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A Confluence of Two Streams – Subsequent Amalgamation Cannot Change Contracting Parties’ Intention

In April 2009, Pfizer and ratiopharm settled a prohibition application under the PM(NOC) Regulations in respect of the drug product ratio-sildenafil. Subsequent to the agreement, Teva Canada Limited amalgamated with Ratiopharm and remained Teva Canada Limited.

In 2012, Teva successfully defended a prohibition application commenced against it in respect of Novo-Sildenafil. Teva then brought a s. 8 damages claim under the NOC Regulations in respect of Novopharm’s rights regarding the drug product, Novo-Sildenafil. Pfizer argued its agreement with Ratiopharm barred Teva’s claim for s. 8 damages in respect of Novopharm’s rights, as the two predecessor companies were now one company, Teva Canada Limited. Justice O’Keefe dismissed Pfizer’s motion for summary judgment and awarded summary judgment in favour of Teva. Pfizer then appealed this Order.

The Federal Court of Appeal, applying the standard of review for contractual interpretation recently set out  by the Supreme Court of Canada in Sattva Capital Corp.  dismissed Pfizer’s appeal and held that Pfizer and Ratiopharm could not have executed an agreement affecting a separate company’s rights, in light of the “factual matrix” or surrounding circumstances of the genesis of that agreement:

[19] I have also carefully considered the appellants’ argument that article 7 of the Agreement, when read in light of the last recital paragraph, necessarily precludes Teva from claiming damages related to its Teva-Sildenafil product. I simply cannot agree that the words of article 7, read in light of the entire Agreement (which includes the last recital) and the objective evidence of the background and facts at the time of the execution of the Agreement, show the mutual and objective intention of the parties to encompass a claim for damages arising from the lost sales of Novo-Sildenafil (now Teva-Sildenafil) a drug covered by an ANDS filed by a different company.

On the issue of amalgamation, the Court held that Teva was indeed bound by the agreement made by its predecessor, Ratiopharm, but only in respect of rights originally contemplated by the parties to the agreement at the time of execution. In other words, citing the Supreme Court in R. v. Black & Decker Manufacturing Co., [1975] 1 SCR 411, the amalgamated company is a river formed by the confluence of two streams and the agreement affected one stream but not the other. The effect of the agreement persisted in the amalgamated company, but only in respect of Ratiopharm’s rights as originally contemplated by the agreement, and the scope of the agreement did not expand post-amalgamation:

[24] In R. v. Black & Decker Manufacturing Co., [1975] 1 S.C.R. 411, 1974 CanLII 15, p. 421, Justice Dickson used the following analogy to illustrate the effect of amalgamation:

[…] in an amalgamation a different result is sought and different legal mechanics are adopted, usually for the express purpose of ensuring the continued existence of the constituent companies. The motivating factor may be the Income Tax Act or difficulties likely to arise in conveying assets if the merger were by asset or share purchase. But whatever the motive, the end result is to coalesce to create a homogeneous whole. The analogies of a river formed by the confluence of two streams, or the creation of a single rope through the intertwining of strands have been suggested by others.

[25] The appellants are now attempting to join both streams in one river well before the amalgamation occurred. This cannot be done. After the amalgamation, the Agreement prevented Teva from claiming damages arising from the proceedings in T-1935-08 [the Ratiopharm prohibition proceeding]. At best (and there is no need to decide this, as no new ANDS has been filed), if article 7 is not limited to the aforementioned claim, the Agreement could also prevent Teva from claiming damages arising from litigation under the Regulations relating to a new ANDS filed by ratiopharm or by the amalgamated company after the execution of the Agreement […].

Marcus Klee and Devin Doyle of Aitken Klee  represented Teva Canada Limited in this appeal.

The Court of Appeal’s decision is available here and Justice O’Keefe’s decision on the motion below (2015 FC 760) is  available here.

POSTSCRIPT:  Pfizer’s subsequent application for leave to appeal to the Supreme Court of Canada was dismissed with costs on April 7, 2016.