Case: Apotex Inc v Allergan Inc, 2016 FCA
155
Nature of case: Motion for an Order enforcing
settlement
Successful parties: Apotex Inc and Apotex
Pharmachem Inc
Date of decision: May 18, 2016
Summary
The Federal Court of Appeal (FCA) has clarified the requirements
for a binding settlement agreement, and has stated that
determination of whether settlement had been reached is to be
assessed from an objective standpoint. The FCA warned that
"[i]f a party does not want to be bound until it has agreed to
all terms it subjectively considers essential to the deal, in every
offer it communicates it must make that wish objectively
clear." In this case, the FCA found that no settlement
agreement had been reached by the parties.
Background
In August 2010, Allergan brought an infringement action against
Apotex relating to gatifloxacin.
In April 2012, Apotex's counsel made an offer to settle to
Allergan's counsel (Initial Offer). Allergan sought
clarification on the scope of the limitations imposed on Apotex.
Allergan never accepted the Initial Offer nor indicated that
the clarifications received from Apotex were satisfactory. The
parties re-engaged in debate regarding the scope of limitations
imposed on Apotex.
Further communications regarding settlement took place in late 2013
and early 2014. In January 2014, Allergan's counsel
advised that it had recommended that Allergan accept Apotex's
December 2013 revisions to the minutes of settlement, and
circulated a draft. Two weeks later, Allergan's counsel
proposed certain amendments to the draft. Apotex's
counsel rejected these amendments, but indicated a willingness to
recommend that Apotex accept the January 2014 draft. In
February, Allergan's counsel advised that Allergan accepted the
terms of the January 2014 draft. Allergan subsequently
advised the Court that in its view a settlement had been reached;
however, Apotex did not agree.
Allergan brought a motion before the Court for an order enforcing
the settlement agreement, and the Federal Court granted
Allergan's motion (2015 FC 367). Applying a subjective
standard, Hughes J. found that the parties agreed to the essential
terms of the agreement and that any differences could be attributed
to "fussing and wordsmithing". Apotex appealed the
order.
The Federal Court has jurisdiction
The FCA held that the Federal Court has jurisdiction to
determine whether a patent infringement action had been settled
and, if so, to enforce the settlement agreement. While
contract law is normally a matter of provincial jurisdiction, the
Federal Court has jurisdiction when the contract at issue is tied
to a matter over which the Court has statutory jurisdiction or
where the existence of a settlement agreement affects the status of
proceedings before the Court. Where there is concurrent
juridiction with a provincial court, the Federal Court may decline
jurisdiction if it considers the provincial court to be a more
appropriate forum.
Requirements for a settlement agreement in a common law jurisdiction
The FCA clarified the requirements to determine whether a settlement agreement has been reached.
- There must be an objective, mutual intention to create legal relations: Would a reasonable businessperson viewing the parties objectively conclude that both parties intended to enter into legal relations?
- There must be consideration flowing in return for a promise: The Court stated that this requirement will "almost certainly never [be] a problem" as settlements are by definition compromises with consideration flowing both ways.
- Objectively, the terms of the settlement must be sufficiently certain: A court cannot make "a new agreement for the parties" where they "were never ad idem".
- There must be an objective agreement on all essential terms: Viewed through the eyes of a reasonable businessperson, did the parties agree on all the essential elements?
- Proper authority must be established: In the case of parties represented by counsel, if counsel has qualified its authority with "subject to instructions" or "subject to my client's approval", there can be no agreement until the client is heard from.
The FCA overruled Hughes J.'s subjective approach, holding
that evidence of the parties' subjective intentions is
irrelevant in determining whether a settlement agreement has been
reached.
The FCA held that the scope of limitations on Apotex were essential
terms to the Initial Offer, and on an objective review of the
evidence, there could be no agreement. With respect to the
settlement exchanges in early 2014, the FCA found that counsel for
Apotex had only agreed to recommend the settlement to Apotex and
did not have the apparent authority to bind Apotex. The FCA
found that no settlement agreement had been reached.
Link to decisions:
Federal Court of Appeal Decision: Apotex Inc v Allergan, Inc, 2016 FCA 155
Federal Court Decision: Allergan, Inc v Apotex Inc, 2015 FC 367
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