In this case three judges of the Divisional Court ruled invalid
two Ontario regulations which purported to prevent the sale of
"private label" generic drugs. Private label drugs are
made by non-arm's-length companies owned or controlled by
pharmacies. The court heard parallel judicial review applications
from the Shoppers Drug Mart group of companies and the Katz group
of companies (which includes Pharma Plus and Rexall Drug Stores)
(together the "Pharmacies"). In the result, the court
declared that section 12.02 of Ontario Regulation 201/96 and
section 9 of Ontario Regulation 935 were ultra vires and
of no force and effect.
Health Canada must approve a prescription drug before it can be
sold anywhere in the country. Ontario exercises further control via
two interconnected legislative schemes: the Ontario Drug
Benefit Act, R.S.O. 1990, c. O.10 ("ODBA") and the
Drug Interchangeability and Dispensing Fee Act, R.S.O.
1990, c. P.23 ("DIDFA").
The ODBA governs conditions under which the government will pay
pharmacies for prescription drugs provided to eligible persons
(such as seniors and persons on social assistance). Under the ODBA,
a generic drug not listed on the "formulary" is excluded
from reimbursement coverage and excluded from the
"public" market. The DIDFA governs the sale of
prescription drugs to the general public. Under the DIDFA, a
generic drug cannot be sold in the "private" market
unless the Ontario Ministry of Health and Long Term Care designates
that drug as "interchangeable" with the relevant
In 2010, the Ontario government introduced amending provisions
which effectively prohibited the Pharmacies from selling their own
private label generic drugs instead of purchasing those generic
drugs from an arm's-length third party. This prohibition would
apply even where the law otherwise permitted substitution of
generic drugs for brand-name drugs. The policy basis for the
regulations was government concern that non-arm's-length
pharmacies would dispense their own private label drugs in
preference to those of others, and that pharmacy-controlled
organizations would retain profits without benefiting
Justice Molloy for the court provided three reasons to declare
the provisions invalid. First, the impugned provisions fall outside
the regulation-making authority delegated by the parent statutes. A
delegated authority to impose conditions on an activity does not
authorize a prohibition of the activity. The regulations'
language and their pith and substance were prohibitory.
Second, the provisions do not fall within the purpose of the
parent statutes, which is to control prescription drug costs
without compromising safety. Instead, the government's evident
concern was the profits to be made by large pharmacy chains.
Controlling the profitability of such corporations is not a
legitimate object or purpose of the parent statutes.
Finally, the provisions constitute an interference with property
and commercial rights that is not expressly authorized by the
parent statute. There is a common law presumption that any
interference with the right to trade or property rights is invalid
without specific statutory authority. In this case, there was no
express legislation to validate the intrusive interference imposed
by the private label drugs provisions.
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