Docket:
A-221-13
Citation: 2013 FCA 50
CORAM:
EVANS J.A.
GAUTHIER J.A.
STRATAS J.A.
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BETWEEN:
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VALEANT CANADA LP/VALEANT CANADA S.E.C. and VALEANT INTERNATIONAL
BERMUDA
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Appellants
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and
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THE MINISTER OF HEALTH and
COBALT PHARMACEUTICALS COMPANY
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Respondents
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REASONS
FOR JUDGMENT
STRATAS J.A.
[1]
Valeant Canada LP / Valeant Canada S.E.C. and Valeant
International Bermuda (collectively “Valeant”) appeal from the order dated June
27, 2013 of the Federal Court (per O’Keefe J.): 2013 FC 720. Cobalt
Pharmaceuticals Company (“Cobalt”) cross-appeals.
[2]
The Federal Court’s order stems from a motion for
disqualification brought by Valeant within an application for prohibition it
has brought under the Patented Medicines (Notice of Compliance) Regulations,
SOR/93-133 (“NOC Regulations”). That application was triggered by Cobalt
serving a notice of allegation on Valeant.
[3]
The Federal Court granted Valeant’s motion. It
disqualified Cobalt’s in-house lawyer from any further involvement in the
application before the Court on the ground that he could be presumed to have
Valeant’s confidential information.
[4]
However, Valeant wanted more than just the
disqualification of in-house counsel. It asked the Court to declare that
Cobalt’s notice of allegation – prepared by the law firm of Deeth Williams Wall
LLP (“Deeth”) – was invalid. It also sought relief related to that. Citing
jurisdictional reasons, the Federal Court refused to grant Valeant any relief
beyond the disqualification of in-house counsel.
[5]
Valeant, dissatisfied, appeals. It says that the judge
should have gone further and should have struck out the notice of allegation.
Cobalt cross-appeals. It submits that the Federal Court erred in disqualifying
its in-house counsel.
[6]
For the reasons that follow – different from those of
the Federal Court – I would dismiss both the appeal and the cross-appeal.
A. The basic facts
[7]
On August 17, 2012, Valeant received a notice of
allegation from Cobalt under the NOC Regulations in respect of Canadian Patent
Nos. 2,242,224 and 2,307,547 and the medicinal ingredient diltiazem
hydrochloride in extended-release tablets of 180, 240, 300 and 360 mg strengths
compared to Valeant’s TIAZAC® XC.
[8]
Soon afterward, Valeant learned that Deeth purported to
represent Cobalt and that it was involved in preparing the notice of
allegation.
[9]
Valeant was alarmed by this. Deeth was the law firm of
its predecessor, Biovail, for many years until 2008. In the period leading up
to 2008, Deeth had represented Biovail in five proceedings in the Federal Court
relating to diltiazem hydrochloride, the same medicinal ingredient that is the
subject-matter of the notice of allegation.
[10]
The proceedings concerning diltiazem hydrochloride were
subject to confidentiality orders. Aside from the matters covered by the
confidentiality orders, Valeant believed that Deeth had other confidential
information about its affairs and business strategies. Because Deeth had been
its counsel for many years, Valeant also believed that Deeth continued to
possess confidential communications covered by solicitor-client and litigation
privilege.
[11]
To Valeant, after years of acting as its predecessor’s
counsel, Deeth was now attacking it and its medicinal ingredient that it had
earlier defended and was making improper use of confidential information.
Valeant registered its objection with Deeth.
[12]
Soon after receiving the objection, Deeth resigned as
Cobalt’s counsel.
[13]
Valeant has brought an application prohibiting the
Minister from issuing a notice of compliance in favour of Cobalt (file
T-1805-12). Deeth has undertaken not to act further for Cobalt or to assist in
any way in the application.
[14]
I shall offer no comment concerning the conduct of
Deeth or others in these circumstances. As will be explained later in these
reasons, this Court does not have a satisfactory factual record to decide
whether and to what extent any confidential information was misused in a
material way. Further, Valeant might pursue other steps to restrain or redress
any misuse of confidential information and it will be for other courts to
assess the conduct of those involved in this matter.
[15]
For present purposes, it is enough to say that Deeth’s
resignation as counsel and undertaking not to act or assist further did not
satisfy Valeant. In Valeant’s view, two problems remained:
● First, Cobalt employed one Mr. Migus as in-house
counsel. During the last two years that Deeth represented Valeant’s
predecessor, Biovail in its patent litigation (2006-2008), Mr. Migus was
employed by Deeth as a student-at-law and, later, as a lawyer. In Valeant’s
view, Mr. Migus was privy to its confidential information and was tainted by
conflict of interest. In its view, he must be disqualified from any further
involvement in the application.
● Second, in Valeant’s view, Cobalt’s notice of
allegation was a direct product of Deeth’s improper use of confidential
information gathered from its earlier retainers with Valeant’s predecessor,
Biovail. Accordingly, the notice of allegation must be declared invalid.
[16]
Valeant brought a motion for an order disqualifying Mr.
Migus, declaring the notice of allegation invalid, and other relief related to
the declaration.
B. The
decision of the Federal Court
[17]
The Federal Court disqualified Mr. Migus from any
further involvement in the application. Mr. Migus had sworn an affidavit that
he had worked on only one regulatory file relating to Valeant’s predecessor,
Biovail, and that he had no relevant confidential information about Biovail
that arose from his employment at Deeth. To the Federal Court, this was not
enough. It held that there was a presumption that lawyers at a firm working
together will share confidences. To offset the presumption, it was necessary
for confidentiality mechanisms and screens to be established to ensure that
there was no spreading of confidential information.
[18]
The Federal Court declined to declare the notice of
allegation invalid and to grant relief related thereto. It held that it lacked
the jurisdiction to do so. It cited this Court’s decision in Pharmacia Inc.
v. Canada (Minister of National Health and Welfare) (1994), 58 C.P.R. (3d)
207 (F.C.A.).
[19]
As mentioned above, Cobalt appeals the disqualification
of Mr. Migus and Valeant appeals from the Federal Court’s failure to declare
the notice of allegation to be invalid and to grant relief related thereto.
C. Analysis:
the disqualification of Mr. Migus
[20]
Cobalt submits that this Court should set aside the
Federal Court’s order disqualifying Mr. Migus because it erred in principle. In
particular, it submits that the Federal Court misunderstood and misapplied the
test for disqualification set out in MacDonald Estate v. Martin, [1990]
3 S.C.R. 1235, reaffirmed in Canadian National Railway Co. v. McKercher LLP,
2013 SCC 39.
[21]
I agree that the Federal Court did not apply the Martin
test exactly as set out by the Supreme Court. Nevertheless, the Federal Court
reached the correct result.
[22]
In Martin, supra, the Supreme Court held
that in a disqualification motion two questions must be asked:
(1)
Did the lawyer receive confidential information
attributable to a solicitor and client relationship relevant to the matter at
hand?
(2)
Is there a risk the confidential information will
be used to the prejudice of the client?
[23]
On the first question, the Supreme Court held that in
certain circumstances, one may infer that the lawyer received confidential
information (at page 1260):
In my opinion, once it
is shown by the client that there existed a previous relationship which is
sufficiently related to the retainer from which it is sought to remove the
solicitor, the court should infer that confidential information was imparted
unless the solicitor satisfies the court that no information was imparted which
could be relevant.
[24]
When considering the first question in Martin,
the Federal Court held that Deeth, the law firm, had received confidential
information. In its words (at paragraph 18), “the law firm [Deeth] was privy to
confidential information about some of the matters in issue in the present
proceedings.” However, the Federal Court did not ask itself whether Mr. Migus, the
lawyer, had received confidential information. Instead, it attributed Deeth’s
confidential information to Mr. Migus by applying an inference that lawyers
share confidences amongst one another, and that measures protecting against the
misuse of confidential information had not been implemented (at paragraphs
19-20).
[25]
In my view, the Federal Court should not have resorted
to the inference. There was evidence before it showing that Mr. Migus had
received confidential information of Valeant’s predecessor, Biovail, when he
was at Deeth. Mr. Migus reviewed confidential information of Biovail pertaining
to diltiazem and a case related to the ’224 Patent – the same medicinal
ingredient and the same patent in issue in the Cobalt notice of allegation in
this proceeding. See cross-examination of Mr. Migus, Appeal Book, vol. II at
pages 828-830. Mr. Migus also admitted to reviewing Biovail’s records while at
Deeth for the purposes of an access to information request filed concerning
diltiazem.
[26]
On the second Martin question – whether there is
a risk that the confidential information held by Mr. Migus will be used to
prejudice Valeant in the application – the Supreme Court stated that in some
circumstances, disqualification will be automatic (at page 1261):
A lawyer who has
relevant confidential information cannot act against his client or former
client. In such a case the disqualification is automatic. No
assurances or undertakings not to use the information will avail.
.
[27]
In this case, Mr. Migus had confidential information
and so his disqualification is automatic.
[28]
It follows that there are no grounds to set aside the
Federal Court’s order disqualifying Mr. Migus. For these reasons, I would
dismiss Cobalt’s cross-appeal.
D. Analysis:
Valeant’s request for further remedies
[29]
In its appeal to this Court, Valeant submits that the
Federal Court should have gone further than disqualifying Mr. Migus – it should
have declared the notice of allegation invalid and granted further relief
related thereto.
[30]
The Federal Court refused Valeant this further relief
because it believed that it lacked jurisdiction to grant it. It relied upon
this Court’s decision in Pharmacia, supra. Valeant submits that
the Federal Court erred: Pharmacia is distinguishable.
[31]
I agree that Pharmacia is distinguishable.
[32]
In Pharmacia, supra, the Court had before
it an application for judicial review under subsection 6(1) of the NOC
Regulations. This Court held that that statutory proceeding existed only to
prohibit the Minister from granting a notice of compliance. In the
context of that narrow statutory proceeding, a motion to
strike a notice of allegation could not lie.
[33]
This case is different. In this case, Valeant has
brought a motion for disqualification – a concern over whether counsel has a
conflict of interest – something that the Court can always consider, narrow
statutory proceeding or otherwise. As a remedy on the motion in this case,
Valeant seeks a declaration that the product of a conflict of interest, the
notice of allegation, be declared to be invalid. The real issue before us is
whether that remedy can and should be granted to redress the conflict of
interest. On this record, it should not be granted. But I would go further and
say it cannot be granted.
[34]
Valeant submitted that this Court has a plenary power
to “investigate, detect and, if necessary, redress abuses of its own
processes”: Minister of National Revenue v. RBC Life Insurance Co., 2013
FCA 50 at paragraph 36. It submitted that in these circumstances, this Court
can and should invalidate the notice of allegation, a document filed before the
Court that is the product of the misuse of information and an improper conflict
of interest.
[35]
Valeant’s submission founders in part upon that last
mentioned point: we are not persuaded on the record before us that the notice
of allegation is the product of the misuse of information and an improper
conflict of interest. In particular, I note the following points:
● There is no evidence in this record that Valeant’s
confidential information was actually used in the preparation of the notice of
allegation. At this point there are only speculations and inferences.
● I am not satisfied from a review of the notice of
allegation itself that confidential information has actually been misused. On
its surface, much of it appears to be based on facts that are objectively known
and discoverable, and matters of law. This is not to say that confidential
information was not misused. Simply put, I am not persuaded one way or the
other.
● Even if I could find that confidential information
was misused, it is impossible for me to know from the record the extent to
which confidential information was used in preparing the notice of allegation.
In the circumstances, a declaration that the notice of allegation is invalid
might be a remedy that overshoots the mark.
● The record before us is a paper record, not the
sort of full record that would be created in an action for breach of fiduciary
duty or misuse of confidential information – a proceeding that would have the
advantage of full discovery and trial.
[36]
I would add that both Martin, supra and McKercher,
supra stand for the proposition that motions for disqualification give
rise to the remedy of disqualification and not the sort of relief Valeant
seeks.
[37]
First, satisfying the test for disqualification in Martin
does not inexorably lead to the relief Valeant seeks – invalidating the notice
of allegation. The second question under the Martin test asks only
whether there is a risk of confidential information being used to the
prejudice of the client. It does not ask whether confidential information has
actually been used to prejudice the client.
[38]
Second, neither Martin nor McKercher
suggests or even hints that motions for disqualification can be used to redress
actual misuses of confidential information and take the place of actions for
breach of fiduciary duty and misuse of confidential information – actions that
are tried on the basis of the advantages and protections associated with full
discovery and trial. Indeed, in Martin the Supreme Court noted that “the
use of confidential information” is “usually not susceptible of proof” on a
motion such as this (at page 1259).
[39]
Third, on its own terms, Martin was only about
“the standard to be applied in the legal profession in determining what
constitutes a disqualifying conflict of interest,” not whether the sort of
relief Valeant seeks here can be granted on a motion for disqualification: Martin
at page 1239; see also pages 1243 and 1249. McKercher goes even further.
There, the Supreme Court observed (at paragraph 62) that motions for
disqualification were aimed at “prevent[ing] misuse of confidential
information” [my emphasis]. Indeed, in McKercher (at paragraph 62), the
Supreme Court recognized that “disqualification is generally the only
appropriate remedy, subject to the use of mechanisms that alleviate this risk
as permitted by law society rules.”
[40]
I leave open whether there might be an exceptional case
where the Court’s plenary power to redress an abuse of process might be
triggered and justify the sort of additional relief sought in this case: RBC
Life Insurance Company, supra. However, as mentioned in paragraph
35, above, the evidentiary record in this case is insufficient to trigger that
power.
[41]
In conclusion, the Federal Court was right to dismiss
Valeant’s request for invalidation of the notice of allegation and for related
relief – but for different reasons.
E. Postscript
[42]
Subject to any applicable limitation periods, Valeant
is free to pursue whatever steps are available to it to restrain or redress the
alleged misuse of its confidential information. These reasons should not be
taken as expressing any comment on the merit of those steps, if pursued.
F. Disposition
[43]
For the foregoing reasons, I would dismiss the appeal
and the cross-appeal. In the Federal Court, success was divided and so that
Court did not award costs. Neither party challenged that exercise of discretion
in this Court. Here again, success was divided. Accordingly, I would not award
costs.
“David Stratas”
“I agree
John M. Evans J.A.”
“I agree
Johanne Gauthier J.A.”
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