On November 18, 2014, Justice Hughes of the Federal Court (Court) issued his ruling in Apotex Inc v Canada, 2014 FC 1087, finding Health Canada (HC) liable for damages to Apotex in tort (namely, for misfeasance in public office and negligence) due to the facts surrounding a 7-year delay in issuing a Notice of Compliance (NOC) to Apotex in respect of Apo-Trazad (trazodone). However, Justice Hughes also found that Apotex was required to mitigate its damages. HC was also held liable for breach of a settlement agreement, but this cause of action failed for being time-barred.
In 1998, Apotex commenced this action for damages, including punitive damages, on the grounds of negligence, breach of a settlement agreement, misfeasance in public office and misrepresentation (negligent, fraudulent or innocent). HC defended, asserting that Apotex's claims were time-barred, that Apotex had repudiated the settlement, that there was no duty of care owed, and that Apotex failed to mitigate its damages.
The issue at trial was whether Apotex was entitled to damages for HC's failure to issue a NOC to Apotex in respect of its Apo-Trazad for seven years, a delay which allegedly caused two competitors to beat Apotex to market with their own generic trazodone products.
On January 25, 1988, Apotex filed a regulatory submission for Apo-Trazad to the Health Protection Branch (HPB) within HC. Apotex's submission relied on a US reference product. At that time, HC did not have a clear policy or guidelines on the ability to use a foreign reference product to obtain generic drug approval. It did not accept Apotex's submission and required Apotex to use a Canadian reference product unless the US reference product could be "conclusively proven to be identical" to the Canadian product.
In August 1990, Apotex brought a judicial review application to compel the Minister to review its submission without requiring the use of a Canadian reference product and issue an NOC. The parties reached a settlement agreement on November 26, 1990 and the application was discontinued. According to the settlement agreement, the HPB was prepared to consider evidence to establish equivalency between Canadian and US reference standards for the purposes of a comparative bioavailability study.
Apotex submitted further bioavailability data to establish equivalency pursuant to the settlement agreement; however, HPB continued to insist on identicality.
In July 1991, Apotex brought a second judicial review application, which was dismissed by Justice MacKay in January 1993, holding that HPB's actions were not "patently unreasonable".
Seven years after filing its original submission, on February 28, 1995, Apotex received its NOC for Apo-Trazad.
Apotex's Tort Claims
Misfeasance in Public Office
Justice Hughes held that there were two elements to the tort of public misfeasance: (1) a deliberate unlawful conduct in the exercise of a public function; and (2) an awareness that the conduct is unlawful and would likely injure the plaintiff. He found that both elements were satisfied in this case:
"i Upon entering into the Settlement Agreement with Apotex, HPB acted in bad faith by engaging in a deliberate exercise of conducting its examination of Apotex's submissions on the basis of identicality, notwithstanding its undertaking to do otherwise; and
ii HPB were quite aware that a delay or refusal to accept Apotex's submissions would be likely to injure Apotex, given Dr. Sherman's repeated warnings to HPB of the same."
Justice Hughes found that once HPB entered into the settlement agreement with Apotex, it owed a duty of care towards Apotex and their breach of this duty caused Apotex's loss. He also found that Apotex's damages were not remote, as it was reasonably foreseeable that delaying issuance of the NOC would cause Apotex damages in lost sales and prevent Apotex from being the first in the market. He concluded that the HPB's refusal to adhere to the equivalency standard set out in the settlement agreement constituted negligence.
Breach of Settlement Agreement and Limitation Period
Justice Hughes agreed with Apotex that the HPB misled Apotex by stating in the settlement agreement that it would apply an equivalency standard, when in fact, it would not. However, he found that Apotex's claim for breach of the settlement agreement was time-barred. He concluded that HPB had breached the settlement agreement almost immediately following its execution on November 26, 1990; therefore, Apotex would have had to bring this claim before November 1996.
Damages and Mitigation
Justice Hughes held that Apotex's entitlement to damages would commence at a date when it reasonably could have expected to receive the NOC (November 26, 1991) and end on the date when it actually received the NOC; however, Apotex was required to mitigate its damages as-of 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). Therefore, damages are properly calculated starting on November 26, 1991, when Apotex could have reasonably expected to receive the NOC, and ending in mid-November, 1992, the date the NOC would have been received if Apotex had taken steps to mitigate.
Regarding the issue of mitigation, Justice Hughes recognized that Apotex was using its Apo-Trazad submission as a test-case and noted
"... the Court should not view the question of damages and mitigation from the point of view of a party wanting to make a point. Here, we are dealing with economic circumstances, loss by one party, and payment out of the public purse by another. Damages here are not an award for winning a point, damages are to provide reasonable compensation for unavoidable loss. The reasonable person thinks in terms of economics, not principle."
For more commentary, see http://www.sufficientdescription.com/2014/11/the-reasonable-person-thinks-in-terms.html.
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