Canada: Pharma In Brief - Federal Court Finds Health Canada Liable To Apotex In Tort Damages

Cases: Apotex Inc. v. Canada (Minister of Health)
Drug: Apo-Trazad (trazodone)  
Nature of cases: Action for damages in tort and breach of contract  
Successful party: Apotex Inc.
Date of decisions: November 18, 2014

Summary

Apotex Inc. ("Apotex") had commenced an action for damages, including punitive damages, against Health Canada for its failure to issue a Notice of Compliance ("NOC") for its product Apo-Trazad until the lapse of a period of seven years.

The Federal Court has found that Apotex was entitled to damages in tort, namely for public misfeasance and negligence, but was required to mitigate its damages. The Court also found that Health Canada was liable for breach of a settlement agreement; however this cause of action failed for being time-barred.

Apotex's action was brought on the basis of misfeasance of public office, negligence, misrepresentation whether fraudulent, negligent or innocent, and breach of a settlement agreement. Health Canada's defense was that Apotex's claims were barred by the limitation period, that Apotex had repudiated the settlement, that there was no duty of care owed to Apotex and that Apotex did not mitigate its damages. The Court acknowledged that Apotex was using its Apo-Trazad submission as a test-case for the determination of a regulatory issue, which in part resulted in the seven year delay.

The sole issue at trial was whether Apotex was entitled to damages. This action was bifurcated and the quantification of damages is to be determined at a later date.

The case is important because it demonstrates that although Health Canada can be found liable for its actions respecting the drug approval process, the issue of damages is an economic determination where a claimant must reasonably mitigate its losses, even where a case is brought as a test-case on an issue.

Background

Apotex filed a submission to Health Canada1 on January 25, 1988 for approval to sell its drug Apo-Trazad. Apotex's submission for Apo-Trazad relied on a U.S. reference product. At that time, Health Canada's policies and guidelines on the ability to use a foreign drug reference product to obtain generic drug approval were unclear. Health Canada did not accept the Apo-Trazad submission and required testing against a Canadian reference product unless the U.S. reference product could be "conclusively proven to be identical"2 to the Canadian product.

Apotex brought a judicial review application in August 1990 to compel the Minster to review its trazodone submission and issue an NOC without requiring the use of a Canadian reference product. The parties reached a settlement agreement on November 26, 1990 and the application was discontinued.  Pursuant to the settlement agreement, Apotex submitted further bioavailability data to establish equivalency between the U.S. and Canadian trazodone reference products. When Health Canada continued to refuse to issue the NOC, Apotex filed a second judicial review application on July 17, 1991. This second judicial review was dismissed in January 1993 by Justice MacKay who held that Health Canada's actions were not 'patently unreasonable' so as to allow the Court to intervene.3

Following additional exchanges with Health Canada, and seven years after filing its original submission, Apotex received its NOC for Apo-Trazad on February 28, 1995.

Apotex's claim for damages against Health Canada

Apotex claims damages against Health Canada for lost sales during the period when it should have received an NOC and for the lost ability to be the first generic in the Canadian market for a trazodone product based on Health Canada's failure to issue a NOC until the lapse of an allegedly undue period of seven years. The Court found that it was clear that Apotex wanted to use its Apo-Trazad submission as a test-case to determine the issue of whether a non-Canadian drug product could be used as a reference product for a generic submission.  The Court recognized that Apotex chose this as a test-case and that, "in no way was Apotex the victim that it purports to be."4

Apotex's claims in tort

Misfeasance of public office

There are two elements to the tort of misfeasance of public office: first, there must be a deliberate unlawful conduct by a public officer in his/her capacity or exercise of a public function; and second, the public officer must be aware that the conduct would likely injure the plaintiff. The Court found that in entering into the settlement agreement with Apotex, Health Canada was disingenuous in representing it would receive further submissions after the settlement agreement and misled Apotex into believing that it would review the data on a standard of equivalency. Health Canada was also aware that the delay or refusal to issue a NOC to Apotex would likely cause injury.

The Court concluded that both elements of the tort had been met and that Health Canada is liable to Apotex for committing the tort of misfeasance of public office.

Negligence

With respect to negligence, the Court held that but-for the settlement agreement, the duty of care owed by Health Canada to Apotex would not exceed that owed to any other pharmaceutical manufacturer. By virtue of the settlement agreement, Health Canada had a special relationship with Apotex to accept and review their submission and demonstrate transparency in the process. The Court did not accept Health Canada's arguments to the contrary, which included that a finding of negligence would create indeterminate liability on the Crown. However, the Court found that a duty of care arose out of the settlement agreement entered into willingly by both parties, and that Health Canada should not be relieved of a finding of negligence.

The Court concluded that Health Canada's refusal to adhere to the equivalency standard set out in the settlement agreement constituted negligence.

Breach of the settlement agreement  

Apotex also claims damages for Health Canada's breach of the settlement agreement. However, Health Canada successfully defended this claim for being brought after the expiry of the limitation period. The applicable limitation period ended six years after the breach of the settlement agreement. Since the Court concluded that Health Canada had breached the settlement agreement almost immediately following its execution on November 26, 1990, as evidenced by correspondence thereafter and throughout 1991, Apotex would have had to have brought its claim for damages in contract before November 1996. As this action was commenced in October 1998, Apotex's claim in contract is extinguished by the limitation period.

Conclusion: damages and mitigation  

Apotex is entitled to damages in tort for the lost sales of Apo-Trazad from the date when it could have reasonably expected to receive its NOC. The Court held that the profits Apotex would have received must be off-set by mitigation of its damages during this period.

The Court determined, based on expert evidence respecting the timing of generic drug approval from 1988 to 1995, that Apotex should have received its NOC for Apo-Trazad on November 26, 1991, one year after the date of the settlement agreement when Health Canada should have reviewed Apotex's submission.

With respect to mitigating its damages, the Court held that Apotex knew it could have conducted tests against a Canadian reference product (as it did with its other product, Apo-Zidovudine, during that time period) and that such testing would have taken three to six months at a cost of $200,000 to $300,000 dollars. The Court recognized that Apotex was using its Apo-Trazad submission as a test-case and noted that "the Court should not view the question of damages and mitigation from the point of view of a party wanting to make a point."5

Damages should be calculated on the basis that Apotex should have received its NOC on November 26, 1991, and should have mitigated its damages by July 2, 1991 (the date that Apotex wrote to Health Canada indicating that it would mitigate damages by conducting further testing using another drug product). This would have resulted in Apotex receiving its NOC by mid-November 1992. The Court accordingly fixed the termination date for the damages period at November 16, 1992. Apotex is also entitled to recover the costs associated with testing against a Canadian reference product. The Court did not award the punitive damages sought by Apotex.

The quantification of damages will be determined at a later date.

Link to decision:

Apotex Inc. v. Canada (Minister of Health), 2014 FC 1087

Footnotes

1. During the relevant period of this proceeding (1988 to 1995), the Health Protection Branch ("HPB") was the name of the bureau of the Ministry of Health responsible for accepting and reviewing drug submissions. In this Pharma in Brief bulletin, we refer to HPB more generally as "Health Canada" as it is known today.

2. 2014 FC 1087 at para 43.

3. Court File No. T-1877-91; reasons of Justice MacKay reported at 59 FTR 85; Apotex appealed the decision of Justice MacKay, but the appeal was withdrawn in 1995 when the NOC for Apo-Trazad issued.

4. 2014 FC 1087 at para 107.

5. 2014 FC 1087 at para 159.

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