Docket: A-804-99
OTTAWA, ONTARIO, THIS 20TH DAY OF APRIL 2000
PRESENT: THE HONOURABLE MR. JUSTICE ROTHSTEIN
BETWEEN:
NU-PHARM INC.
Appellant
(Respondent)
- and -
MERCK & CO., INC. and
MERCK FROSST CANADA & CO.
Respondents
(Applicants)
- and -
THE MINISTER OF HEALTH
Respondent
(Respondent)
HEARD at Ottawa, Ontario, on Tuesday, April 18, 2000
ORDER and REASONS FOR ORDER delivered at Ottawa, on Thursday, April 20, 2000
Docket: A-804-99
OTTAWA, ONTARIO, THIS 20TH DAY OF APRIL 2000
PRESENT: THE HONOURABLE MR. JUSTICE ROTHSTEIN
BETWEEN:
NU-PHARM INC.
Appellant
(Respondent)
- and -
MERCK & CO., INC. and
MERCK FROSST CANADA & CO.
Respondents
(Applicants)
- and -
THE MINISTER OF HEALTH
Respondent
(Respondent)
REASONS FOR ORDER
JURISDICTION
1. This is a motion by Nu-Pharm Inc. for a stay of a March 13, 2000 decision of this Court, pending appeal to the Supreme Court of Canada. Although Nu-Pharm initially relied on rule 398 of the Federal Court Rules, 1998 to invoke the jurisdiction of a judge of the Federal Court of Appeal to grant a stay in this case, it appears to me that the Court"s jurisdiction is grounded in subsection 65.1(1) of the Supreme Court Act which provides:
| 65.1 (1) The Court, the court appealed from or a judge of either of those courts may, on the request of the party who has served and filed a notice of application for leave to appeal, order that proceedings be stayed with respect to the judgment from which leave to appeal is being sought, on the terms deemed appropriate.
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65.1 (1) La Cour, la juridiction inférieure ou un de leurs juges peut, à la demande de la partie qui a signifié et déposé l'avis de la demande d'autorisation d'appel, ordonner, aux conditions jugées appropriées, le sursis d'exécution du jugement objet de la demande.
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2. Rule 398 is a rule primarily intended to sort out which division of the Federal Court may grant or set aside a stay where the underlying appeal is from the Trial Division to the Appeal Division. Rule 398 provides:
| 398. (1) On the motion of a person
against whom an order has been made,
(a) where the order has not been
appealed, the division of the Court that
made the order may order that it be
stayed; or
(b) where a notice of appeal of the order
has been issued, a judge of the division of
the Court that is to hear the appeal may
order that it be stayed.
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398. (1) Sur requête d'une personne contre laquelle une ordonnance a été rendue :
a) dans le cas où l'ordonnance n'a pas été
portée en appel, la section de la Cour qui a
rendu l'ordonnance peut surseoir à l'ordonnance;
b) dans le cas où un avis d'appel a été délivré,
seul un juge de la section de la Cour saisie de
l'appel peut surseoir à l'ordonnance.
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(2) As a condition to granting a stay under subsection (1), a judge may require that the appellant
(a) provide security for costs; and
(b) do anything required to ensure that the
order will be complied with when the stay
is lifted.
(3) A judge of the division of the Court that is to hear an appeal of an order that has been stayed pending appeal may set aside the stay if the judge is satisfied that the party who sought the stay is not expeditiously proceeding with the appeal or that for any other reason the order should no longer be stayed.
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2) Le juge qui sursoit à l'exécution d'une ordonnance aux termes du paragraphe (1) peut exiger que l'appelant :
a) fournisse un cautionnement pour les dépens;
b) accomplisse tout acte exigé pour garantir, en
cas de confirmation de tout ou partie de l'ordonnance, le respect de l'ordonnance.
(3) Un juge de la section de la Cour saisie de l'appel d'une ordonnance qui fait l'objet d'un sursis peut annuler le sursis, s'il est convaincu qu'il n'y a pas lieu de le maintenir, notamment en raison de la lenteur à agir de la partie qui a demandé le sursis.
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Rule 398(3) only grants to a judge of the Division of the Court that is to hear an appeal the jurisdiction to set aside a stay. A judge of the Appeal Division is, of course, not a judge that is to hear an appeal in the case of an appeal from the Appeal Division to the Supreme Court of Canada and therefore would not have jurisdiction under rule 398(3) to set aside a stay granted pending appeal to the Supreme Court of Canada. Considered in context, I am satisfied that rule 398 is not applicable on appeals from the Appeal Division to the Supreme Court of Canada.
3. On the other hand, subsection 65.1(1) of the Supreme Court Act clearly confers jurisdiction to grant a stay upon a judge of the court appealed from. It appears that such jurisdiction survives until leave is granted by the Supreme Court of Canada. See M & D Farm Ltd. v. Manitoba Agricultural Credit Corp., [1998] 1 S.C.R. 1074, at para. 3. It is subsection 65.1(1) that confers jurisdiction on the Court in this case.
PROCEDURAL HISTORY
4. This Court"s March 13, 2000 decision upheld that of McGillis J. in the Trial Division of November 23, 1999, that a notice of compliance should not have been issued by the Minister of Health to Nu-Pharm for its version of enalapril maleate, Nu-Enalapril, an ACE inhibitor for the treatment of hypertension.
5. On December 6, 1999 McGillis J. stayed her November 23, 1999 judgment, thereby allowing Nu-Pharm to continue to market Nu-Enalapril pending appeal to this Court. In addition to finding that Nu-Pharm had demonstrated a serious issue and that the balance of convenience favoured Nu-Pharm, she found that Nu-Pharm had, by clear and compelling evidence, established that the financial consequences which would arise from an inability to remain in the market pending appeal constituted irreparable harm. These financial consequences included Nu-Pharm losing all or a large portion of its out-of-pocket costs related to Nu-Enalapril, thereby placing its continued viability in jeopardy.
6. Before this Court, Nu-Pharm makes essentially the same argument. The numbers have changed and Nu-Pharm"s cash-flow crisis appears to be less severe now. Nu-Pharm calculates that its cash deficiency over the next 90 days will still be significant.
SERIOUS ISSUE
7. The first test to be met for the granting of a stay is whether there is a serious issue to be determined. The threshold to be met in satisfying the test is low. See RJR - MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311, at 337.
8. In this case, the stay is being sought pending an appeal to the Supreme Court of Canada. On an appeal to the Supreme Court of Canada, a party must first satisfy that Court that it should grant leave because a question involved in the appeal is one of public importance, that any issue of law or mixed law and fact involved in the question is important, that the question ought to be decided by the Supreme Court, or is, for any other reason of such nature or significance as to warrant a decision by the Supreme Court. Subsection 40(1) of the Supreme Court Act provides:
| 40. (1) Subject to subsection (3), an appeal lies to the Supreme Court from any final or other judgment of the Federal Court of Appeal or of the highest court of final resort in a province, or a judge thereof, in which judgment can be had in the particular case sought to be appealed to the Supreme Court, whether or not leave to appeal to the Supreme Court has been refused by
any other court, where, with respect to the particular case sought to be appealed, the Supreme Court is of the opinion that any question involved therein is, by reason of its public importance or the importance of any issue of law or any issue of mixed law and fact involved in that question, one that ought to be decided by the Supreme Court or is, for any other reason, of such a nature or significance as to warrant decision by it, and leave to appeal from that judgment is accordingly granted by the Supreme Court.
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40. (1) Sous réserve du paragraphe (3), il peut être interjeté appel devant la Cour de tout jugement, définitif ou autre, rendu par la Cour d'appel fédérale ou par le plus haut tribunal de dernier ressort habilité, dans une province, à juger l'affaire en question, ou par l'un des juges de ces juridictions inférieures, que l'autorisation d'en appeler à la Cour ait ou non été refusée par une autre
juridiction, lorsque la Cour estime, compte tenu de l'importance de l'affaire pour le public, ou de l'importance des questions de droit ou des questions mixtes de droit et de fait qu'elle comporte, ou de sa nature ou importance à tout égard, qu'elle devrait en
être saisie et lorsqu'elle accorde en conséquence l'autorisation d'en appeler.
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9. There is authority for the proposition that on a stay application pending appeal to the Supreme Court of Canada, the applicant must demonstrate that there is a serious issue that would meet the criteria set out in subsection 40(1), i.e. a serious question of public importance. In Turf Masters Landscaping Ltd. v. T.A.G. Developments Ltd. and Dartmouth (City) (1995), 144 N.S.R. (2d) 326; 416 A.P.R. 326, Freeman J.A. stated at page 332:
| When a stay is sought in a Provincial Court pending the hearing of an application for leave to appeal to the Supreme Court, the applicant must be able to show that in addition to an arguable issue on the merits, there is an arguable issue with respect to the criteria for appeals to the Supreme Court of Canada referred to in s. 40(1), that is, a question of public importance, an important issue of law or mixed law and fact, or that the matter is otherwise of such a nature and significance as to warrant decision by the Supreme Court. It is not necessary to speculate as to the outcome of the leave proceeding, merely to determine that the appellant is able to present serious argument for leave. |
These comments were adopted by Glube C.J.N.S. in Barrett v. Reynolds et al. (1999), 173 N.S.R. (2d) 133, at paragraph 11.
10. A similar approach was taken by Hollinrake J.A. in Salama Enterprises (1988) Inc. v. Grewal (1992), 12 B.C.A.C. 112, in which he stated:
| On a stay application such as this, I must be guided by the principles that apply where a party seeks an interlocutory injunction.. So the first consideration is whether or not there is a fair question to be tried? That is not too appropriate a phrase in a situation such as this where there has been a judgment of this Court and leave to appeal to the Supreme Court of Canada is being sought. I take that phase, is there a fair question to be tried in the circumstances before me, as raising the question of whether or not there is any likelihood that the Supreme Court of Canada will grant leave to appeal. |
The High Court of Australia appears to follow a similar approach. See, for example, Bryant v. Commonwealth Bank of Australia (1996), 70 A.L.J.R. 306, at 308-309.
11. While having regard to the criteria in subsection 40(1) of the Supreme Court Act places an Appeal Court Judge in a somewhat awkward position, as the Appeal Court will not ultimately be deciding the leave application, the authorities cited are persuasive. The question is whether the applicant has demonstrated that there is a serious issue considering the criteria for leave to appeal to the Supreme Court in subsection 40(1).
12. In my opinion, the applicant has not satisfied the serious issue test in the context of subsection 40(1). There is no serious argument that the question at issue is one of public importance so as to warrant a decision by the Supreme Court.
13. Even if Nu-Pharm were correct in its interpretation of subsection 5(1) of the Patented Medicines (Notice of Compliance) Regulations SOR/93-133, 12 March 1993, at issue in its appeal, that interpretation has been overtaken by amendments to the Regulations, specifically, a revised subsection 5(1) and a new subsection 5(1.1), brought into force on October 1, 1999 by SOR/99-379. Accordingly, any decision that might be made by the Supreme Court on this appeal, while important to the parties, would have no broad importance or lasting significance.
14. Nu-Pharm did not contest that the Regulations had been amended to resolve any prior ambiguity. Instead, it submits that underlying the issue in this case is the tension between patent holders and generic manufacturers of pharmaceutical products and that the Supreme Court may wish to provide guidance as to the scope of generic competition in the pharmaceutical market-place. I think the Supreme Court would find it more appropriate to provide such guidance, if indeed it considers it appropriate to do so at all, in a case involving the interpretation of a provision of ongoing effect.
15. For this reason, I am not satisfied that there is a serious issue in this case, having regard to the criteria set out in subsection 40(1) of the Supreme Court Act. The applicant has, therefore, failed to meet the first of the three tests for the granting of a stay.
IRREPARABLE HARM
16. While failure of any of the three tests is fatal to a stay application, in my opinion, Nu-Pharm has not satisfied any of the tests. As to irreparable harm, the issue is whether, in order to enable Nu-Pharm to work itself out of its current financial predicament, the Court should grant a stay permitting it to continue to sell Nu-Enalapril pending a decision by the Supreme Court of Canada on its leave application or on its appeal if leave is granted. The irreparable harm would be Nu-Pharm going out of business if the stay is not granted. I have difficulty accepting the irreparable harm arguments for a number of reasons.
17. First, Nu-Pharm admitted that after the December 6, 1999 order of McGillis J. staying her judgment, Nu-Pharm purchased an additional $1.5 million of bulk raw material for use in making Nu-Enalapril tablets.
18. Nu-Pharm gave no explanation justifying this acquisition, which apparently is still on order in raw material form and which, of course, increased its current liabilities. As I read her reasons, McGillis J. issued a stay because of the evidence before her that Nu-Pharm needed to remain in the market in order that it not have to take back product that it had already sold and in order that it might continue to market the Nu-Enalapril it already had in inventory.
19. In the absence of evidence to the contrary, it would appear that Nu-Pharm treated McGillis J."s stay as an invitation to carry on business as usual, even though her November 23, 1999 decision determined that the notice of compliance under which Nu-Pharm was selling Nu-Enalapril should not have been issued. Nu-Pharm did not restrict itself to working itself out of its difficulty. It added to its liabilities by acquiring additional raw material and now makes the same argument in this Court as it made in the Trial Division. To some degree at least, Nu-Pharm appears to be the author of its current cash crisis by action it took during the period of the stay granted by the Trial Division. Nu-Pharm must have known of the risk of failure in its appeal in this Court and yet it does not seem to have acted with a view to that outcome.
20. Second, Nu-Pharm"s evidence was that if a stay is granted, it would seek to list or re-list Nu-Enalapril in provinces where it has not been listed or where it has been de-listed. Nu-Pharm"s evidence is that if it runs out of a particular strength of product, it would reorder raw material. If Nu-Pharm did not have enough Nu-Enalapril to fulfill a market, it would have to order more raw material.
21. This evidence is not consistent with the short-term objective of overcoming a cash crisis. It is indicative of carrying on business as usual, even in the face of judgments of the Trial Division and this Court providing that Nu-Pharm should not now be in the enalapril business. I am mindful that the purpose of a stay is to preserve the position of the party seeking the stay, so as to enable the Court hearing the appeal to render a meaningful judgment. However, the basis of the irreparable harm argument is Nu-Pharm"s short-term cash crisis, not its need to carry on indefinitely in the enalapril business.
22. This is not a case of a one-product firm in which, if the firm is not allowed to continue to market that product, it will go out of business. Nu-Pharm was a profitable, generic drug participant in the marketplace before it began marketing Nu-Enalapril a little over a year ago. Nu-Enalapril is an important product for Nu-Pharm but Nu-Pharm continues to market other products and derives a significant cash-flow from them. I have not heard evidence that Nu-Pharm must continue to market Nu-Enalapril indefinitely in order not to go out of business.
23. Third, I am not satisfied that Nu-Pharm has been sufficiently forthcoming in its cross-examination on affidavits about its possible sources of financing. Questions were asked in cross-examination on affidavits about whether the shareholders of Nu-Pharm have any relationship with Apotex, another generic marketer of pharmaceutical products and a trade creditor of Nu-Pharm. This question was objected to as being irrelevant, as were a series of follow-up questions along the same line. It seems to me that where trade creditors are put forward as a prime reason for cash-flow difficulties upon which the irreparable harm assertion is made, it is relevant to know whether such trade creditors have any relationship to the shareholders of Nu-Pharm. It is at least arguable that a trade creditor with some form of relationship to a shareholder would not be as likely to insist on payment with the same force as an entirely unrelated creditor.
24. I can appreciate that private corporations wish to keep their financial affairs private. However, when they seek the extraordinary remedy of a stay, they must be forthcoming with such information if it is relevant to their claim of irreparable harm. This is especially the case where, as here, a confidentiality order, drawn and consented to by the parties, has been signed. Under the order, Nu-Pharm is entitled to designate information as "confidential" or "counsel"s and outside expert"s eyes only". A party cannot make a claim to irreparable harm based on creditors at the door and then take a technical position refusing to disclose information which may provide an indication of the extent to which such creditors pose a realistic threat to the continued existence of the business, particularly when steps have been taken satisfactory to the party to protect the confidentiality of its information.
25. Fourth, evidence of irreparable harm must be clear and not speculative. See Centre Ice Inc. v. National Hockey League (1994), 53 C.P.R. (3d) 50, at 55 (F.C.A.). Here, the inference the applicant asks the Court to draw from the evidence is that it will go out of business if the stay is not granted. Nu-Pharm"s evidence refers to its survival as a going concern being precarious and that Nu-Pharm"s continued existence remains precarious. Precariousness is, by definition, a state of uncertainty, i.e. that Nu-Pharm may or may not survive. While I accept that the inability to market Nu-Enalapril will have a negative financial effect on Nu-Pharm, I am not satisfied that the evidence is such that I can infer that, on a balance of probabilities, it will go out of business if it is not able to do so. Further, Nu-Pharm identifies means of dealing with its cash-flow difficulty, including terminating some employees and closing a depot. Downsizing, while not a preferred option, is not irreparable harm. If downsizing is an option, then it cannot be inferred that Nu-Pharm will go out of business if the stay is not granted. The purpose of a stay is not to alleviate the financial difficulties of a firm or to sustain it in its current form when other options for survival are available.
BALANCE OF CONVENIENCE
26. Merck has undertaken to pay damages to Nu-Pharm should the stay be refused and Nu-Pharm is successful at the Supreme Court of Canada. There is no suggestion this undertaking will not be honoured.
27. On the other hand, Nu-Pharm has offered to pay into Court 10% of its sales of Nu-Enalapril as security for Merck"s damages should the stay be granted but the Supreme Court either deny leave or dismiss Nu-Pharm"s appeal.
28. The question that arises when the issue is the financially precarious position of an applicant is whether the funds paid into Court will definitely be available to the respondent. The evidence indicates there are secured creditors of Nu-Pharm as well as income taxes payable to
the Minister of National Revenue. These creditors may take priority over Merck even though funds have been paid into Court. See Stewart v. Hoch (1999), 43 O.R. (3d) 286 and Bank of Montreal v. Faclaris (1984), 48 O.R. (2d) 348.
29. Nu-Pharm says that if a stay is granted, it will work itself out of its financial difficulties and the respondents will have nothing to worry about. However, that presupposes that the Supreme Court will not dispose of the Nu-Pharm leave application quickly or will grant leave so that Nu-Pharm will be in the market for a sufficient period to alleviate its cash-flow difficulty. It also presupposes that sales of Nu-Enalapril will be sufficient to generate enough cash for the work-out as well as satisfy the potential damages to the respondent. This is under the further assumption that no other financial crises will upset Nu-Pharm"s predictions. In the context of balance of convenience, when there is virtually no doubt Merck"s undertaking will be honoured, but some doubt as to whether the funds put up as security for Merck by Nu-Pharm will be available, the balance must favour Merck.
30. Nu-Pharm proposed, at the hearing of the stay application, a condition that the stay be granted only to permit it to sell Nu-Enalapril tablets that have been manufactured. In other words, Nu-Pharm would not purchase more raw material or convert raw material in inventory into tablets.
31. While such a proposal more closely adheres to the work-out evidence presented by Nu-Pharm, I am not satisfied it is appropriate in the circumstances. The proposal is not consistent with Nu-Pharm"s evidence about its intended activity in the market-place. In addition, the selling price of the tablets in inventory, while not put into evidence, is obviously much higher than inventory cost and might well generate more than is necessary for the work-out. To adhere to the work-out proposal, Nu-Pharm would have to be restricted to marketing only sufficient product to enable it to overcome its cash crisis. There are complications involved in such an approach, e.g. monitoring, such that I do not find it acceptable for purposes of a stay.
DISPOSITION
32. For all these reasons, Nu-Pharm has not satisfied the requirements for a stay. The stay application is dismissed with costs.
"Marshall Rothstein"
J.A.
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