106.
[34]
A vexed question is whether
words such as “subject to formal agreement” in
an offer or acceptance will forestall the existence of an agreement until the
formal agreement is signed. The question is vexed because the answer turns on
constructing the communications between the parties, sometimes a challenging
task.
[35]
Even though parties might
agree that they will draw up a later formal written agreement evidencing the
terms of the settlement, they may have already bound themselves because they
have agreed, orally or in writing, to all the essential terms. Put another way,
“[t]he fact that a further document was required to
formalize the agreement between these parties is not an impediment to finding
that [an oral or written exchange constitutes] a binding contract if the terms
in the [exchange] contain agreement on all of its essential terms”: Gutter
Filter Company LLC v. Gutter Filter Canada Inc., 2011 FC 234 at para. 11.
[36]
In some circumstances,
however, words such as “subject to reaching a formal
agreement” can be enough to ensure that there is no agreement until the
formal agreement has been signed: Olivieri, above at para. 48. The
question is whether the parties have only reached “an
agreement to later agree on essential provisions” or “to defer the binding nature of the agreement until the
execution of the proposed subsequent formal contract”: Ward,
above at para. 53.
[37]
As the Court of Appeal for
Ontario wrote in Bawitko (at p. 104):
When
they agree on all of the essential provisions to be incorporated in a formal
document with the intention that their agreement shall thereupon become
binding, they will have fulfilled all the requisites for the formation of a
contract. The fact that a formal written document to the same effect is to be
thereafter prepared and signed does not alter the binding validity of the
original contract.
However, when the
original contract is incomplete because essential provisions intended to govern
the contractual relationship have not been settled or agreed upon; or the
contract is too general or uncertain to be valid in itself and is dependent on
the making of a formal contract; or the understanding or intention of the
parties, even if there is no uncertainty as to the terms of their agreement, is
that their legal obligations are to be deferred until a formal contract has
been approved and executed, the original or preliminary agreement cannot
constitute an enforceable contract. In other words, in such circumstances the
“contract to make a contract” is not a contract at all. The execution of the
contemplated formal document is not intended only as a solemn record or
memorial of an already complete and binding contract but is essential to the
formation of the contract itself.
[38]
In the end, whether or not a
“subject to formal agreement” clause precludes a
finding of agreement is a question of construction.
That question focuses on “whether
the execution of the further contract is a condition or term of the bargain, or
whether it is a mere expression of the desire of the parties as to the manner
in which the transaction already agreed to will in fact go through”: Calvan Consolidated Oil & Gas Ltd. v. Manning,
[1959] S.C.R. 253 at p. 261, 17 D.L.R. (2d) 1; Hatzfeld-Wildenburg v.
Alexander, [1912] 1 Ch. 284 at pp. 288-89. In the former case, there is no
enforceable contract; in the latter, there is.
[39]
This is assessed
objectively, looking at the correspondence passing among the parties, with a
view to ascertaining whether the parties, through an exchange of matching
correspondence, intended to create immediate legal relations: Newbury v. Sun
Microsystems, [2013] EWHC 2180 at paras. 19-24 (Q.B.D.). Some courts have
used subsequent conduct of the parties to shed light on whether there has been
an agreement on essential terms: Bawitko, above at p. 107; Ward,
above at paras. 55, 65, 68-76; Andrews v. Lundrigan, 2009 ONCA 160, 247
O.A.C. 15 at para. 8; Dominak v. Lockhart, 2014 BCCA 432, 65 B.C.L.R.
(5th) 318 at para. 35.
– V –
[40]
In particular cases, other
requirements might arise. For example, legislation can create special
requirements for certain types of contracts, such as the need for an agreement
for a sale of land to be evidenced in writing: see, e.g., An Act for
Prevention of Frauds and Perjuries, 29 Chas. 2 c. 3, (Eng., 1677);
and by way of illustration see Girouard v. Druet, 2012 NBCA 40, 386
N.B.R. (2d) 281.
[41]
Legislation can also forbid
the making of certain contracts. It can also incorporate certain mandatory
terms into agreements notwithstanding the parties’ actual agreement.
[42]
Where agents for the
parties, such as counsel, are conducting the negotiations, the usual law
relating to the formation of contracts through agents applies.
[43]
Thus, in the case of parties
represented by counsel, if both counsel possess the apparent authority to bind
their clients—neither has qualified their authority at the outset or neither
has qualified an offer or acceptance by saying it is “subject
to my client’s approval” or “subject to
instructions”—then a matching offer and acceptance by counsel binds the
clients. A lawyer’s explicit reservation of the client’s authority to decide
whether an offer is accepted means that there can be no agreement until the
client is heard from.
(b)
The standpoint of the court
in assessing the requirements for a settlement
[44]
The Federal Court suggested
(at para. 42) that when assessing whether the requirements for a settlement
agreement are met, the Court must adopt a “subjective
standard, not an objective one.”
[45]
I disagree. In assessing
whether the requirements are met, the Court must adopt an objective standpoint.
This can be seen from almost all of the cases set out above. They continually
speak of objective, not subjective, evaluations of the evidence.
[46]
So, for example, in
determining whether a party has accepted a settlement offer, the court is not
interested in the party’s actual intentions. Rather, the standpoint is
objective:
If,
whatever a [person’s] real intention may be, [the person] so conducts himself
[or herself] that a reasonable [person] would believe that he [or she] was
assenting to the terms proposed by the other party, and that the other party
upon that belief enters into a contract with him [or her], the [person] thus
conducting himself [or herself] would be equally bound as if he [or she] had
intended to agree to the other party’s terms.
(Smith v. Hughes
(1871), L.R. 6 Q.B. 597 at p. 607, 19 W.R. 1059 and see, most recently, RTS
Flexible Systems, above at para. 45.)
[47]
Put another way, the
subjective reservations of one party do not prevent the formation of a binding
agreement if, to all objective, outward appearances, the parties have intended
to create legal relations and have agreed in the same terms on the same
essential subject matter: Newbury, above at para. 14, citing Air
Studios (Lyndhurst) Limited T/A Entertainment Group v. Lombard North Central
PLC, [2012] EWHC 3162 at para. 5 (Q.B.D.).
[48]
Accordingly, evidence into
the actual state of mind or subjective intention of the parties is irrelevant: Lindsay
v. Heron & Co. (1921), 50 O.L.R. 1, 64 D.L.R. 92 (Ont. S.C. (A.D.)).
Where the parties are exchanging written communications, intentions are to be
measured by an objective reading of the language chosen by the parties to
reflect their agreement: Olivieri, above at para. 44; Andrews,
above at para. 8.
[49]
The same point was put well
in Lindsay, above at pp. 98-99:
The
apparent mutual assent of the parties essential to the formation of a contract,
must be gathered from the language employed by them, and the law imputes to a
person an intention corresponding to the reasonable meaning of his words and
acts. It judges of his intention by his outward expressions and excludes all
questions in regard to his unexpressed intention. If his words or acts, judged
by a reasonable standard, manifest an intention to agree in regard to the
matter in question, that agreement is established, and it is immaterial what
may be the real but unexpressed state of his mind on the subject.
[50]
The whole course of the
parties’ negotiations must be considered and an objective test must be applied:
Hugh Beale, ed., Chitty on Contracts, 31st ed. (London: Sweet &
Maxwell, 2012), vol. 1, paras. 2-028 and 2-029.
[51]
In this case, the Affidavit
of Erin McIntomny, filed by Allergan, appends the various letters, emails and
draft Minutes of Settlement without commentary. The Affidavit of Benjamin
Hackett, filed by Apotex, does likewise but adds relatively uncontroversial
context surrounding the documents. Both affidavits largely let the documents
speak for themselves, allowing the Court to assess the matter objectively. If
it were necessary, the affidavits could have provided objective information
about the circumstances surrounding the negotiations, but here they did not
need to do so. Quite properly, neither affidavit offers evidence as to the
parties’ subjective intentions. This is the proper approach.
(c)
A warning
[52]
The foregoing shows that a
settlement agreement may be reached quickly without formality and, from a
subjective standpoint, sometimes unexpectedly: settlement agreements almost
always involve consideration, settlement discussions usually take place in a
context where an intention to create legal relations can be presumed, informal
discussions can count, a meeting of minds is assessed objectively, an agreement
on all essential terms is binding even though the parties are still negotiating
over other terms and, unless essential, terms such as the provision of releases
can be easily implied into an agreement to complete it. The recent decision of
the Supreme Court of the United Kingdom in RTS Flexible Systems, above,
underscores these points.
[53]
This has practical
ramifications. If a party does not want to be bound until it has agreed to all terms
it subjectively considers essential to the deal, in every offer it communicates
it must make that wish objectively clear.
(3)
Applying these principles to
the facts of this case
[54]
As mentioned above, in
finding that the parties had reached a settlement agreement, the Federal Court
focused on two sets of evidence. First, an initial exchange: three letters and
an email in April 2012. Second, an exchange of emails on January 13, 2014 and
February 24, 2014.
[55]
I shall examine these two
bases. Then I shall examine the rest of the documents in the record before us.
In my view, applying the proper principles set out above, it is not possible to
find that the parties reached a settlement agreement.
(a)
The initial exchange: three
letters and an email in April 2012
[56]
As mentioned above, the
negotiations began with the exchange of three letters and one email in April
2012.
[57]
The Federal Court held that
all the essential terms were agreed to in this exchange. It said (at paras.
45-46) that the e-mail exchanges and the draft formal agreements exchanged
afterward only added “added preambles,” minor
words “such as that the agreement is binding on heirs,
assigns, etc.,” and “fussing as to the wording
of the Minutes of Settlement.”
[58]
This holding suffers from
several errors that warrant our interference.
[59]
The Federal Court asserted
that all the essential terms were agreed to in this exchange without
considering the law as to essentiality and how it applies in the case. In
setting out four legal propositions that govern the case, it did not mention
essentiality. Further, it did not analyze what terms were essential in
accordance with the principles discussed above. As will be seen, these
principles take the analysis in a different direction.
[60]
In reaching its conclusion,
the Federal Court said that it must apply a “subjective
standard, not an objective one, as to whether there has been a binding
contract” (at para. 42). As is evident from the discussion of the principles
above, this was in error. As will be seen, at a key portion of its analysis,
the Federal Court appears to have been distracted by Allergan’s subjective view
of the importance of certain terms that had to be negotiated out, rather than
keeping to an objective assessment of the matter from the standpoint of a
reasonable businessperson.
[61]
Taken together, this
constitutes legal error that warrants our interference: Housen v. Nikolaisen,
2002 SCC 33, [2002] 2 S.C.R. 235. As this matter applies to contractual
formation rather than interpretation, the recent words on the appellate standard
of review in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53,
[2014] 2 S.C.R. 633 do not apply. But even if they did, Sattva maintains the Housen
position that an error of law or extricable principle
will justify appellate interference (at para. 53).
[62]
The first letter in this
initial exchange, dated April 9, 2012, was from Apotex to Allergan. It proposed
the following terms:
1. This offer shall remain open for acceptance until 1
minute after the commencement of trial or until such time prior thereto that it
is withdrawn in writing.
2. [Allergan] will discontinue the action on a without costs
basis.
3. [Apotex] will undertake:
a. that
no gatifloxacin containing formulations will be manufactured for commercial
sale by [Apotex] in Canada until expiry of Canadian Patent No. 1,340,316 (the
’316 patent”);
b. that
any use of gatifloxacin API in Canada by [Apotex] to expiry of the ’316 patent
will be solely for regulatory and/or experimental use;
c. that
no gatifloxacin containing formulations manufactured by [Apotex] for regulatory
and/or experimental use to expiry of the ’316 patent will be sold commercially;
and
d. that
any gatifloxacin API that has not been used for regulatory and/or experimental
use by expiry of the ’316 patent will be destroyed on expiry of the ’316
patent.
[63]
By letter dated April 20,
2012, Allergan asked for clarification as to the scope of paragraph 3 both in
terms of parties and locations:
Could
you please clarify whether this undertaking relates to any manufacturer in
Canada for commercial sale anywhere in the world until after expiry of the ’316
patent. Or whether it contemplates that there will be no manufacturer for
commercial sale in Canada but would permit commercial manufacture for
commercial sale outside of Canada until expiry of the ’316 patent.
…
In
addition, could you please confirm that the undertaking given by [Apotex] would
extend to any company under the power or control or affiliated with [Apotex].
[64]
Allergan said the
clarifications it requested were “relatively minor
concerns.” That may have been said for tactical
reasons in the negotiation or that might have been its subjective view, but, as
I will explain later—looking at the matter objectively—an issue as to the scope
of the restrictions to be placed upon Apotex under the deal is significant, not
minor.
[65]
In a letter dated April 24,
2012, Apotex offered a clarification regarding the scope of paragraph 3:
We
are writing to confirm that the undertaking not to manufacture gatifloxacin
containing formulations for commercial sale by [Apotex] in Canada until after
the expiry of the ’316 patent relates to manufacture in Canada for commercial
sale anywhere in the world and that the undertaking extends to any company
under the power or control of or affiliated with [Apotex].
[66]
Apotex added some additional
comments on its clarification:
Please
understand that, in providing you with the undertaking, the Apotex companies do
not require regulatory approvals that commercial manufacture be done at the
same site as development. For the U.S., for example, there would have been and
is no difficulty transferring manufacture to a site outside of Canada. It has
always been Apotex’s intent to do that, until expiry of the Canadian patent.
In the latter regard,
the reason that Apotex has not launched in the U.S. on that basis is that your
clients have destroyed the market by switching the market to a changed product
while Apotex was litigating and awaiting litigation.
[67]
In response, counsel for Allergan
sent an email three days later. The email did not state that Apotex’s offer was
accepted. It said nothing about whether the clarification was satisfactory or
whether the additional comments on the clarification caused it concern. Instead,
the email from counsel for Allergan advised that “we
are making good progress in settlement discussions.” It also added that counsel did not have
instructions from his client and would not have those instructions for another
two weeks. Those two weeks went by—in fact, more weeks went by—without word
from counsel from Allergan about whether his client had supplied instructions.
By early June 2012, counsel for Allergan circulated draft Minutes of Settlement
“to get the ball rolling” subject to his client’s “input.” By late June 2012, he circulated a revised draft, subject
to his client’s input and instructions. Afterward, the parties began to
negotiate and differ over the scope of the restrictions to be imposed upon
Apotex, the subject-matter of what was originally paragraph 3 in the April 9,
2012 letter.
[68]
Viewing this evidence
objectively from the standpoint of a businessperson—not subjectively—the three
letters and the email cannot constitute an offer and acceptance. Properly
characterized, they are an offer on one side and on the other side, at its
highest, a statement of optimism that progress towards a deal was being made
and a reservation that Allergan, the contracting principal, needed to consider
the matter and decide whether it agrees. The circulation of draft Minutes of
Settlement afterward was not an exercise in papering a deal on all essential
terms already agreed to by the parties. Rather, it and subsequent iterations
and surrounding discussions became a means by which the scope of the restrictions
upon Apotex, originally in paragraph 3 of the April 9, 2012 letter and never
agreed to, were debated.
[69]
At this point, it is useful
to assess whether the scope of the restrictions upon Apotex was an essential
term. If one were to adopt a subjective standpoint in assessing the matter, one
would note Allergan’s comment that the clarifications it requested were “relatively minor concerns.” The Federal Court,
adopting a subjective standpoint, appears to have bought into that
characterization, agreeing that the concerns were minor (at paras. 43-44),
characterizing the later discussions in twenty-three months of emails and draft
Minutes of Settlement—many of which concerned the scope of the restrictions
upon Apotex—as “fussing and wordsmithing” over
minor issues.
[70]
We must view the emails and
drafts objectively from the standpoint of a reasonable businessperson, not
subjectively. Viewed in that way, the scope of the restrictions upon Apotex was
not at all minor. It was a substantial part of the consideration that Allergan was
to receive under the contemplated agreement.
[71]
Objectively viewed, we have
Allergan, the holder of a patent prohibiting others from manufacturing, selling
and distributing a patented invention. It has sued those that it believes have been
violating that prohibition, namely Apotex. The reasonable businessperson,
viewing the matter objectively, would appreciate that in any settlement, a
patentee in Allergan’s position would want clarity about exactly who, if
anyone, would be manufacturing, selling and distributing the invention in the
future. Objectively viewed and objectively assessed, the scope of the
restrictions upon Apotex was an essential term. The three initial letters and
the email in April 2012 do not objectively show an offer and acceptance of that
essential term.
(b)
The exchange of communications
on January 13, 2014 and February 24, 2014
[72]
In an email dated January
13, 2014, counsel for Allergan advised that it had “recommended
that [its] client accept the revisions…as encapsulated in the attached [draft
agreement] and our client is inclined to accept subject to completing one
additional step on their end.” It asked counsel for Apotex to “confirm that the attached is acceptable to your client.”
A couple of weeks later, counsel for Allergan proposed certain amendments to
the draft agreement.
[73]
In an email dated February
14, 2014, counsel for Apotex responded. He rejected the latest amendments
proposed on the draft agreement and added that “we are,
however, willing to recommend to our clients that we accept your prior draft,
circulated January 13, 2014.”
[74]
In an email dated February
24, 2014, counsel for Allergan advised that “[further]
to our discussions this morning, our clients agree to accept the terms that you
put forward in your email dated December 14, 2013 and as captured in the draft
circulated January 13, 2014.”
[75]
The Federal Court found that
there was an agreement arising from the exchange of these emails. However, on
this evidence, it is not legally possible to find an agreement.
[76]
In the February 14, 2014
email, counsel for Apotex only agreed to recommend to his client that it agree.
In so saying that, counsel for Apotex stated that he did not have authority to
bind his client; he would have to check with his client. So while Allergan was
willing to agree to the draft that was circulated on January 13, 2014, Apotex’s
position was unknown.
[77]
This is not a case where
counsel for Apotex possessed apparent authority to bind his client. Counsel
made it very clear that he did not possess that authority and would have to
check with his client.
[78]
In a letter to the Federal
Court dated March 17, 2014, counsel for Allergan gave an update on the status
of the action. Counsel for Allergan summarized the events that had taken place:
Briefly,
on December 13, 2013 counsel for Apotex offered revisions to the Minutes of
Settlement. On January 13, 2014 counsel for [Allergan] accepted counsel for
Apotex’s revisions. On February 14, counsel for Apotex confirmed its position subject
to confirmation by Apotex. On February 24, [Allergan] confirmed its
acceptance of the Minutes of Settlement. On February 26 and March 17 counsel
for [Allergan] asked counsel for Apotex when the Minutes of Settlement would be
signed. We are still awaiting confirmation. [emphasis added]
[79]
That confirmation never
came. In fact, in its letter to the Federal Court dated March 17, 2014, Apotex
confirmed that “we have consistently communicated to
counsel for [Allergan] that we did not have instructions regarding the revised
Minutes of Settlement and had recently communicated to counsel that we were
awaiting instructions regarding the current proposed revised Minutes of
Settlement.”
[80]
In finding an agreement
based on the January 13, 2014 and February 24, 2014 emails, the Federal Court
found that (at para. 46) “[i]n the back and forth, the
solicitors are careful to protect their backsides by using words such as
‘subject to my client’s instructions’ or ‘I will seek instructions’.”
But this is no minor thing that can be glossed over or ignored. When counsel
for Apotex told counsel for Allergan that he would have to check with his
client, he was saying that he did not have the authority to bind his client. In
these circumstances, there could be no legally-effective acceptance of
Allergan’s offer based solely on the words of counsel for Apotex.
[81]
In conclusion, Allergan
agreed to the Minutes of Settlement circulated on January 13, 2014. But Apotex
never did, either in its own right as a principal or through counsel with
apparent authority to settle. On these facts, there can be no settlement
agreement.
(c)
The remaining communications
between the parties: no settlement agreement
[82]
Examining all of the
remaining communications between the parties, I find that at no time was there
a matching offer and acceptance on all essential terms. Indeed, most of the
parties’ communications, objectively viewed, show disagreement over the scope
of the restrictions to be imposed on Apotex (originally in paragraph 3 in the
initial exchange of letters). As I have said, this was an essential term. There
was never a matching offer and acceptance on it.
[83]
From time to time, the
parties proposed different wording and the differences significantly affected
the scope of the restrictions. True, as the Federal Court suggested (at para.
46), the difference would be small bits of wording like “for or,” “by or for,”
or “or for.” But to the objective
businessperson, small bits of wording can have a huge difference. This was not
just “fussing and wordsmithing,” as the Federal
Court said (at para. 45).
[84]
Compare, for example the
last two versions of the clause concerning the restrictions to be imposed on
Apotex. The wording changes are small but the potential effect on the scope of
the restrictions upon Apotex is significant.
[85]
On December 13, 2013, the
relevant clauses read as follows:
2. The
Defendants [Apotex] agree and undertake as follows:
(a) that
gatifloxacin or gatifloxacin formulations will not be made, used or imported
into Canada for or by the Defendants for commercial sale in Canada or for commercial
sale anywhere in the world for or by the Defendants until expiry of Canadian
Patent No. 1,340, 316 (the “’316 Patent”);
(b) that
any and all manufacture, import and/or use of gatifloxacin into Canada by or
for the Defendants before expiry of the ’316 Patent will be solely for
regulatory or experimental use;
(c) that
no gatifloxacin or gatifloxacin formulation used or manufactured by or for the
Defendants for regulatory and/or experimental use before expiry of the ’316
Patent will be sold commercially; and
(d) that
any gatifloxacin or gatifloxacin formulation that has not been used for
regulatory or experimental use by expiry of the ’316 Patent will be destroyed
on expiry of the ’316 Patent.
(e) “The
Defendants” means each Defendant separately or collectively, and includes the
officers, directors, servants, employees, shareholders, agents,
representatives, privies and partners of each Defendant together with all those
over whom each Defendant has authority, interest or control or with whom each
Defendant acts in concert.
3. This
agreement is binding on and benefits the parties, their respective successors
and assigns.
[86]
On January 13, 2014, the
relevant clauses read as follows:
2. The
Defendants [Apotex] agree and undertake as follows:
(a) that
no gatifloxacin or gatifloxacin formulations has or will be imported into
Canada, exported from Canada, made in Canada, assigned in Canada or used in
Canada by the Defendants for commercial use or sale in Canada or for commercial
use or sale anywhere in the world for or by the Defendants until expiry of
Canadian Patent No. 1,340, 316 (the “’316 Patent”);
(b) that
any and all manufacture in Canada of gatifloxacin or gatifloxacin formulations,
important into Canada of gatifloxacin or gatifloxacin formulations, export from
Canada of gatifloxacin or gatifloxacin formulations, assignment in Canada of
gatifloxacin or gatifloxacin formulations or use in Canada of gatifloxacin or
gatifloxacin by or for formulations by the Defendants before expiry of the ’316
Patent shall be solely for regulatory and/or experimental use; and
(c) that
any and all gatifloxacin or gatifloxacin formulations used for regulatory
and/or experimental use will not be used in Canada, assigned, sold in Canada or
exported from Canada by or for the Defendants, but shall be promptly destroyed
once no longer required for regulatory or experimental use.
3. This
Agreement is binding on and benefits the parties, their respective successors,
assigns or any company under the power or control of or affiliated with the
Defendants.
[87]
The differences are subtle.
But there is no question that from an objective standpoint the restrictions on
Apotex imposed by the clauses have materially differing scope.
[88]
For the foregoing reasons, I
find that the parties never reached a settlement agreement.
C.
A later motion
[89]
While judgment in this
appeal was under reserve, Allergan moved for judgment dismissing the appeal on
the ground that the ’316 Patent had expired and so the appeal was moot. Apotex
opposed the motion.
[90]
This Court issued an order
dismissing the motion. In doing so, it followed the principles the Supreme
Court set out in Borowski v. Canada
(Attorney General), [1989] 1
S.C.R. 342, 57 D.L.R. (4th) 231.
[91]
In our view, the appeal was
not moot. Whether or not the matter was settled could have practical
significance for the parties. For example, if the parties did settle the
action, then Apotex would have been subject to obligations under the settlement
agreement, obligations that, if breached, could be the foundation for a future damages
claim.
[92]
Even if the appeal no longer
had any practical significance, this Court would have exercised its discretion
in favour of hearing the matter. Due to the absence of authority from this
Court on the legal points in this appeal and due to some uncertainty in the
parties’ positions on the state of the law, it was in the public interest for
us to determine this appeal.
D.
A final observation
[93]
For the benefit of future
cases like this, a final observation regarding the Federal Court’s order needs
to be made.
[94]
In its motion, Allergan
sought an order enforcing the parties’ alleged settlement agreement. In
granting Allergan’s motion, the Federal Court did not just declare that the
parties had reached a settlement and identify the terms of the settlement. It set
out what it considered to be the exact terms of the settlement agreement and it
ordered Apotex to comply with those terms.
[95]
In effect, the alleged
settlement agreement was replaced by a court order. And if Apotex were to
breach that order, Allergan could launch proceedings against Apotex for
contempt. Normally, parties that breach settlement agreements expose themselves
to a contractual claim, not proceedings for contempt of court.
[96]
The record before the
Federal Court did not justify the sort of order it made. All it had before it
was a bona fide dispute about whether there was a settlement agreement.
At no time did Apotex suggest that if there were a settlement agreement it
would disobey it. In these circumstances, if the Federal Court considered that
the parties had reached a settlement, it only needed to declare that a
settlement agreement had been made and identify the documents in the record
that evidence it.
[97]
In the end, the
over-extensive nature of the Federal Court’s order does not matter. The order
must be set aside because the parties did not reach a settlement agreement.
E.
Proposed disposition
[98]
Therefore, I would allow the
appeal, set aside the order dated March 24, 2015 of the Federal Court in file
T-1267-10, dismiss the motion, and award the appellants their costs here and
below.
“David Stratas”
“I agree
M. Nadon J.A.”
“I agree
Johanne Trudel J.A.”
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