Canada: New Swords and Shields: The Canadian Regulatory Approval Process and Novel Claims and Defences in Product Liability Litigation

Published in Journal of Biolaw & Business, vol 8, no. 2, 2005.

The regulatory approval process for biologics, pharmaceuticals and medical devices continues to give rise to novel claims and defences against manufacturers and regulatory authorities in Canada. This article highlights recent court decisions and pharmaceutical product liability issues.

The regulatory approval process for biologics, pharmaceuticals and medical devices continues to give rise to novel claims and defences against manufacturers and regulatory authorities in Canada. Court decisions to date suggest that regulatory misstatements could give rise to claims in negligence and, interestingly, negligent or fraudulent misrepresentation. A defence of regulatory approval may also be available in some circumstances. In light of the intense activity in the pharmaceutical product liability area — including several proposed Vioxx class actions in which regulatory claims appear to be raised — important rulings on whether regulatory claims and defences form part of Canadian law may not be far off. Significant changes — both positive and negative — could be in store for plaintiffs, and for the regulators and manufacturers of drugs and medical devices, should any of these claims and defences be recognized.

Biologics, pharmaceuticals and medical devices may be marketed in Canada only after the manufacturer obtains approval of the product from Health Canada. Product approval is based on the submission of potentially extensive safety and efficacy data, as well as product monograph and patient information, which Health Canada scrutinizes over an extended period. The stringency of federal governmental authority to control the approval and marketing of these products has given rise to novel theories of liability, not only for manufacturers but also for the government regulators themselves.

Plaintiffs have alleged, as part of misrepresentation claims, that manufacturers have made misstatements to regulatory authorities during the drug approval process. The nature of these allegations is that but for the defendant’s misstatements Health Canada would never have granted a notice of compliance for the product, and so the drug in question would never have reached the market in general or the plaintiff in particular. In Andersen v. St. Jude Medical Inc.,¹ a claim of regulatory misrepresentation was rejected. In that case (a proposed class action concerning defective heart valves), the plaintiffs contended that the defendants negligently or fraudulently misrepresented the safety and efficacy of the product to the regulators. The plaintiffs further alleged that the defendants knew that the misrepresentations would be relied on as a basis for approval of the product, and that doctors, hospitals and device recipients "would" rely on regulatory approval (as opposed to did rely on the misrepresentation, which is the normal requirement to prove negligent misrepresentation) as an indication of the product’s safety and efficacy.

The Court struck out the claim of "indirect misrepresentation" because the plaintiffs made no allegation that they or their doctors were even aware of any representations by the defendants. An assertion that the plaintiffs’ reliance was on regulatory approval per se was held not to be sufficient.

While the certification of a class action in Wilson v. Servier Canada Inc.² (regarding the diet drug fenfluramine) included a claim of regulatory misrepresentation, the motions judge in that case made no comment on the viability of the claim. The action has since been settled.

There was a more elaborate discussion of the point in Boulanger v. Johnson & Johnson Corp. (a proposed class action regarding the drug Prepulsid). In that case, the plaintiffs sought damages for, among other things, the defendant’s "fraudulent and/or negligent filings with Health Canada to obtain its approval for Prepulsid..."³ The defendant brought a motion to strike those allegations on the basis that no cause of action was disclosed.

Justice Nordheimer approached the allegations as raising a claim for misrepresentation. He agreed for the following reasons that no cause of action was disclosed. First, Justice Nordheimer distinguished Wilson, observing that the motions judge in that case was dealing not with a motion to strike but rather with a motion for certification on the basis of the statement of claim as a whole. Second, he found no authority to justify the recognition of "indirect reliance" as the basis for a claim of misrepresentation in Ontario. Although the plaintiff relied on U.S. authorities that were said to hold a manufacturer liable for misrepresentations not actually communicated to the plaintiff, Justice Nordheimer observed that some sort of allegation of reliance was required even in cases recognizing "indirect reliance" (usually reliance allegedly by the plaintiff’s physician, who relied on the misrepresentations in deciding to prescribe the drug). No reliance of any sort was alleged by the plaintiff in Boulanger.

Third, Justice Nordheimer found that the regulatory misrepresentation claim really amounted to a claim for breach of statutory duty. Breach of statutory duty is not itself a cause of action in Canada.⁴

Finally, Justice Nordheimer held that allegations of regulatory misrepresentations added nothing to what the plaintiff needed to establish to prove the defendant’s liability. If the defendant’s product was negligently manufactured, the plaintiff’s case was made out regardless of any failings in the regulatory approval process. If the product was not negligently manufactured, then any misleading statements made to Health Canada could not themselves found a cause of action.

On appeal, the Court of Appeal for Ontario agreed that the regulatory misrepresentations as pleaded did not disclose a reasonable cause of action based on negligent misrepresentation:

It is clear that in Canada, actual reliance is a necessary element of an action in negligent misrepresentation and its absence will mean that the action cannot succeed. See Hercules Managements Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165 at para. 18. Here there is absolutely no assertion of reliance by the appellant (or by anyone on her behalf) on the representations of the respondents to Health Canada. Indeed there is no pleading of reliance on the fact of regulatory approval. This complete absence of reliance is fatal to a negligent misrepresentation claim. ⁵

However, the Court went on to find that because the plaintiff’s allegations were broadly pleaded, they were sustainable as a claim for negligence:

In Haskett v. Equifax Canada Inc.,⁷ a proposed class action was brought against credit reporting agencies on the basis that they "improperly and illegally included information in [the plaintiff’s] credit report" that allegedly caused the plaintiff harm. The motions judge struck out the plaintiff’s action, but the Court of Appeal permitted it to proceed to trial as a claim in negligence. Justice Feldman, writing for the Court, held that the relationship between a credit reporting agency and the subject of the report was analogous to the relationship that founds a cause of action in negligent misrepresentation:

Alternatively, even if the facts of the case did not fit negligent misrepresentation, the Court held that in this novel situation a new duty of care should be recognized.

In coming to the conclusion that a cause of action in negligent misrepresentation could be recognized even without direct reliance, the Court of Appeal in Haskett referred to the decision of the House of Lords in Spring v. Guardian Assurance plc,⁹ in which the issue was whether the negligent preparer of a reference letter for employment could be held liable to the subject employee:

In view of the Court of Appeal for Ontario’s commentary in Boulanger and Haskett, allegations of regulatory misstatements could be recognized as giving rise to claims in negligence and negligent misrepresentation, in the latter case even in the absence of direct reliance by the plaintiff. It is important to note, however, that consistent with the obligation of the courts not to strike out novel claims at the outset, these decisions have merely permitted the claims to proceed to trial. To date, there has been no determination that these novel kinds of claims will be accepted by our courts. Given the level of litigation activity in the pharmaceutical product liability sector, however, a ruling on the tenability of regulatory misrepresentation claims against manufacturers may well be on the horizon.

Claims of "regulatory misrepresentation" have also been directed at the federal government as regulator — for example, in Harrington v. Canada (Minister of Health).¹¹ In this case, the plaintiff in a proposed class action in British Columbia asserted a claim for damages against the Minister of Health on the basis that the sale of breast implants was approved when these devices were in fact not safe.¹² The basis for the claim was not that regulatory approval of the implants had been granted after negligent testing of the devices, but rather that the government had "failed to test or require that testing be done … in a manner which would fully disclose the magnitude of the risks."¹³ According to the plaintiff,

The plaintiff admitted that there had been "no individual reliance in the classical sense,"¹⁵ as would ordinarily be required to establish a cause of action in negligent misrepresentation. However, there was "statutory" or "deemed" reliance because the breast implants could not be purchased without the Minister’s representation that they were safe. The plaintiff relied on the Medical Devices Regulations of the Food and Drugs Act,¹⁶ which provides that medical devices may not be sold in Canada unless tests have been conducted to indicate that any claimed benefits of the device or its performance are justified. The failure of the government to prohibit the sale of silicone gel breast implants in Canada amounted to a representation to the public that the implants were safe.

On a motion by the Minister for particulars, the Court found the plaintiff’s pleading to be deficient. The Court noted that no mandatory testing obligations were imposed on government officials under the Medical Devices Regulations. While the government may be subject to vicarious tort liability when public officials are negligent in carrying out their statutory powers,

As a result, the Court ordered the plaintiff to provide further and better particulars of her "novel theory."

A similar claim had somewhat more success in Attis v. Canada (Minister of Health).¹⁸ In this case, the plaintiff in a proposed Ontario class action sought damages from the Attorney General of Canada on behalf of all women who received breast implants. The alleged cause of action was that "the government was negligent in permitting the distribution and sale of the implants thereby leading to personal injuries being suffered by the recipients."¹⁹ On a motion brought by the federal government, the Court declined to strike out the claim because "the plaintiffs may be able to establish the liability of the Attorney General in respect of the implants."²⁰ Unlike in Harrington, the Court did not engage in any detailed discussion of the basis for the plaintiff’s allegation. It will be interesting to compare developments in Harrington and Attis as these cases progress.

Can a manufacturer defend itself in product liability litigation on the basis that Health Canada carefully scrutinized the product and deemed it to be safe? It is settled law that breach of statutory duty is not negligence per se. But it is an open question whether compliance with a statutory duty is a defence.

In Buchan v. Ortho Pharmaceutical (Canada) Ltd.,²¹ two issues before the Court were the content of the manufacturer’s duty to warn of material risks associated with an oral contraceptive product, and to whom any such duty was owed. Ortho, the manufacturer, argued that it had no duty to consumers, relying instead on the learned intermediary rule. Alternatively, if a duty to consumers existed, Ortho’s compliance with the statutory standard of disclosure satisfied any such duty, and it had no additional obligation to provide consumers with supplementary information or to issue additional warnings. The trial judge held that Ortho’s compliance with the labeling requirements set out in the Food and Drugs Act and Regulations did not relieve it of the duty to provide a proper warning to both consumers and physicians, which in the circumstances Ortho had failed to do.

On appeal, the Court of Appeal took a different approach. It assumed, without deciding, that Ortho’s position — that it could avail itself of the learned intermediary defence and warn only physicians — was correct. On this assumption, it was "unnecessary to decide whether the statutory labeling and packing requirements pre-empt or define the bounds of the common law duty to warn consumers directly."²² While the Court held that Ortho was liable on the basis that the warning to physicians was inadequate, the question whether regulatory compliance or approval could replace the common law duty to warn consumers was left open.

Since the decision in Buchan in 1986, the question whether a regulatory compliance defence should be recognized in the pharmaceutical products liability arena has not been settled. In other areas — for instance, the liability of railways — regulatory compliance does not foreclose a finding of negligence.²³ In Ryan, the Supreme Court of Canada jettisoned an old rule that railways were required to do no more than comply with statutory obligations to meet the standard of reasonable care. The Court commented on the defence of statutory compliance as follows:

It appears that this issue has yet to be considered further in the pharmaceutical products liability context. Given the rigorous review process to which pharmaceuticals are subjected, however, there may be a viable argument that regulatory approval is co-extensive with the common law standard of care, or at least raises a rebuttable presumption that the compliant manufacturer was not negligent.²⁵

As the number and size of pharmaceutical product liability claims continue to grow through the availability of class actions, we are likely to see greater numbers of court decisions dealing with these novel claims and defences. We can also expect more frequent access-to-information requests by plaintiffs for regulatory filings, and closer scrutiny of those filings by manufacturers and regulators. One thing is clear: the roles and responsibilities of regulators and regulatory affairs personnel will be an increasing focus of litigation in the pharmaceutical and medical device litigation area.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.