Dockets: A-553-14
A-554-14
Citation:
2017 FCA 73
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CORAM:
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DAWSON J.A.
RENNIE J.A.
WOODS J.A.
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Docket:A-553-14
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BETWEEN:
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HER MAJESTY THE
QUEEN
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Appellant
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and
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APOTEX INC.
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Respondent
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Docket:A-554-14
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AND BETWEEN:
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APOTEX INC.
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Appellant
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and
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HER MAJESTY THE
QUEEN
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Respondent
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REASONS
FOR JUDGMENT
DAWSON
J.A.
[1]
Trazodone, also referred to as trazadone, is an
antidepressant drug. On January 25, 1988, Apotex Inc. filed a submission with
the Health Protection Branch of Health Canada in which it sought approval to
sell a generic version of trazodone in Canada. Apotex received approval seven
years later, on February 28, 1995. By that time, two generic drug
manufacturers, competitors of Apotex, had received approval to sell generic
versions of trazodone in Canada.
[2]
In October 1998, Apotex commenced an action in
damages naming Her Majesty the Queen, as representative of the Minister of
Health and officials within the Health Protection Branch of Health Canada, as
defendant. In these reasons the defendant is referred to as Health Canada.
[3]
In its action, Apotex alleged, among other
things, that in the course of considering its drug submission officials of the Health
Protection Branch committed misfeasance in a public office and also acted
negligently. Apotex also alleged a breach of contract based on violation of a settlement
agreement entered into between Apotex and Health Canada while Apotex’
submission was under consideration.
[4]
Apotex’ action was bifurcated in the Federal
Court. The action went to trial on the issue of liability. If required, the
issue of damages was to be addressed by the Federal Court at a later date.
[5]
For lengthy reasons cited as 2014 FC 1087, the
Federal Court found Health Canada was liable in damages because its officials
committed the torts of misfeasance in a public office and negligence. These
conclusions were based on a finding that officials of Health Canada both
deliberately and negligently failed to adhere to the terms of the settlement
agreement referred to above. The Federal Court went on to find that Apotex’
damages should be reduced on the ground that Apotex had failed to mitigate its
damages. The Federal Court dismissed the claim in contract because it found
that the action was commenced outside the applicable limitation period.
[6]
Two appeals and a cross-appeal are brought from
the judgment of the Federal Court. For the purpose of this introduction, the following
summary of the issues raised on the appeals is sufficient.
[7]
In its appeal (A-554-14), Apotex asserts that
the Federal Court erred by:
i.
failing to consider whether Health Canada
committed misfeasance in a public office and negligence for reasons apart from
its treatment of the settlement agreement;
ii.
concluding that Apotex failed to mitigate its
damages; and,
iii.
concluding that the claim in contract was
statute barred.
[8]
In its cross-appeal, Health Canada argues that
the Federal Court erred by finding there was a breach of the settlement
agreement.
[9]
In its appeal (A-553-14), Health Canada submits
that the Federal Court erred:
i.
in law in finding that the settlement agreement
created a relationship of proximity;
ii.
in law by failing to negate any prima facie
duty of care based on residual policy considerations;
iii.
in the alternative, by making palpable and
overriding errors of fact with respect to both the standard of care and
misfeasance in a public office; and,
iv.
further and in the alternative, by finding
misfeasance on the facts as found.
[10]
These appeals were consolidated by order of the
Court. In accordance with the consolidation order, a copy of these reasons
shall be placed in each Court file.
[11]
For the reasons which follow, I have concluded
that the Federal Court committed a single error that warrants intervention by
this Court: the Federal Court erred by concluding that Apotex failed to
mitigate its loss. It follows that I would dismiss Health Canada’s appeal. I
would allow Apotex’ appeal in part and vary paragraph one of the judgment of
the Federal Court to read:
Apotex is entitled to damages to be assessed
on the basis set out in the reasons of the Federal Court issued on November 18,
2014, with the exception that Apotex did not fail to mitigate its damages.
In all other respects I would dismiss
Apotex’ appeal and Health Canada’s cross-appeal.
[12]
I begin my analysis by briefly setting out the
facts required to situate these appeals. I then review the decision of the
Federal Court as it relates to the issues raised on these appeals and consider
the standard of review to be applied to the decision of the Federal Court.
Finally, I apply that standard to the issues raised in the appeals.
I.
Factual Background
[13]
The Minister of Health is responsible for
ensuring that drugs sold in Canada are safe and effective for their intended
purpose. Thus, no drug may be sold or distributed in Canada unless approved by
the Minister through the issuance of a notice of compliance.
[14]
The present appeals arise from events that took
place between 1988 and 1995. During those years, if a research-based
pharmaceutical company (also referred to as an innovator) sought approval to
sell a new drug in Canada, the innovator was required to provide sufficient
information and material to enable the Minister to assess the safety and
effectiveness of the new drug.
[15]
If, during the same period, a generic drug manufacturer
wished to obtain approval to sell a generic version of a drug already available
for sale in Canada, the generic manufacturer was required to establish that its
product was bioequivalent to the innovator’s approved drug or to establish
bioequivalence to a reference product that was known to be safe and effective.
Two pharmaceutical products are bioequivalent if they are pharmaceutically
equivalent and if their bioavailability can be expected to be essentially the
same. Bioavailability refers generally to the rate and extent to which an
active pharmaceutical ingredient is absorbed from the dosage form and becomes
available in the body.
[16]
For the purpose of assessing bioavailability,
the guidelines published in 1981 by the Health Protection Branch stated that “generally” the bioavailability of a new generic drug
product would be compared to that of an “acceptable
standard”. The 1981 Guidelines did not define an “acceptable standard”.
[17]
The Federal Court found the usual, but not
invariable, practice from 1988 to 1995 was for a generic drug manufacturer to
test its product against the innovator’s drug as approved in Canada (reasons,
paragraph 26). Indeed, it was an admitted fact that during the relevant
timeframe the Health Protection Branch approved six drug products on the basis
of a foreign reference product.
[18]
The Federal Court described the approval process
as “tedious” and noted that a generic drug
manufacturer could expect that it would take at least one to two years from the
date its submission was filed for a notice of compliance to issue (reasons,
paragraph 23).
[19]
On January 25, 1988, Apotex submitted to the
Health Protection Branch a new drug submission seeking approval to sell its
generic version of trazodone, Apo-Trazad (later referred to as Apo-Trazadone). In
its submission, Apotex sought to demonstrate that its drug was safe and
effective by submitting a bioavailability study that referenced a generic drug
manufactured in the United States by Barr Laboratories, referred to as “Barr
Trazodone”, instead of a Canadian drug. Barr Trazodone had been approved for
sale in the United States on the basis of a bioavailability study comparing it
with trazodone approved for sale in the United States under the brand name
Desyrel. Desyrel was sold in the United States by the innovator drug company
Mead Johnson and Company.
[20]
With its drug submission Apotex also submitted a
letter dated December 22, 1987, from Bristol Laboratories of Canada, the
Canadian company approved to sell the Desyrel product in Canada, to a Canadian
doctor, Dr. Rein. In the letter Bristol advised that the Canadian and American
Desyrel products were identical (Joint Book of Documents, tab 24).
[21]
Apotex stated that the American authorities had
approved Barr Trazodone using the United States Desyrel product as a reference and
that the Canadian and United States Desyrel products were identical. Therefore,
Apotex submitted that because Apo-Trazadone was identical to Barr Trazodone
Apotex should be permitted to use the same bioavailability studies relied upon
by Barr in its American application. Put another way, Apotex submitted that if
American and Canadian Desyrel were identical, the Health Protection Branch should
accept the bioavailability study that demonstrated that Barr Trazodone and U.S.
Desyrel were bioequivalent as proof that Apo-Trazadone and Canadian Desyrel
were bioequivalent.
[22]
The Health Protection Branch did not approve
Apotex’ new drug submission. It advised Apotex that there was a “normal requirement” for a Canadian reference product
and that Barr Trazodone was not an appropriate reference product unless it
could be “conclusively proven” to be identical
to “a product known to the Branch,” i.e. the “standard trazodone product marketed in Canada” (Joint
Book of Documents, tabs 23 and 32).
[23]
On February 1, 1990, the Health Protection
Branch advised that it would not require a Canadian reference product if “incontrovertible and verifiable evidence can be provided to
establish that the product in a foreign market is identical in all respects to
the Canadian product” (Joint Book of Documents, tab 40). Thus, the
Branch was prepared to accept proof that the Canadian Desyrel was identical to
the American Desyrel.
[24]
Apotex refused to comply. It rejected what the
Health Protection Branch referred to as its “policy”
that required a Canadian reference product. Apotex filed an application for
judicial review on August 13, 1990, requesting an order directing that the
Minister review its application without requiring that the reference product be
purchased in Canada and further directing the Minister to issue a notice of compliance
to Apotex (reasons, paragraph 49).
[25]
This application for judicial review never
proceeded to hearing because the parties reached a settlement in November 1990
and Apotex discontinued the application. The written settlement agreement is
set out in full at paragraph 51 of the reasons of the Federal Court. In the settlement
agreement the parties agreed that:
i.
The review of Apotex’ new drug submission was
continuing and had not been completed for the purpose of the then applicable Food
and Drug Regulations (C.R.C. 1978, c. 870), (“Regulations”).
ii.
Existing and any further data provided by Apotex
to establish that its product was chemically and therapeutically equivalent
to a drug product sold in Canada would be considered. For the purpose of a comparative
bioavailability study “the Health Protection Branch is
prepared to consider evidence to establish equivalency between Canadian
and non-Canadian reference standards” (emphasis added).
[26]
As the Federal Court observed at paragraph 53 of
its reasons, “[t]hings did not go well” after
the settlement agreement was concluded. Apotex asserted that the Health
Protection Branch failed to adhere to the terms of the settlement agreement. On
July 17, 1991, Apotex filed a second application for judicial review in which
it sought two orders of mandamus. First, Apotex sought an order
directing the Health Protection Branch to review its submission and assess
whether the submission adequately established the required safety and
effectiveness of its drug “without regard to a
condition precedent to such review that the reference product tested in the
comparative bioavailability study be purchased in Canada or that there be a
certification from the manufacturer of the Canadian reference product that it
is identical to the non-Canadian reference product”. Second, Apotex
sought an order directing the Health Protection Branch to issue a notice of
compliance to it.
[27]
The application for judicial review was
dismissed by the Federal Court on the basis that it was not patently
unreasonable for the Health Protection Branch to require that a new drug
submission compare the proposed generic drug against a Canadian reference product
(Apotex Inc. v. Canada (Attorney General), [1993] F.C.J. No. 31, 59 F.T.R.
85). The Federal Court did, however, conclude that the Health Protection
Branch’s refusal to consider Apotex’ full submission “because
of a claimed policy that bioavailability studies be done only with reference to
a Canadian product” was an unlawful fettering of discretion.
[28]
The Federal Court also characterized the Health
Protection Branch’s manner of dealing with Apotex “to
have been maladroit, at times dissembling if not actually misleading.”
This said, the Federal Court did not believe that the Branch “acted in bad faith or with malice.”
[29]
Following the second application for judicial
review, the Health Protection Branch re‑reviewed Apotex’ submissions, and
on April 8, 1994, concluded that Apotex had not “adequately
established the bioequivalence of Canadian and U.S. Desyrel drug products.”
[30]
Apotex then provided further studies which were
reviewed in June of 1994. Upon review of these further studies, the Health
Protection Branch reviewer concluded in a “draft”
report dated June 23, 1994, (Joint Book of Documents, tab 164) that:
In light of the acknowledgement of chemical
equivalence, the nature of the drug substance, and the results of comparative
dissolution analyses in a variety of media over the physiological pH range, I
have no outstanding concerns regarding the potential inequivalence of U.S. and
Canadian marketed Desyrel.
[31]
On December 16, 1994, the Health Protection
Branch reviewer signed a report which contained only slight revisions to the “draft report”. In it he concluded:
In light of the Crown’s acknowledgement of
chemical equivalence, the nature of the drug substance, and the results of
comparative dissolution analyses in a variety of media over the physiological
pH range, I conclude that no basis remains for articulating concerns regarding
the potential inequivalence of U.S. and Canadian marketed Desyrel.
[32]
By January 3, 1995, one of the reviewer’s
superiors had read the report. She sent a short note to the reviewer asking how
the Health Protection Branch might “extricate” itself
from the matter.
[33]
Thereafter, a lawyer with the Department of
Justice sent what the Federal Court characterized to be “a peculiar letter” to Apotex’ lawyers. The letter indicated
that Health Canada was attempting to expedite the review of the drug
submission. The letter also requested that Apotex sign a release, a copy of
which was enclosed, releasing Her Majesty and others from “any and all manner of claims, actions, causes of action,
debts”.
[34]
Afterwards, senior counsel at the Department of
Justice advised that Health Canada would not seek any agreement which would
limit any recourse which Apotex might properly have against Health Canada.
[35]
On February 28, 1995, Apotex received its notice
of compliance. No explanation has been provided for the lengthy delay between
the draft and final reports or the significant delay between the final report
and the issuance of the notice of compliance.
II.
The Decision of the Federal Court
[36]
The Federal Court began by reviewing the process
for obtaining drug approval in Canada during the period from 1988 to 1995, and
the usual practices of Health Canada during that period. The Court then
reviewed in some detail the dealings between the parties. Helpfully, the Court
tabulated the more relevant documents and events in a 38-page schedule to the
reasons.
[37]
In the course of its reasons the Federal Court
made a number of findings of fact, including the following which are relevant
to the issues raised on these appeals:
i.
There was, at the relevant time, a general
understanding, at least within the Health Protection Branch, that a Canadian
reference product was required to establish the bioavailability, and hence the bioequivalence
of a generic drug. This understanding was not reduced to writing until 1989,
after Apotex’ drug submission was received. This understanding was not an
express requirement of either the Food and Drugs Act, R.S.C. 1985, c.
F-27 or the Regulations (reasons, paragraphs 29 to 33).
ii.
There was little evidence to support the Health
Protection Branch’s assertion that it had a “long-standing”
policy of requiring a Canadian reference product. The Health Protection Branch
was inconsistent in applying its “policy”.
However, there was no evidence that the Branch discriminated against Apotex in
this regard (reasons, paragraphs 26, 71).
iii.
In January 1989, early in the process, the
Director of the Bureau of Human Prescription Drugs, Dr. G. Johnson, sent a
memorandum to the Director General of the Drugs Directorate “which clearly draws the lines that [were] followed throughout
the history of this matter” (reasons, paragraph 39). The Director of the
Bureau wrote:
Therefore, on
the basis of science alone, I am inclined to accept the arguments advanced by
Apotex. However, we should also examine the possibility that we may be
establishing a precedent if we follow this course of action that could see us
forced to accept similar arguments from around the world. What is to prevent, for example, Apotex from commissioning a
bioavailability study comparing the French brand of a product as the standard?
If we accept the arguments advanced in this particular case, we could have a
difficult time not allowing this type of study. This could be the start of a
process that would see us lose control over the generic submissions.
[Emphasis added]
iv.
The Health Protection Branch knew that the
American reference product Apotex relied upon was identical to its Canadian
counterpart, because the Branch had approved the Canadian innovator’s drug
using data provided from the innovator’s U.S. product. However, Health
Protection Branch officials refused to look at the Canadian innovator’s file
because of an unwritten internal policy which directed that officials not look
at the data submitted by the innovator for the purpose of evaluating the
submission of a generic who subsequently sought approval to sell the same drug.
Thus, the Health Protection Branch required Apotex to prove to the Branch that
which it already knew to be true (reasons, paragraphs 46 and 25).
v.
At the time the settlement agreement was
concluded the only outstanding issue between the parties was that of
bioavailability. Apotex believed that it could demonstrate bioavailability by
equivalency, whereas the Health Protection Branch required identicality. The
settlement agreement “clearly” stated that the
Health Protection Branch would look at the matter from the point of view of
equivalency (reasons, paragraph 54).
vi.
Thereafter, the Health Protection Branch did not
follow the terms of the settlement agreement. The Branch “stayed on a path whereby they were insisting upon
identicality.” The Branch was “less than full
and forthright in its dealings with Apotex.” There was a deliberate
attempt by the Branch “to stick to its position as to identicality
while conveying to Apotex a sense that it was willing to be flexible, which it
was not” (reasons, paragraph 55).
vii.
Apotex was led to believe that if it submitted “a bit more data” to the Health Protection Branch,
particularly with respect to dissolution rates, this would be sufficient to
satisfy the Branch (reasons, paragraph 56).
viii.
Despite asserting to Apotex that it was prepared
to accept evidence as to the equivalency of the American and Canadian reference
products, the Health Protection Branch was only prepared to consider evidence
as to bioavailability with reference to a Canadian reference product (reasons,
paragraph 71).
ix.
The Health Protection Branch unlawfully fettered
its discretion by refusing to consider Apotex’ full submissions on the basis
that a Canadian reference product was required (reasons, paragraph 71).
x.
The Health Protection Branch misled Apotex into
the belief that the Branch was willing to receive further data and review it on
the basis of equivalency when the Branch was not willing to do so (reasons,
paragraph 71).
xi.
The Health Protection Branch made a deliberate
attempt to frustrate Apotex’ submission for a notice of compliance. There
appeared to have been “endless circling around the
internal idea that a Canadian reference product must be used, and the
insistence that Apotex must prove the impossible – identicality”
(reasons, paragraph 95).
xii.
Apotex wished to make its Apo-Trazadone submission
a test case about whether a non-Canadian drug product could be used as a
reference. “In no way was Apotex the victim that it
purports to be” (reasons, paragraphs 105, 107).
xiii.
While the words “careless
and unconcerned about accuracy” could be applied to the testimony of Mr.
Rowsell, the then Director of the Bureau of Pharmaceutical Surveillance, all of
the remaining fact witnesses called on behalf of the Health Protection Branch “tried their best to be honest, but somewhat embarrassed,
about the facts and evidence as to what went on some twenty to twenty-eight
years ago” (reasons, paragraph 106).
xiv.
The Health Protection Branch “was inefficient, hopelessly bureaucratic, dissembling and clumsy”
(reasons, paragraph 108).
[38]
The Federal Court went on to conclude that
officials of the Health Protection Branch committed the tort of misfeasance in a
public office. Officials were aware, since the date of the settlement
agreement, that the Branch was to consider Apotex’ submission on the basis of
equivalency - yet the Branch ignored this requirement. Further, there was an
effort to conceal this from Apotex. This constituted bad faith. Further, the
Health Protection Branch was aware that its conduct would likely injure Apotex
(reasons, paragraphs 117-119).
[39]
Next, the Federal Court considered the tort of
negligence. It found that the settlement agreement transformed the relationship
between the Health Protection Branch and Apotex such that the Branch owed
Apotex a duty of care. But for the settlement agreement, no duty of care would
have been owed to Apotex. The Federal Court further found that no residual
policy concerns, particularly concerns about indeterminate liability and the
discretionary nature of the Branch’s decisions, negated the existence of the duty
of care. Finally, the Federal Court found that the actions of the Health
Protection Branch breached the requisite standard of care. The breach occurred
when officials insisted on assessing Apotex’ submission on the standard of identicality,
rather than the agreed-upon standard of equivalency (reasons, paragraphs
123-131).
[40]
Next, the Federal Court determined that Apotex’ claim
for breach of contract failed because it was brought outside the applicable six
year limitation period. The action was commenced on October 9, 1998. Thus, in
order to be within the limitation period any breach of contract must have taken
place after October 9, 1992. However, the Federal Court found that by April or
July 1991, Apotex was aware of, and possessed knowledge of, sufficient facts to
be aware that the Branch had breached the terms of the settlement agreement. Thus,
the action was commenced outside the applicable limitation period (reasons,
paragraphs 136-138).
[41]
Finally, the Federal Court considered the issue
of mitigation. The Federal Court first considered when Apotex’ damages began to
accrue. The Federal Court inferred that Apotex ought to have received its
notice of compliance on November 26, 1991, one year after the settlement
agreement was entered into. Therefore the Court found that Apotex’ damages
began to accrue as of that date.
[42]
The Federal Court went on to conclude that Apotex’
damages ought to be reduced because it did not take reasonable steps to avoid
its loss. Specifically, the Federal Court found that a reasonable person would
have taken steps to mitigate their damages by July 2, 1991. This was the date
on which the Federal Court found that Apotex wrote to the Health Protection
Branch advising that it would mitigate its damages for another drug (Apo-Zidovudine)
by testing that drug against a Canadian reference product. As of that date,
Apotex should have re-tested Apo-Trazadone using a Canadian reference standard.
Had it done so, Apotex “may have received” its
notice of compliance between 15 to 18 months later. It followed that in
assessing damages, the starting date was November 26, 1991, but the termination
date was mid-November 1992 (reasons, paragraphs 147-163).
III.
Standard of Review
[43]
The standards of review applicable to the issues
raised on these appeals are as described by the Supreme Court in Housen v.
Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235. The standard of review to be
applied to questions of law is correctness. Findings of fact and inferences of
fact are to be reviewed on the basis of palpable and overriding error. Findings
of mixed fact and law are to be reviewed on the same deferential standard
unless an extricable legal error can be demonstrated, in which event such error
is reviewed on the correctness standard.
IV.
Misfeasance in a Public Office
[44]
I begin by setting out the legal principles
relevant to the tort of misfeasance and then turn to the errors asserted by both
Apotex and Health Canada.
A.
The tort of misfeasance in a public office
[45]
As neither party asserts any error in the
Federal Court’s articulation of the elements of this tort, as set out at
paragraph 113 of its reasons, a brief description of the constituent elements
of the tort is sufficient.
[46]
The leading authority in Canada is Odhavji
Estate v. Woodhouse, 2003 SCC 69, [2003] 3 S.C.R. 263. The Supreme
Court explained that the tort is based on the rationale that the rule of law
requires that executive or administrative powers “‘may
be exercised only for the public good’ and not for ulterior and improper
purposes” (paragraph 26).
[47]
There are two constituent elements to the tort.
First, there must be deliberate, unlawful conduct in the exercise of public
functions. Second, there must be awareness on the part of the official that his
or her conduct is unlawful and is likely to injure the plaintiff (paragraph
32). The requirement that the official must be aware that his or her conduct is
unlawful is a reflection of the principle that misfeasance in a public office
requires an element of bad faith or dishonesty (paragraph 28).
[48]
The tort may arise in one of two ways. First, it
may arise out of the conduct of a public office that is specifically intended
to injure a person, or a class of persons. Second, it may arise out of the conduct
of a public officer who acts knowing both that the officer has no power to do
the act complained of and that the act is likely to injure the plaintiff. In either
instance, a plaintiff must prove each of the tort’s constituent elements
(paragraph 22).
[49]
Common to each element of the tort is the
requirement that a public officer must have engaged in deliberate and unlawful
conduct in his or her capacity as a public officer (paragraph 23). An act may
be unlawful because an official acted in breach of a statutory provision, or in
excess of the powers granted, or for an improper purpose (paragraph 24).
[50]
I now turn to consider Apotex’ appeal.
B.
Apotex’ appeal
(1)
The Federal Court failed to consider liability arising
apart from the settlement agreement
[51]
Apotex asserts that the Federal Court erred in
law by confining its analysis to Health Canada’s conduct following the
conclusion of the settlement agreement. Apotex further asserts that the Health
Protection Branch engaged in three related acts of misfeasance prior to the
settlement agreement. These acts are said to be the Health Protection Branch’s:
•
insistence on a Canadian reference product when
there was no such statutory or regulatory requirement;
•
assertion of a long-standing policy that
prohibited reliance on a foreign reference product when no such policy existed;
and
•
insistence that Apotex prove the Canadian and
American Desyrel products were identical, notwithstanding that the Branch had
already reached this conclusion.
[52]
I begin by rejecting the assertion that the
Federal Court erred in law by confining its analysis to conduct subsequent to
the conclusion of the settlement agreement.
[53]
The reasons of the Federal Court were structured
so that from paragraphs 7 to 101 the Court reviewed the entire history of the
dealings between the parties, culminating with the issuance of the notice of
compliance on February 28, 1995. At paragraphs 102 to 108 the Court set out its
“overall view” of the circumstances of the case.
[54]
As part of its overall view, the Court concluded
that the Health Protection Branch was, particularly during the years up to
1993, an inefficient, badly run bureaucracy. The bureaucracy possessed
unwritten policies such as those respecting the use of non-Canadian reference drugs
and those respecting whether third-party files could be accessed in order to
confirm information contained in those files. No one wanted to make a decision
and consultation took place without end (reasons, paragraph 103). This view
of the Health Protection Branch was consistent with the Court’s finding, at
paragraph 71 (on page 38), that while the Health Protection Branch “was inconsistent in applying its ‘policy’ with respect to
insistence upon a Canadian reference product. […] there is no evidence that
Apotex was subject to discrimination in that regard.”
[55]
The Court then moved to consider misfeasance,
holding that since the date of the settlement agreement the Health Protection
Branch knew that it was to consider Apotex’ submission on the basis of
equivalency and further holding that “[u]pon entering
into the Settlement Agreement with Apotex, [the Health Protection Branch] acted
in bad faith” (reasons, paragraphs 117 and 118).
[56]
This was a finding that it was only after Health
Canada entered into the settlement agreement that its conduct rose to the level
of deliberate, unlawful conduct in the exercise of public functions. The
Federal Court did not err in law by failing to consider pre-settlement
agreement conduct. On the whole of the evidence it only found bad faith to
arise after completion of the settlement agreement.
[57]
With respect to the pre-settlement conduct that
Apotex asserts constitutes misfeasance, as explained in Odhavji, the
tort of misfeasance requires an element of bad faith or dishonesty. A public
officer must engage in deliberate and unlawful conduct in that capacity. The
Federal Court declined to find bad faith or dishonesty prior to the conclusion
of the settlement agreement. It found that the Health Protection Branch’s insistence
on a Canadian reference product prior to the settlement agreement did not
constitute discrimination. Accordingly, it could not be said that the Health
Protection Branch’s insistence was deliberate and unlawful conduct in the
exercise of public functions. Rather, as evidenced in the Johnson memorandum
quoted above at paragraph 37 (iii), the Health Protection Branch was concerned
about the policy ramifications that would flow from accepting non-Canadian
reference products. Acting on that concern was in accordance with the proper
exercise of the Branch’s powers.
[58]
Apotex has failed to show a palpable and
overriding error on the part of the Federal Court in its appreciation of the
evidence surrounding the conduct and intent of the Health Protection Branch
prior to the settlement agreement.
C.
Health Canada’s appeal
[59]
On its appeal, Health Canada asserts four
palpable and overriding errors of fact, one error of law and one error of mixed
fact and law. During oral argument counsel for Health Canada advised that it
withdrew the argument contained in its memorandum of fact and law that
misfeasance must, as a matter of law, arise from a breach of a specific
statutory duty.
[60]
For the following reasons I reject the argument
that the Federal Court erred in fact, in law or in mixed fact and law.
(1)
The asserted errors of fact
[61]
The four alleged errors of fact are said to be
the Court’s findings that:
•
The Health Protection Branch deliberately
examined Apotex’ submission on the standard of identicality contrary to the
settlement agreement.
•
Health Protection Branch officials knew that the
Canadian and American Desyrel products were identical.
•
Health Protection Branch officials misled Apotex
into believing that the Branch was willing to review further data.
•
Apotex submitted data in 1990 that demonstrated
equivalence.
[62]
I begin my analysis by observing that
considerable deference is owed to findings of fact made by a trial judge. Thus,
findings of fact are reviewed on the standard of palpable and overriding error.
A palpable error is one that is plainly seen. An overriding error is one that
affects the judge’s assessment of the facts. It is difficult to establish
palpable and overriding error. Thus, it has been said that it is not enough to
pull at leaves and branches but to leave the tree standing. Rather, the tree
must fall (Canada v. South Yukon Forest Corporation, 2012 FCA 165, 431
N.R. 286, at paragraph 46).
(a)
The Health Protection Branch deliberately
examined Apotex’ submission on the standard of identicality contrary to the
settlement agreement
[63]
Health Canada complains that the Federal Court
failed to identify the evidence relied upon to make this finding and failed to
indicate that it considered the evidence to the contrary. However, a Court is
not required to extensively catalogue the evidence before it. A Court’s mere
reliance upon the evidence of some witnesses over others by itself does not
form the basis of a reasonable belief that the Court forgot, ignored or
misconceived the evidence in a way that influenced its conclusions (Housen,
paragraph 46).
[64]
In the present case, there was ample evidence to
support the finding of the Federal Court that the Health Protection Branch
examined Apotex’ submission on the standard of identicality. Some of the
evidence is referred to at paragraphs 53-59 and 71 of the Court’s reasons. To
illustrate:
•
On November 5, 1990, Apotex submitted additional
data to show the equivalence of Canadian and American Desyrel (Joint Book of
Documents, tab 53). The additional data was reviewed by Dr. Cheriyan, a
Chemistry Specialist with the Health Protection Branch. This was agreed by the
parties to be the only review of the data which was conducted prior to Health
Canada’s letter of December 20, 1990. This letter advised Apotex that the data
it submitted was not sufficient to establish the equivalency of the Canadian
and non-Canadian reference standards (Agreed Statement of Facts, paragraph 15).
In the memorandum prepared by Dr. Cheriyan which outlined the result of
his review, he concluded that the data “does not unambiguously
prove that the two formulations are identical and I recommend that Apotex be
advised accordingly.” His memorandum goes on to make numerous references
to identicality (Joint Book of Documents, tab 63).
•
In cross-examination, Mr. Rowsell confirmed that
he understood Dr. Cheriyan to have applied the identicality standard to his
review of Apotex’ data (transcript October 27, 2014, page 902, line 26).
•
Apotex’ expert, Dr. Kibbe, understood from his
review of the relevant documents that Dr. Cheriyan had applied the standard of
identicality to his review of the data (transcript October 22, 2014, page 495,
line 10 to page 496, line 16).
[65]
No palpable and overriding error of fact has
been demonstrated on the record before the Federal Court.
(b)
Health Protection Branch officials knew that the
Canadian and American Desyrel products were identical
[66]
Health Canada argues that this conclusion was
reached “in the total absence of evidentiary support,
and by failing to address evidence to the contrary” (memorandum of fact
and law, paragraph 84).
[67]
Again, I find there was ample evidence to
support the finding of the Federal Court:
•
In his memorandum of January 20, 1989, Dr.
Johnson wrote that it was not “illogical” to
conclude that the bioavailability study provided by Apotex with its new drug
submission “is applicable to the Apotex and Bristol products marketed in Canada”
(Joint Book of Documents, tab 21) He went on to state:
This point is
further strengthened by the fact that the Mead Johnson product, in addition
to being identical to the Bristol product, was in fact the product mainly
used in carrying out pivotal studies performed in the U.S., which [studies] were
also submitted in support of the Canadian NDS for Desyrel. [Emphasis added]
•
At trial, Mr. Rowsell confirmed that Dr. Johnson
had reviewed the Desyrel new drug submission in order to learn what data had
been provided in support of the submission (transcript October 27, 2014, page
831, lines 24 to 28).
•
Apotex had provided with its new drug submission
a letter from Bristol Laboratories, the company that markets Desyrel in Canada,
confirming that the Canadian and American Desyrel products were identical. At
trial, Mr. Rowsell admitted that the Health Protection Branch could have
confirmed the reliability of the letter’s contents directly with Bristol
Laboratories (transcript October 27, 2014, page 835, line 22 to page 836, line
24).
[68]
No palpable and overriding error has been shown.
(c)
Health Protection Branch officials misled Apotex
into believing that the Branch was willing to review further data
[69]
Again, Health Canada complains that the Federal
Court failed to address conflicting evidence that the Health Protection Branch’s
reviews and re-reviews were conducted on the basis of equivalence. Again, I am
satisfied that the finding of the Federal Court was amply supported on the
evidence.
[70]
Mr. Rowsell swore an affidavit in opposition to
Apotex’ second application for judicial review in which he swore that:
33. In accordance with the settlement
agreement, we reviewed all of the material submitted by Apotex. The director
was not persuaded that the reference standard used by Apotex was equivalent to
a product marketed for sale in Canada, and was not persuaded that the
evidence submitted respecting Apo-Trazad was sufficient to establish that the
product was safe and effective as required by regulation C.08.002.
34. In spite of an inadvertent
reference to the usual requirement that Canadian and foreign reference products
be “identical” in my letter dated December 6, 1990 to Dr. Sherman, which is
marked as Exhibit “C” to his affidavit sworn July 10, 1991, the Department
has consistently kept an open mind in reviewing the submissions presented by
Apotex relative to establishing that the reference standards are equivalent,
and we have made every effort to abide by both the letter and spirit of the
settlement agreement, as stated in the letter from Department of Justice
Counsel to Apotex’s Counsel referred to in paragraph 29 herein.
[Emphasis added]
[71]
The second application for judicial review was heard
by Mr. Justice MacKay of the Federal Court.
[72]
At the trial of this action Mr. Rowsell was
cross-examined on the evidence he provided before Justice MacKay in the second
application for judicial review:
Q. You represented to Justice MacKay
that a review against equivalency had been conducted while at the same time
reprimanding a staff member because he had erroneously said that in a letter [to]
Dr. Sherman; true?
A. Yes.
Q. In Paragraph 34 you say:
“In spite of an
inadvertent reference the department has always kept an open mind in reviewing
the submission presented by Apotex relative to establishing that standards are
equivalent.”
And then you said:
“We have made every
effort to abide by both the letter and spirit of the settlement.”
Do you see that?
A. Yes.
Q. And that was to conduct an
equivalency review?
A. Yes.
Q. But you knew when you swore
that affidavit that your department had not neither in spirit or letter or fact
abided by the agreement and you reprimanded your department for that?
A. Yes.
Q. And you didn’t tell Justice
MacKay?
A. No.
Q. You didn’t produce, as part of
this record, the Cheriyan review?
A. No.
Q. You had it?
A. Yes.
Q. Looking back at this affidavit
now, many years later, cooler heads sometime prevail when you’re out of the
rough battle of the day?
A. Yes.
Q. Do you wish you had told
Justice MacKay an equivalency review hadn’t been done? That would have been
more complete; right?
A. Yes.
[Emphasis added]
[73]
Thus, Mr. Rowsell admitted at trial that he
misled the Federal Court, and by extension Apotex, by suggesting that the
Health Protection Branch was prepared to review additional data on the standard
of equivalence in compliance with the spirit and the letter of the settlement
agreement.
[74]
There was sufficient evidence to support the
finding that Apotex was misled by the Health Protection Branch.
(d)
Apotex submitted data in 1990 that demonstrated
equivalence
[75]
Apotex’ expert, Dr. Kibbe, opined that as of
November 5, 1990, Apotex had established equivalency between the Canadian and
non-Canadian reference standards. The Federal Court accepted this evidence
which it referred to as “uncontradicted evidence”
(reasons, paragraph 56).
[76]
Health Canada asserts at paragraph 91 of its
memorandum of fact and law:
[…] In cross-examination, Apotex’s expert
conceded that any definition of equivalence must account for therapeutic
equivalence – that is, equivalent in vivo results when administered to
different patients. The data submitted with the McKeag Memo was solely to
establish chemical equivalence between the reference products. None of the
evidence before the court suggests that the 1990 FTIR data purported to
establish therapeutic equivalence. The trial judge committed a palpable and
overriding error in adopting a bare assertion in the Kibbe Affidavit, which was
contradicted by other aspects of his evidence.
[Emphasis added]
[77]
The reference to the “McKeag Memo” is a
reference to a memorandum prepared by Apotex and provided to Health Canada on
or about November 5, 1990.
[78]
It is, in my view, inaccurate to characterize
the data submitted with the McKeag memo on November 5, 1990, to consist solely
of Fourier-Transform infrared (FTIR) spectra data submitted to establish
chemical equivalence. This is so because, as explained by Dr. Kibbe, the McKeag
memo also incorporated results from dissolution studies.
[79]
Dr. Kibbe’s opinion, which the Federal Court
accepted, was:
28. I am advised that settlement
discussions took place in early November 1990. I am advised that the settlement
discussions concerning the application and Apotex’s Apo-Trazad submission
culminated in a settlement agreement dated November 26, 1990. I have been
provided with a copy of that agreement which is attached as Exhibit “Q”.
29. The Settlement Agreement confirmed
that the review of the Apo-Trazad submission was still ongoing and had not been
completed and then stated:
Any existing and further data
provided by Apotex to establish that Apo-trazad is chemically and
therapeutically equivalent to a drug product sold in Canada will be considered.
For the purposes of a comparative bioavailability study, the Health Protection
Branch is prepared to consider evidence to establish equivalency between
Canadian and non-Canadian reference standards.
30. Accordingly, HPB was no longer
requiring a direct comparison establishing identicality between the Apotex
product and the Canadian reference product. Instead, HPB was prepared to rely
on the bioequivalence study Apotex had conducted against the U.S. reference
products, so long as Apotex could establish “equivalency” between the U.S.
reference standard and the Canadian reference standard. Equivalency means
that two products can be expected to behave in the same manner in terms of
therapeutic outcome, whether or not they are identical in all respects.
Did Apotex Provide Sufficient Evidence to
Establish Equivalency between Canadian and Non-Canadian Reference Standards?
The November 5, 1990 Equivalency Evidence
31. In materials attached at
Exhibit “R”, dated November 5, 1990, [the “McKeag Memo”] which I am
advised were provided to HPB during settlement negotiations, Apotex provided
the results of a detailed comparison between two lots of the Canadian reference
standard and four lots of the U.S. reference standard. Fourier-Transformed
infrared analysis was conducted. This type of analysis is a well-known and
dependable way to determine if two solids contain the same ingredients and can
be used to establish chemical equivalence. The results showed that all six
lots examined did indeed use the same excipients (inactive ingredients). In
conjunction with the information Apotex provided regarding uniformity of the
tablets, the results showed that all six lots were chemically and physically
equivalent. (footnote omitted)
32. Apotex also discussed the
results of dissolution testing. Dissolution testing is important because it is
the best in vitro (not in the body) test to determine the release
characteristics of a product. In fact, once a product is approved for
market, the only testing which is done to ensure that future batches are the
same as the batch that was approved, is in vitro testing. Accordingly,
the dissolution comparison Apotex conducted between the Canadian and U.S.
reference standards is the same sort of testing the manufacturers of those
products would perform on their own products to ensure batch to batch
consistency.
33. Dissolution testing measures
how quickly the medicine (known as the active ingredient or active
pharmaceutical ingredient – in this case trazodone) is released from the
dosage form. The correspondence from Apotex states that all lots were at
least 95% dissolved in 15 minutes. This clearly indicates that the drug
products are immediate release formulations which perform identically in
vitro and, therefore, should perform identically in vivo (in the
body).
34. Because the products being
compared are immediate release products (as opposed to delayed-release or
extended-release products) and contain the same excipients, there is virtual
certainty that their performance in vivo is unlikely to be affected by
any deviation in the manufacturing process (if any existed). In both
products, trazodone would be released from the formulation very quickly upon
ingestion and then the trazodone, which is undoubtedly the same in both
products, would be absorbed by the patient in the ordinary course. After
release of the trazodone from the tablet, that absorption would be expected to
take place at the same rate and to the same extent regardless of in which
reference product it was when ingested. (footnote omitted)
35. In my opinion, the evidence
provided by Apotex on November 5, 1990 clearly established equivalency
between Canadian and non-Canadian reference standards.
[Emphasis omitted]
[Underlining added]
[80]
Two points emerge.
[81]
First, contrary to the submission of Health
Canada, Dr. Kibbe defined equivalency in terms of therapeutic outcome as seen
at paragraph 30 of his opinion.
[82]
Second, it is correct that the FTIR spectra data
was relied upon to establish the Canadian and American reference standards were
chemically and physically equivalent. But it was the dissolution testing of the
chemically identical products that established equivalency in terms of
therapeutic outcome.
[83]
No palpable and overriding error has been
demonstrated in the Court’s finding that in 1990 Apotex submitted data that
established equivalence.
(2)
The asserted errors of law and mixed fact and
law
(a)
The Federal Court concluded that a breach of
contract amounts to misfeasance
[84]
First, Health Canada argues that the Federal
Court erred in law by concluding that a breach of contract amounts to
misfeasance. Relying on Saskatchewan Power Corporation v. Swift Current
(City), 2007 SKCA 27, [2007] 5 W.W.R. 387, at paragraph 33, Health Canada
argues that once the Court found it to be liable for breach of contract it was
not open to the Court to find liability in misfeasance for the same conduct.
[85]
I disagree.
[86]
In Saskatchewan Power the Court of Appeal
concluded that the Chambers Judge below had erred by concluding that a claim in
misfeasance should be struck out on the basis it was redundant because the loss
claimed was “already covered” by a claim for
breach of contract. The Chambers Judge contravened the principle that the
parties are entitled to plead in the alternative, and it was possible that the
claim based in contract would fail while the claim based in misfeasance would
succeed.
[87]
This decision does not support Health Canada’s
submission. While a plaintiff may not be compensated twice for the same loss,
this circumstance did not arise in the present case as the claim based in
contract was found to be statute barred.
[88]
Further, Health Canada’s submission is contrary
to the general principle that where conduct prima facie supports an
action in contract and in tort, a party may sue in either or both, subject to
any limit that the parties have placed on that right in their contract (BG
Checo International Ltd. v. British Columbia Hydro and Power Authority,
[1993] 1 S.C.R. 12 at page 26, 99 D.L.R. (4th) 577).
[89]
In the present case, the settlement agreement did
not limit Apotex’ right to sue in tort.
(b)
The facts as found by the Federal Court do not
amount to misfeasance
[90]
Next, Health Canada argues that the Federal
Court erred in finding misfeasance on the facts found by it. Health Canada
submits that the Health Protection Branch’s “scepticism
about Apotex’s data was fuelled by an overarching concern for ensuring the
drug’s safety and effectiveness” (memorandum of fact and law, paragraph
99). It is said to be unreasonable to suggest that the Branch’s desire to meet
the Minister’s obligation to the public can be indicative of bad faith or
malice against Apotex.
[91]
Again I disagree.
[92]
The Federal Court found that the Health
Protection Branch knew that it was required to evaluate Apotex’ submission on
the basis of equivalency but it did not do so. Further, the Court found that
the Health Protection Branch attempted to conceal or dissemble that fact
(reasons, paragraph 126). The Federal Court also found that the Health
Protection Branch deliberately sought to frustrate Apotex’ submission for a
notice of compliance (reasons, paragraph 95). These findings establish bad
faith as bad faith is described in Odhavji and also establish that
officials of Health Canada acted in circumstances where they knew that they
were acting beyond their mandate and that injury to Apotex was likely. This
deliberate and unlawful conduct establishes misfeasance in a public office.
[93]
To conclude, I see no basis on which to
interfere with the findings of the Federal Court with respect to misfeasance in
a public office.
V.
Negligence
[94]
I begin my analysis by setting out the legal
principles relevant to the tort of negligence and then turn to the errors
asserted by both Apotex and Health Canada.
A.
The tort of negligence
[95]
Traditionally, the proper remedy for breach of a
statutory duty by a public authority is judicial review. To date, the law does
not recognize a cause of action against a government authority for the
negligent breach of a statutory duty (Holland v. Saskatchewan, 2008 SCC
42, [2008] 2 S.C.R. 551, at paragraphs 8 and 9).
[96]
It follows, and the parties agree, that the
viability of an action in negligence against Health Canada must be determined
by application of the principles articulated in Anns v. Merton London
Borough Council, [1978] A.C. 728 (H.L.), as adopted and refined by the Supreme
Court in Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537 (Cooper-Anns
test).
[97]
The Cooper-Anns test is a two stage test.
The first stage of the test requires consideration of foreseeability, proximity
and policy. Two questions arise: First, was the harm that resulted the
reasonably foreseeable consequence of the defendant’s act? Second, are there
reasons why the duty of care should not be imposed in the situation at issue?
This stage focuses on factors arising from the relationship between the
plaintiff and the defendant.
[98]
At the first stage, more than mere
foreseeability is required. The parties must also be sufficiently proximate. “Proximity” describes the type of relationship in
which a duty of care to guard against foreseeable negligence may be imposed. As
explained by the Supreme Court in Hercules Managements Ltd. v. Ernst &
Young, [1997] 2 S.C.R. 165, and quoted with approval by the Supreme Court
in Cooper at paragraph 33, proximity connotes that:
[…] the
circumstances of the relationship inhering between the plaintiff and the
defendant are of such a nature that the defendant may be said to be under an
obligation to be mindful of the plaintiff’s legitimate interests in conducting
his or her affairs.
[Emphasis in the original]
[99]
This means that it is just and fair, having
regard to the relationship between the parties, to impose a duty of care upon
the defendant. Defining the proximity of the relationship may involve looking
at the expectations, representations, reliance and interests involved. That is,
one looks at the factors that demonstrate the closeness of the relationship
between the plaintiff and the defendant (Cooper, at paragraphs 30-34).
[100] The applicable legislative scheme plays a role when determining
whether a government authority owes a prima facie duty of care. A duty
of care may be alleged to arise explicitly or implicitly from the legislative
scheme. Or, a prima facie duty of care may be said to arise from the
interactions between the claimant and the government authority, where such a
duty is not negated by the legislative scheme (R. v. Imperial Tobacco Canada
Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45, at paragraphs 43-44). Where a
statute is geared to, for example, regulating an industry:
[…] it may be difficult to infer that the legislature
intended to create private law tort duties to claimants. This may be even more
difficult if the recognition of a private law duty would conflict with the
public authority’s duty to the public: see, e.g., Cooper and Syl Apps.
As stated in Syl Apps, “[w]here an alleged duty of care is found to
conflict with an overarching statutory or public duty, this may constitute a
compelling policy reason for refusing to find proximity”.
(Imperial Tobacco, paragraph 44)
[101] At the second stage of the Cooper-Anns test, the question is
whether there are residual policy considerations outside the relationship of
the parties that may negate the imposition of a duty of care (Cooper, at
paragraph 30).
[102] The defendant bears the burden of establishing a countervailing residual
policy consideration under the second stage of the Cooper-Anns test (Childs
v. Desormeaux, 2006 SCC 18, [2006] 1 S.C.R. 643, at paragraph 13).
[103] I now consider Apotex’ appeal.
B.
Apotex’ appeal
(1)
The Federal Court failed to consider liability
arising apart from the settlement agreement
[104]
Apotex asserts that the Federal Court erred by
failing to conduct an analysis of whether the Health Protection Branch was
liable in negligence apart from its liability in relation to the settlement
agreement. Apotex says that had the Court done so, it would have concluded that
the relationship between Apotex and the Health Protection Branch was
sufficiently close and direct to give rise to a duty of care at any time after
Apotex’ new drug submission was filed. Apotex also points out that the Federal
Court did not undertake an analysis of the governing legislation or the nature
of the specific relationship between Apotex and the Health Protection Branch.
[105] I begin my analysis by agreeing that the Federal Court’s analysis on
the issue of proximity was sparse. After referencing and quoting the applicable
jurisprudence, the Federal Court wrote at paragraph 123:
Here, were it not for the Settlement
Agreement, I would find that [Health Protection Branch] was not in a position
where it owed a duty of care to Apotex over and above any duty owed to any
other pharmaceutical company seeking approval to sell a drug in Canada.
However, the Settlement Agreement changed all that.
By stating to Apotex that it would examine Apotex’s submissions on the basis of
equivalency, [Health Protection Branch] put itself in a special relationship
with Apotex and owed a duty of care not only to examine Apotex’s submissions on
that standard, but also to be open and transparent as to what it had done (Central
Trust Co. v Rafuse, [1986] 2 S.C.R. 147 at para 49). [Health Protection
Branch] failed on both counts and acted negligently in doing so, I address the
standard of care below. The answer to the first of the Cooper/Anns
questions is yes.
[Emphasis added]
[106] I also agree that the Federal Court ought to have expressly
considered the legislative scheme. Did the legislation contemplate a duty of
care, preclude a duty of care, or conflict with the existence of a duty of
care, as discussed by the Supreme Court in Imperial Tobacco?
[107] This said, I disagree that the Federal Court failed to consider
whether the Health Protection Branch owed a prima facie duty of care
apart from the settlement agreement. Read fairly, the Federal Court found
insufficient proximity between the parties to give rise to a duty of care until
the parties entered into the settlement agreement. The question then becomes
whether that conclusion was correct in law?
[108] In my view, it was correct for the following reasons.
[109] Paragraph 30(1)(o) of the Food and Drugs Act authorizes
the Governor in Council to make regulations respecting, among other things, the
testing of new drugs and the definition of what is a “new
drug”.
[110] The Regulations prohibit the sale of a new drug unless the
manufacturer of the new drug has filed a new drug submission with the Minister “in a form and having a content satisfactory to the Minister”
and the Minister has issued a notice of compliance to the manufacturer (subparagraphs C.08.002(1)(a)
and (b)).
[111] During the years in issue, the new drug submission had to include
such information as the Director of the Health Protection Branch required,
including “detailed reports of the tests made to
establish the safety of the new drug for the purpose and under the conditions
of use recommended” and “substantial evidence of
the clinical effectiveness of the new drug for the purpose and under the
conditions of use recommended” (subparagraphs C.08.002(2)(g) and (h) of
the Regulations).
[112] The Minister was required to issue a notice of compliance if
satisfied that the new drug submission complied with the requirements of the
Regulation (paragraph C.08.004(1) of the Regulations).
[113] I accept that the paramount concern of the legislative regime was
concern for the safety and efficacy of the drugs sold to Canadians.
[114] Nonetheless, from this review of the legislative scheme I take the
following. First, the Food and Drugs Act and Regulations are neutral
with respect to the existence of a prima facie duty of care. They
neither establish nor negate the existence of a duty of care.
[115] Second, given that the legislation is directed to public health and
safety through the regulation of drug manufacturers, it is difficult to infer
that Parliament intended Health Canada to owe a prima facie duty of care
to all drug manufacturers with respect to all new drug submissions. Given the
discretion vested by the Regulations in the Health Protection Branch, albeit a
discretion which must be exercised lawfully, I find that requiring the Branch
to be mindful of Apotex’ economic interests when exercising its discretion
would place the Health Protection Branch in a position of conflict between its
obligation to Apotex and the duty it owes to the public.
[116] Thus, I find no prima facie duty of care to arise explicitly
or implicitly from the legislative scheme.
[117] It follows that I must now consider whether a prima facie
duty of care arose from the interactions between Apotex and the Health
Protection Branch prior to the settlement agreement and, if so, whether
anything in the legislation negates the existence of such a duty of care.
[118] Apotex argues that this legislative regime required and resulted in
an ongoing dialogue between a drug manufacturer and the Health Protection
Branch – particularly in cases such as the present one where repeated requests
were made for more information and responses were provided. The nature of
Apotex’ relationship with the Health Protection Branch is said to bear all of
the hallmarks of a proximate relationship that gives rise to a prima facie
duty of care.
[119] I disagree.
[120] In Taylor v. Canada (Attorney General), 2012 ONCA 479, 111
O.R. (3d) 161, the Ontario Court of Appeal observed that findings of proximity
based on the interactions between a regulator and a plaintiff are of necessity
fact-specific. Based on its review of the jurisprudence, the Court concluded
that there are two important factual features in cases where a prima facie
duty of care has been found. One of those features is relevant to the present
case. That is where “the facts demonstrate a
relationship and connection between the regulator and the individual that is
distinct from and more direct than the relationship between the regulator and
that part of the public affected by the regulator’s work” (Taylor,
paragraph 80).
[121] I agree.
[122] In my view, the interactions Apotex points to in order to establish
a proximate relationship amount to no more than the regular interactions
between the Health Protection Branch and any drug manufacturer. It follows that
the relationship was not distinct from, and more direct than, the Health
Protection Branch’s relationship with any drug manufacturer.
[123] Apotex has failed to show that the Federal Court erred in its
conclusion that the relationship between the Health Protection Branch and
Apotex prior to the settlement agreement did not give rise to a prima facie
duty of care.
C.
Health Canada’s appeal
[124] Health Canada argues on its appeal that the Federal Court:
i.
erred in law by finding that the settlement
agreement created a relationship of proximity;
ii.
erred by failing to negate any prima facie
duty of care based on residual policy considerations; and,
iii.
in the alternative, erred by making palpable and
overriding errors of fact which led the Federal Court to find a breach of the
standard of care.
[125] I reject these submissions for the following reasons.
(1)
The settlement agreement did not create a
relationship of proximity
[126]
Health Canada argues that the settlement
agreement did not transform the legal relationship between the Health
Protection Branch and Apotex. Rather, the settlement agreement confirmed the
way the parties expected the Health Protection Branch to do its job. Health
Canada also argues that imposing a private law duty of care is inconsistent
with its role as regulator.
[127] In my view, the settlement agreement did transform the relationship
between the parties. Prior to the settlement agreement the parties were at a
stalemate over the issue of bioavailability. Apotex believed it could
demonstrate bioavailability by equivalency – the Health Protection Branch required
proof of identicality. During the meeting that led to the settlement, Mr. Rowsell
made statements to Dr. Sherman of Apotex which Mr. Rowsell intended Apotex to
rely upon when entering into the settlement agreement (transcript October 27,
2014, page 884, line 17 to page 885, line 8). By entering into the settlement
agreement, the Health Protection Branch agreed to look at the matter “from the point of view of equivalency” (reasons,
paragraph 54).
[128] The settlement agreement put Apotex in a different relationship with
the Health Protection Branch with respect to the Apo-Trazadone drug submission.
The Health Protection Branch agreed to review the submission on the standard of
equivalency – a departure from its usual practice. Apotex was entitled to
assume that the Health Protection Branch would carry out the obligation it
agreed to assume.
[129] As contemplated in Taylor, the settlement agreement created a
relationship and connection between the Health Protection Branch and Apotex
that was distinct and more direct than the relationship between the Health
Protection Branch and other drug manufacturers which submitted drug
submissions. This established the requisite proximity.
[130] Nor do policy considerations negate a finding of a prima facie
duty of care at the first stage of the Cooper-Anns test. The Health
Protection Branch made an informed, voluntary decision to evaluate the
Apo-Trazadone drug submission considering evidence which would establish
equivalency between Canadian and non-Canadian reference standards. It must be
assumed that the Health Protection Branch did so believing that such an evaluation,
properly conducted, would ensure drug safety and efficacy.
[131] Health Canada cannot now say that imposing a duty of care on it to
comply with its agreement would have any chilling effect upon it as regulator.
(2)
The Federal Court failed to negate a prima
facie duty of care based on residual policy considerations
[132]
Health Canada argues that at the second stage of
the Cooper-Anns test the Federal Court erred by failing to negate the
imposition of a duty of care on two bases: the Health Protection Branch made policy
decisions which should be accorded deference and the imposition of a duty of
care carries the potential for indeterminate liability.
[133] At trial, Health Canada argued that when deciding whether to issue a
notice of compliance, it applied a broad discretion under the Food and Drugs
Act and Regulations. The discretion was exercised in the area of public
policy related to the health and safety of the public. It further argued that
the existence of such discretion should preclude tort liability. The Federal
Court rejected this argument at paragraph 126 of its reasons.
[134] I agree with the conclusion of the Federal Court.
[135] I have rejected the argument that the Health Protection Branch owed
a duty of care to all drug companies with respect to all new drug submissions –
proximity only arose from the settlement agreement. It follows that the
question does not arise whether the imposition of a duty of care would affect
the broad discretion vested in the Health Protection Branch when it reviews a
drug submission.
[136] The Federal Court found that the Health Protection Branch agreed to
do one thing, chose to do another and then attempted to conceal this from
Apotex (reasons, paragraph 126). It cannot be credibly argued that in so acting
the Health Protection Branch was making a policy decision.
[137] The Federal Court also rejected the argument that recognizing a duty
of care would raise the spectre of indeterminate liability. In the Federal
Court’s view, the liability that arose from the settlement agreement was unique
and would not open the door to indeterminate liability (reasons, paragraph
127).
[138] In Design Services Ltd. v. Canada, 2008 SCC 22, [2008] 1
S.C.R. 737 the Supreme Court considered the residual policy concern of
indeterminate liability. At paragraph 62, the Court paraphrased Chief
Justice Cardozo of the Court of Appeals of New York, and concluded that “care must be taken to find that a duty is recognized only in
cases where the class of plaintiffs, the time and the amounts are determinate”
(see also Imperial Tobacco, at paragraph 100).
[139] Looked at in this light, imposing a duty of care in circumstances
when a government actor chooses to enter into a contract and then breaches the
agreement, limits both the potential class of claimants and the time in which
liability may be affixed. The class of claimants is confined to those privy to
the contract. The time in which liability may be affixed is limited by the
applicable limitation period. Further, in most, if not all cases, the government
actor is able to control its conduct so as to avoid or limit liability.
[140] The Federal Court did not err in rejecting the spectre of
indeterminate liability.
(3)
The Federal Court made palpable and overriding
errors that led it to conclude that the Health Protection Branch breached the
settlement agreement
[141] In oral argument Health Canada identified for the first time the
palpable and overriding errors of fact it relied upon. Health Canada asserted
that the Federal Court:
i.
misunderstood the new drug submission; it particularly
misunderstood where Apo-Trazadone was to be made and whether the Canadian and
American Desyrel products were identical;
ii.
confused equivalence with therapeutic
equivalence;
iii.
erred by finding the data submitted in November
1990 was reviewed on the standard of identicality; and,
iv.
erred by failing to consider the data filed
after November 1990 when determining that the Health Protection Branch breached
the settlement agreement.
[142] I have already dealt with and dismissed the submissions that the
Federal Court erred by finding that the Canadian and American Desyrel products
were identical, by finding the November 1990 data was reviewed on the standard
of identicality, and by finding that the data submitted in November 1990
established equivalence.
[143] This leaves for consideration the submissions that the Federal Court
erred by misunderstanding where Apo-Trazadone was to be made and by confusing
equivalence with therapeutic equivalence.
[144] I acknowledge that at paragraph 35 of its reasons the Federal Court
stated that Apotex had advised the Health Protection Branch that its generic
product would be manufactured in the United States by a company owned by it,
Barr Laboratories. This does not appear to be correct. Apotex intended to
manufacture its product in Canada.
[145] In my view, this error was not material to the decision of the
Federal Court. This is because Dr. Johnson, in his memorandum of January 20,
1989 (Joint Book of Documents, tab 21) observed:
Since Barr Laboratories are owned by Apotex,
they can presumably provide evidence that the Barr product and the proposed
Apotex product are identical from a chemistry and manufacturing standpoint.
[146] No evidence has suggested any material difference between Barr
Trazodone and Apo-Trazadone that would have influenced the Federal Court’s
appreciation of the evidence.
[147] Nor am I persuaded that the Federal Court misunderstood that the
settlement agreement required therapeutic equivalence. At paragraph 51 of its
reasons, the Court quoted the settlement agreement which required data “to establish that Apo-trazad is chemically and
therapeutically equivalent to a drug product sold in Canada”. It cannot
reasonably be presumed that the Federal Court ignored this.
[148] I have previously found that Dr. Kibbe defined equivalency in terms
of therapeutic outcome and that the Federal Court did not err by relying on his
evidence to conclude that Apotex had established equivalency in terms of therapeutic
outcome in November 1990.
[149] To conclude, I see no basis on which to interfere with the findings
of the Federal Court with respect to negligence.
VI.
Mitigation
[150] I begin by setting out the legal principles that underlie the
concept of mitigation and then consider the errors asserted by Apotex.
A.
The concept of mitigation
[151]
The concept of mitigation may be succinctly
expressed: a plaintiff is not entitled to recover compensation for loss that
could have been avoided by taking reasonable action. Pursuant to this concept,
any loss is disallowed when the loss flows from the plaintiff’s inaction, as
opposed to the defendant’s wrong.
[152] What constitutes reasonable action is in every case a question of
fact, depending on the particular circumstances of the plaintiff and the case.
This said, as is the case with the concept of remoteness, a finding that a
plaintiff ought to have mitigated its loss is not a simple question of fact
because it also involves a legal conclusion.
[153] The burden of establishing the failure to mitigate is on the
defendant. The defendant must show both that the plaintiff failed to make
reasonable efforts to mitigate and that mitigation was possible (Southcott Estates
Inc. v. Toronto Catholic District School Board, 2012 SCC 51, [2012] 2
S.C.R. 675, at paragraph 24).
[154] In case of doubt, the plaintiff will generally receive the benefit
of the doubt on the ground that a defendant should not be overly critical of a
plaintiff’s good-faith effort to avoid difficulties caused by the defendant’s
wrongful act (S. M. Waddams, The Law of Damages, looseleaf (Toronto: ON:
Thomson Reuters Canada, 1991) at paragraph 15.140). In Banco de Portugal v.
Waterlow & Sons, Ltd., [1932] A.C. 452 (H.L.) Lord Macmillan expressed
this concept as follows (at page 506):
Where the sufferer from a breach of contract
finds himself in consequence of that breach placed in a position of
embarrassment the measures which he may be driven to adopt in order to
extricate himself ought not to be weighed in nice scales at the instance of the
party whose breach of contract has occasioned the difficulty. It is often
easy after an emergency has passed to criticise the steps which have been taken
to meet it, but such criticism does not come well from those who have
themselves created the emergency. The law is satisfied if the party placed
in a difficult situation by reason of the breach of a duty owed to him has
acted reasonably in the adoption of remedial measures, and he will not be
held disentitled to recover the cost of such measures merely because the party
in breach can suggest that other measures less burdensome to him might have
been taken.
[Emphasis added]
[155] This principle applies equally to cases where there has been a
tortious act. Thus, a plaintiff’s conduct is not weighed against a single standard
of objective reasonability.
[156] I now consider Apotex’ appeal.
B.
Apotex’ appeal
(1)
The Federal Court erred in its appreciation of
the onus of proof
[157] At paragraphs 151 to 154 of its reasons, the Federal Court set out
the legal principles applicable to the issue of mitigation. At paragraph 154 it
wrote that “[o]nus has no role to play in assessing
mitigation; the duty of the Court is to look at the evidence in the record and
determine whether and when it was appropriate to mitigate the losses claimed.”
The Federal Court cited Chopra v. Canada (Attorney General), 2007 FCA
268, [2008] 2 F.C.R. 393, at paragraphs 40 to 42 as authority for this
proposition.
[158] In my respectful view, the Federal Court erred in its appreciation
of the Chopra decision and erred in law by concluding that onus had no
role to play in assessing mitigation. In Chopra, this Court was making
the point that the question of onus only arises factually when one must decide
which party bears the consequence of a gap in the evidentiary record which
prevents a necessary finding of fact from being made. In any event, the
decision of the Supreme Court in Southcott is dispositive: the defendant
must establish that the plaintiff failed to make reasonable efforts to mitigate
the loss.
[159] While Apotex asserts a number of other errors on the part of the
Federal Court, in my view it is only necessary to consider whether the Federal
Court erred by requiring Apotex to accede to the use of a Canadian reference
product in order to mitigate its loss.
[160] The Federal Court found that Apotex “knew it
could mitigate its losses by conducting tests using a Canadian reference
standard. It did precisely that in respect of Apo-Zidovudine” (reasons,
paragraph 155). Had Apotex done so, it would have cost between $200,000 and
$300,000 and taken three to six months (reasons, paragraph 157). The Court
found a “reasonable person, thinking in terms of
economics” would have chosen to re-test Apo-Trazadone’s bioavailability
against a Canadian reference product (reasons, paragraph 161). Had Apotex done
so, it may have received its notice of compliance in between 15 to 18 months
(reasons, paragraph 162).
[161] As noted above, in any case what is reasonable depends on the
particular circumstances of the plaintiff and the case.
[162] Perhaps because of its failure to appreciate the applicable onus of
proof, the Federal Court did not review the actions Apotex did take after it
became aware that Health Canada was acting contrary to the settlement agreement
in order to consider whether Apotex made reasonable efforts to mitigate.
Instead, the Federal Court went directly to its conclusion that “Apotex knew it could mitigate its losses by conducting tests
using a Canadian reference standard” (reasons, paragraph 155). In my
view it was an error of law for the Federal Court to dictate a single,
reasonable course of action and to fail to consider the reasonableness of
Apotex’ actual course of conduct.
[163] As a result of this failure it is necessary to review Apotex’
conduct in order to assess the reasonableness of its course of conduct.
[164]
Looking at the totality of the evidence, the
following chronology emerges:
|
January 25,
1988
|
The Health
Protection Branch received Apotex’ submission for a notice of compliance for
Apo-Trazadone (reasons, paragraph 1).
|
|
August 24,
1989
|
The Health
Protection Branch wrote to Apotex insisting that a Canadian reference product
is required (Joint Book of Documents, tab 32). The Federal Court finds that
by this point “the battle lines had been drawn”
(reasons, paragraph 44).
|
|
From May
1989 to
July 1990
|
Correspondence
is exchanged between Apotex and the Health Protection Branch wherein both
sides stick to their positions concerning the appropriate reference product
(see, for example, Joint Book of Documents, tabs 23, 24, 29, 32, 38, 39, 40,
41, 44, 45, 46, 47, 48, 49, 50, 51).
|
|
August 13,
1990
|
The first
application for judicial review is filed by Apotex. Apotex sought an
order directing the Minister to review its submission without requiring that
the reference product be purchased in Canada and to issue a notice of
compliance (Joint Brief of Judicial Review Documents from Court File No.
T-2276-90, tab 1).
|
|
November 26,
1990
|
The
settlement agreement was signed by counsel for the Health Protection Branch
and delivered to Apotex: the Health Protection Branch agreed that it was “prepared to consider evidence to establish equivalency
between Canadian and non-Canadian reference standards” (Joint Book of
Documents, tab 60).
|
|
April 1991
|
The date by
which Apotex was found by the Federal Court to possess sufficient facts to be
aware that the Health Protection Branch was acting in breach of the
settlement agreement (reasons, paragraph 138).
|
|
April 25,
1991
|
Apotex wrote
to the Health Protection Branch advising it had found three other examples
where drugs had been approved without the requirement of a Canadian reference
product and saying that “Apotex is now suffering
substantial damages”. If the Health Protection Branch failed to
confirm “within a matter of days” that
Apotex’s bioavailability study using the U.S. reference product would
suffice, Apotex would initiate an action founded on “bad
faith and on a refusal to comply with the settlement agreement.”
Apotex also stated that it would “claim damages
flowing from the delay in review and approval” (Joint Book of
Documents, tab 83).
|
|
May 10, 1991
|
Apotex wrote
to the Health Protection Branch advising that it intended to mitigate its
damages with respect to Apo-Zidovudine by using a Canadian reference product
(Joint Book of Documents, tab 87).
|
|
July 2, 1991
|
Apotex again
wrote to the Health Protection Branch urging it to comply with the settlement
agreement and threatening to pursue both mandamus and an action in
damages if the Health Protection Branch did not comply (Joint Book of
Documents, tab 102). The Federal Court concluded that Apotex should have
taken mitigative action as of this date (reasons, paragraph 161).
|
|
July 17,
1991
|
Apotex filed
a second application for judicial review seeking an order directing the
Minister to review its drug submission without imposing a condition precedent
that a bioavailability study be conducted comparing Apo-Trazadone to a
Canadian reference product, and if such review was satisfactory, directing
the issuance of a notice of compliance (Joint Brief of Judicial Review Documents
from Court File No. T-1877-91, tab 1).
|
|
March 22 to
24, 1992
|
Apotex’
second judicial review application was heard by the Federal Court (Joint
Brief of Judicial Review Documents from Court File No. T-1877-91, tab 19).
|
|
January 19,
1993
|
The Federal
Court dismissed Apotex’ application for judicial review (Joint Brief of
Judicial Review Documents from Court File No. T‑1877-91, tab 19).
|
|
February 8,
1993
|
Apotex
appealed the decision of the Federal Court (Joint Brief of Judicial Review
Documents from Court File No. T-1877-91, tab 20).
|
|
October 12,
1993
|
The new
Executive Director of the Drugs Directorate sent a “very
strong” memorandum to the Health Protection Branch stating that Apotex
was “owed a full explanation” (Exhibit 8, reasons,
paragraph 74).
|
|
April 8,
1994
|
The Health
Protection Branch conducted a “re-review” of
Apotex’ submission and concluded that Apotex had “not
adequately established the bioequivalence of Canadian and U.S. Desyrel drug
products.” Thereafter, the Health Protection Branch wrote to Apotex
advising that no notice of compliance would issue (Joint Book of Documents, tab
159).
|
|
May 16, 1994
|
A meeting
took place between representatives of Apotex and the Health Protection
Branch. The Health Protection Branch advised that “the
Directorate was not intransigent and would seriously consider further data.”
The Health Protection Branch “also emphasized that
this case was a watershed for many issues; policy definitions are
appropriately made subsequent to a scientific process rather than as a
consequence of litigation” (Joint Book of Documents, tab 160).
|
|
May 31, 1994
|
Further
studies were provided by Apotex to the Health Protection Branch (Joint Book
of Documents, tab 162).
|
|
June 23,
1994
|
The Health
Protection Branch concluded that it had no outstanding concerns that should
prevent the issuance of a notice of compliance (Joint Book of Documents, tab
164). However, the Health Protection Branch did not communicate this conclusion
to Apotex.
|
|
October 17, 1994
|
Apotex
contacted the Health Protection Branch to ascertain the status of its
submission. It was advised the next day that the matter is “currently under discussion with legal counsel”
(Joint Book of Documents, tab 172).
|
|
December 16,
1994
|
A report
concluding there were no outstanding concerns was signed by the Health
Protection Branch. The report repeated the findings of the June 23, 1994
report (Joint Book of Documents, tab 197).
|
|
February 28,
1995
|
Apotex
received its notice of compliance (Joint Book of Documents, tab 224).
|
[165] What emerges from this chronology is that on the date the Federal
Court found that Apotex should have taken mitigative action, Apotex wrote to
Health Canada threatening both mandamus and an action in damages. Within
15 days of that date Apotex commenced an application for mandamus. This
application was pursued on a timely basis. In addition to filing an appeal from
the negative decision of the Federal Court, Apotex continued to press Health
Canada.
[166] As a result of such pressure, the October 12, 1993 memorandum was
sent which stated that Apotex was owed a full explanation and expressed the “feeling” of the new Director of the Drugs Directorate
that “our practices and maybe even our policies have
been inconsistent”.
[167] On January 4, 1994 (Joint Book of Documents, tab 144), Apotex’
counsel wrote to counsel for Health Canada advising that Apotex had obtained
Health Canada documents through one or more access to information applications.
Counsel advised that from a review of that documentation, it was apparent that
the review of Apotex’ drug submission:
[…] has always been conducted without
regard to the settlement agreement and the underlying principles thereto.
More precisely, your client has failed to review the dissolution data submitted
in conjunction with and in light of the finding of chemical equivalence of the
U.S. and Canadian reference brands.
[Emphasis added]
[168] It followed that Health Canada:
[…] has failed not only to abide by the
terms of the settlement agreement but to discharge its statutory obligation.
[169] This was “vividly exemplified”:
[…] in a memorandum dated April 15, 1992 from
M. Ward, Senior Drug Evaluator, to W.M. Nitchuk. […] the memorandum illustrates
the basic error and confusion which your client has been making and suffering
throughout the process. In the first full paragraph of the memorandum, Ward
states that:
“It is generally accepted that
comparative dissolution profile analysis cannot replace comparative
bioavailability studies as a means of establishing “bioequivalence” between two
different products unless an in-vitro/in-vivo correlation has been
demonstrated.” [emphasis in original]
The statement is correct insofar as it
reads. Apotex has never taken the position that comparative dissolution data
for different products would be sufficient in the absence of a
comparative bioavailability. However, the case at hand does not involve
“different” products. Your client has conceded that the U.S. and Canadian
reference products are the same, that is, are chemically equivalent, if not
identical.
[Emphasis in original]
[170] On February 9, 1994 counsel for Apotex wrote to counsel for Health
Canada setting the “parameters for resolution [of the dispute]
which we have discussed” (Joint Book of Documents, tab 150).
Correspondence followed between counsel and, as noted above, on May 16, 1994
the parties met. On May 31, 1994, Apotex provided further dissolution data
(Joint Book of Documents, tab 162). By June 23, 1994, Health Canada had no
outstanding concerns with respect to the clinical equivalence of the American
and Canadian Desyrel product (Joint Book of Documents, tab 164). On
February 28, 1995, the notice of compliance issued to Apotex. As explained
above at paragraph 35, no explanation was provided for the delay between June
23, 1994 and February 28, 1995.
[171] It is apparent that throughout this chronology, Apotex never sat on
its rights. Notwithstanding, Health Canada argues that Apotex’ conduct does not
constitute reasonable mitigation because “[i]nsisting
that a party allegedly in breach honour a contractual term cannot constitute
mitigation” (memorandum of fact and law, paragraph 88).
[172] This said, Health Canada does acknowledge that in “rare situations” a failure to mitigate is justifiable
(memorandum of fact and law, paragraph 90). This arises where a plaintiff has a
substantial and legitimate interest in seeking specific performance of a
defendant’s obligation.
[173] Thus, in Asamera Oil Corporation Ltd. v. Sea Oil & General
Corporation et al., [1979] 1 S.C.R. 633, 89 D.L.R. (3d) 1, the Supreme
Court considered the claim of a party that sought the return of a number of
shares in a corporation and argued it was not obliged to mitigate its loss by
purchasing replacement shares in the market. Rather, the claimant argued that
it was entitled to seek specific performance of the contract to return the
shares and that during the period it relied upon an interim injunction
restraining the sale of the shares it did not have to take into account the losses
flowing from its failure to purchase replacement shares and mitigate those
losses.
[174] The Supreme Court found that, as a matter of law, the principle of
mitigation ought to prevail unless there was “a
substantial and legitimate interest represented by specific performance”
(Supreme Court Reports, page 667). Therefore, when the evidence revealed “a substantial and legitimate interest in seeking performance
as opposed to damages, then a plaintiff will be able to justify his inaction”
(Supreme Court Reports, pages 668-669).
[175] This principle was reiterated in Semelhago v. Paramadevan,
[1996] 2 S.C.R. 415, 28 O.R. (3d) 639, at pages 429-430 of the Supreme Court
Reports.
[176] In the present case, Apotex regularly interacted with Health Canada
with respect to new drug submissions. Dr. Sherman testified that Apotex
developed most of its generic products in Canada and therefore, as a matter of
convenience, it used Canadian reference products to establish bioequivalence
and bioavailability. However, when a generic product was developed outside of
Canada, Apotex established bioequivalence using studies done in the foreign
market. Thus, Dr. Sherman could point to four instances between September 1976
and 1995 when Apotex had obtained a notice of compliance using a foreign
reference product. It was his understanding that “every
time we, or to the best of our knowledge anyone else, submit a submission using
a foreign reference it was acceptable except only for Spirozide”
(transcript October 21, 2014, page 299, line 11 to page 302, line 26). Apotex
had a clear business interest in establishing that foreign reference products
were, as a matter of general principle, acceptable. As the Federal Court found,
Apotex made its Apo-Trazad submission a test case as to whether a non-Canadian
reference product could be used as a reference (reasons, paragraph 105).
[177] At the same time, Health Canada recognized that Apotex had raised an
important point of principle. Thus, as previously discussed, in his memo of
January 20, 1989 to the Director of the Drugs Directorate, Dr. Johnson
acknowledged the scientific basis of Apotex’ position that it ought to be able
to rely on the foreign reference product. He wrote:
Therefore, on the basis of science alone, I
am inclined to accept the arguments advanced by Apotex. However, we should
also examine the possibility that we may be establishing a precedent if we
follow this course of action that could see us forced to accept similar
arguments from around the world. What is to prevent, for example, Apotex
from commissioning a bioavailability study comparing the French brand of a
product as the standard? If we accept the arguments advanced in this particular
case, we could have a difficult time not allowing this type of study. This
could be the start of a process that would see us lose control over the generic
submissions.
[Emphasis added]
This was reiterated by Health Canada late in
the process. As noted above, at the meeting between representatives of Health
Canada and Apotex on May 16, 1994, officials from Health Canada “emphasized that this case was a watershed for many issues.”
[178] It follows that this was not a case where Apotex clung to a point of
principle without regard to the consequences. Both Apotex and Health Canada
recognized that the availability of recourse to a foreign reference product
raised an important issue of principle. While the Federal Court recognized that
“battle lines” were drawn, it erred by ignoring
this important issue of principle and by considering only the economics
involved in a single drug submission. The issue in dispute transcended a single
drug submission and was directly linked to Apotex’ strategic and economic
interests.
[179] The evidence establishes that Apotex had a substantial and
legitimate interest in pursuing its claim for mandamus, a claim that
would, in effect, require Health Canada to abide by the settlement agreement
and specifically perform its obligation to consider evidence to establish the
bioequivalency of the Canadian and the American reference standards.
[180] Thus, in the rather unique circumstances of this case, Apotex’
choice to pursue litigation was reasonable. It did not fail to mitigate its
loss and it was an error of principle to require Apotex to mitigate its loss by
requiring it to abandon its right to have the Health Protection Branch consider
evidence to establish the bioequivalence of the Canadian and American reference
standards and by requiring Apotex to do the very thing the settlement agreement
was intended to avoid: a new bioavailability test using a Canadian reference
product.
[181] Had Apotex so proceeded and obtained a notice of compliance, the
issuance of the notice of compliance would have rendered moot the issue of the
suitability of a foreign reference product. It follows that in any subsequent
drug submission the suitability of a foreign reference product would remain a
live issue; in the words of the Federal Court, the “battle
lines” would be drawn again.
[182] Apotex’ ongoing interest in having Health Canada accept the notion
of foreign reference products in appropriate cases was a substantial and
legitimate interest Apotex was entitled to pursue through mandamus
properly instituted and prosecuted.
[183] While this is sufficient to set aside the decision of the Federal
Court on mitigation, a brief comment is warranted on the Federal Court’s reliance
on Apotex’ conduct with respect to Apo-Zidovudine.
[184] In the case of Apo-Zidovudine, Apotex had not obtained any agreement
from the Health Protection Branch that it would consider evidence to establish
equivalence between the Canadian and non-Canadian reference standards. To block
the impasse Apotex chose to re-test. This is distinguishable from the present
case. In the present case, the impasse had been resolved by settlement
agreement.
[185] For these reasons I would vary the judgment of the Federal Court so
as to remove its conclusion that Apotex failed to mitigate its loss. Thus, the
reference or trial to establish the extent of Apotex’ damages should proceed on
the basis that Apotex did not fail to mitigate its loss.
VII.
Contract
A.
Apotex’ claim in contract
[186]
Apotex asserted at trial that the Health
Protection Branch breached the settlement agreement by continuing to insist,
internally, upon applying the standard of identicality when assessing
bioequivalence. The Federal Court found that the settlement agreement required
review on the standard of equivalence and that the Health Protection Branch
failed to apply that standard. I have found those findings to be supported by
the evidence.
[187] However, the Federal Court found Apotex’ claim for breach of
contract was barred by the application of the applicable limitation period. The
Federal Court found that Apotex was aware of the breach of the settlement
agreement by April 1991. This finding was based on correspondence from Apotex
to the Health Protection Branch dated April 25, 1991, July 2, 1991 and July 31,
1991 (Joint Book of Documents, tabs 83, 102 and 111).
B.
Apotex’ appeal
[188] On its appeal Apotex asserts that while it “clearly
suspected that the [Health Protection Branch] was not acting in compliance with
the settlement agreement, it did not know the critical facts necessary to
establish the specific breach of contract at issue here” (Apotex’
memorandum of fact and law, paragraph 107).
[189] The Federal Court’s finding that Apotex was aware of the breach of
the settlement agreement by April 1991 was a finding of fact which is entitled
to deference. Looking at the correspondence relied upon by the Federal Court,
Apotex wrote on April 25, 1991:
As you know, we brought an action in the
Federal Court in August 1990, which was withdrawn only after we arrived at a
settlement agreement. The agreement was that the U.S. reference could be
used, along with evidence to establish the equivalence of the Canadian and U.S.
references. In the course of the settlement discussions, we provided Mr. Rowsell
with IR spectral comparisons and dissolution comparisons, as further evidence
that the formulations of the U.S. and Canadian references were the same, and he
confirmed that this data was the type of further data needed.
In the course of settlement discussions,
we received assurances that [Health Protection Branch] would comply with the
agreement and review our submission in good faith.
[…]
Apotex is now suffering substantial damages
from the delay in review and approval of Apo-Trazadone.
We ask that you reconsider your position and
confirm that our bioavailability study using the reference purchased in the
U.S. will suffice. If we do not receive such confirmation within a matter of
days, we will have no alternative but to initiate another action in the
Federal Court founded, inter alia, on bad faith and on refusal to comply with
the settlement agreement.
[Emphasis added]
On July 2, 1991:
The essence of the Settlement Agreement
was that we would abandon the use of a foreign
reference in cases where the foreign and Canadian references are not the same,
and [Health Protection Branch] would accept the foreign references when it
appears that the foreign and Canadian references are the same and that
appearance is confirmed by laboratory comparisons. In the course of the
discussions as to what would suffice, I tendered to Mr. Rowsell I.R. and
dissolution comparisons, which Mr. Rowsell stated to be exactly the sort of
data which was needed to provide the extra assurance that the U.S. and Canadian
references were equivalent.
We have now complied with the terms of the
Agreement by providing (for both trazadone and zidovudine) extensive
comparisons which confirm the U.S. and Canadian references indistinguishable.
Instead of now accepting these two
products in compliance with the Agreement, Mr. Rowsell has reverted to the
position that laboratory comparisons will not suffice and that approval can be
obtained only on the basis of certification by the originator or a
bioavailability study against the reference purchased in Canada. This position
was stated very explicitly by Mr. Rowsell to Dr. Spino in a telephone
conversation on June 26, 1991, and is also clear from the contents of Mr.
Rowsell’s letter of June 21, 1991. Mr. Rowsell has thus repudiated the
Settlement Agreement. It is particularly irritating
that Mr. Rowsell at the same time purports to be honoring the Agreement.
Clearly, the essence of the Agreement was [to] be that our products would be
approved if the data confirmed the references to be indistinguishable.
[Emphasis added]
And on July
31, 1991:
[…] It was well understood by both
parties (as it should be understood by you), that if the laboratory comparisons
confirm that the references are chemically equivalent, it follows that they are
therapeutically equivalent. Given that Mr. Rowsell specifically stated
in the settlement discussions that our comparative IR and dissolution data was
exactly the sort of additional data needed, and given that he subsequently
confirmed to me that such was the understanding, it appears to me inconceivable
that Mr. Rowsell will now purport that the agreement was otherwise.
[…]
I believe that each and every one of the
“comments” made by you is untenable. Moreover, taken together they appear to
demonstrate an intransigent refusal to act in good faith.
[Emphasis added]
[190] The content of the correspondence is such that I see no palpable and
overriding error in the Federal Court’s finding that by April 1991, Apotex was
aware that the Health Protection Branch was acting in breach of the settlement
agreement and that Apotex was suffering damage as a result.
[191] It follows that I would dismiss this aspect of Apotex’ appeal.
C.
Health Canada’s cross-appeal
[192] Health Canada repeats its arguments that the Federal Court
misapprehended the evidence in order to find there was a breach in the
settlement agreement. I have previously dealt with these submissions. No
further analysis is required in circumstances where I have concluded in any
event that the cause of action in contract is statute barred.
VIII. Conclusion
[193] For the reasons above I would dismiss Health Canada’s appeal. I
would allow Apotex’ appeal in part and vary paragraph one of the judgment of
the Federal Court to read:
Apotex is entitled to damages to be assessed
on the basis set out in the reasons of the Federal Court issued on November 18,
2014, with the exception that Apotex did not fail to mitigate its damages.
[194] In all other respects I would dismiss Apotex’ appeal and Health
Canada’s cross-appeal.
[195] Health Canada has been wholly unsuccessful on its appeal and cross-appeal
and Apotex has in largest part been unsuccessful on its appeal. It is, in my
view, appropriate in these circumstances that each party bear their own costs.
It follows that I would not award costs on the appeals or cross-appeal.
“Eleanor R. Dawson”
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“I agree.
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Rennie J.A.”
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“I agree.
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WoodsJ.A.”
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