The Supreme Court of Canada has granted leave to Katz Group
Canada Inc. ("Katz Group") and Shoppers Drug Mart Inc.
("Shoppers") and related entities to appeal a decision of
the Court of Appeal for Ontario, which upheld as lawful the banning
by the Ontario government by regulation of the designation in the
public formulary of so-called "private label" generic
drugs. The appeal, which is to be heard in May 2013, raises
important issues concerning the respective roles of the
legislative, executive and judicial branches of government in a
major area of health and finance policy.
Subsidiaries of Katz Group and Shoppers applied to the Executive
Officer, an Ontario government official, for listing, on the public
drug formulary, of certain generic prescription drugs of which they
were the "manufacturer". (A
"manufacturer" of drugs does not necessarily make
the drugs but is responsible under the applicable federal
legislation for all licensing, reporting and recall
obligations.) The companies in question had outsourced the
fabrication of the drugs to third parties, and intended to sell the
drugs under their own labels. The Executive Officer declined
to list the drugs on the formulary because the Ontario government
had announced that it intended to ban the listing of private label
generic drugs. That ban was subsequently effected by way of
regulations, effective July 1, 2010, under the Ontario Drug
Benefit Act (the "ODBA") and the Drug
Interchangeability and Dispensing Fee Act (the
Both the Katz Group and Shoppers applied for judicial review of
the regulations. Initially, a three-judge panel of the
Divisional Court unanimously found the private label ban to be
ultra vires both the ODBA and the DIDFA as (i) falling
outside the authority to enact regulations under those statutes
because they purported to "prohibit" rather than
"regulate", (ii) falling outside the purpose of the
statutes and (iii) interfering with property and commercial rights
without express authority under the statutes.
The Province of Ontario sought and obtained leave to appeal to
the Ontario Court of Appeal from the decision of the Divisional
Court. On December 23, 2011, the Court of Appeal allowed the
appeal in a 2-1 decision. The majority held that a private
label ban was authorized under the ODBA and the DIDFA, was
consistent with the purposes of both statutes, and interfered with
property and commercial rights only to the extent "necessarily
implied" by the statutes. The majority also held, in
relation to an issue that the Divisional Court did not deal with,
that the private label ban did not discriminate in the
administrative law sense. Justice Epstein wrote a strong
dissent in which she opined that the ban was neither consistent
with, nor rationally connected to the purpose of the statutes; was
prohibitive, not regulatory; interfered with property and
commercial rights without legislative authority; and discriminated
In their materials supporting their successful applications for
leave to appeal to the Supreme Court of Canada, both Katz Group and
Shoppers emphasized the important legal issues raised by the
decision of the Court of Appeal. These issues are obviously
of interest to multiple players in the drug market across Canada,
but are also of central importance in articulating the respective
roles of the legislature and the executive in enacting
Among the "important questions of administrative law
implicating the scope of executive power and the rule of law"
raised by Shoppers and Katz Group in their leave applications
How should a court determine whether a regulation falls within
the object and purpose of a parent statute? Does there have
to be evidence before the court as to what the object and purpose
How should a court distinguish between a regulatory prohibition
and a condition? (The enabling provisions of the ODBA and the
DIDFA authorize regulations "prescribing conditions to be
met" for listing drug products. Shoppers and Katz Group
argued that a regulation that bans the listing of private label
drug products does not prescribe conditions to be met.)
How clear must legislation be to authorize an interference with
property and commercial rights by regulation? Is it
sufficient that the authority be "necessarily implied",
as found by the Court of Appeal?
What is the test for administrative law discrimination, and
does the principle apply to regulations?
Does a court owe deference or restraint to the government in
reviewing whether a regulation is intra vires a parent
Given these important legal issues, as well as the huge economic
impact of the regulations on the generic drug industry, this case
will undoubtedly be closely watched across the country.
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