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A Light at the End of the Tunnel: Apotex Entitled to Damages for Non-Canadian Reference Product Test Case

On November 18, 2014, Justice Hughes of the Federal Court of Canada found the Crown liable in tort for damages to Apotex as a result of a protracted evaluation of Apotex’s submission for a Notice of Compliance (“NOC”) for its trazadone product. Apotex filed its submission in 1988 yet did not receive an NOC until 1995.

Justice Hughes noted that although Health Canada determined that this comparison established the safety and efficacy of Apotex’ product, Apotex was denied an NOC on the basis of a poorly articulated and inconsistently applied policy requiring the use of a Canadian reference product.

In 1990, Apotex brought an application for judicial review to require the Minister to review its submission without requiring a comparison to a Canadian reference product. Later that same year, the parties reached a settlement agreement whereby the Minister agreed to consider the comparison to a non-Canadian reference product.  Justice Hughes found that the Minister led Apotex to believe that it was reviewing the submission as agreed when it in fact continued to apply its problematic policy. In 1991, Apotex then brought a second judicial review, but was unsuccessful (see Apotex Inc v Canada (Attorney General), [1993] FCJ No 31).

Apotex ultimately received an NOC seven years after Apotex filed its submission when the Minister changed its policy on non-Canadian reference products. Apotex ended up being the third generic manufacturer to enter the trazodone market in Canada.

Justice Hughes noted that Apotex’ pursuit of an NOC was “a test case as to whether a non-Canadian drug product can be used as a reference” and characterized Health Canada as “an inefficient, badly run bureaucracy” during the relevant time.

The Court held that the tort of misfeasance in public office was established in this case because Health Canada acted in bad faith by not examining Apotex’ submission on the basis of the American reference product and because Health Canada knew that this was likely to injure Apotex.  Health Canada had put itself in a special relationship with Apotex and thus owed it a duty of care. The Court also concluded that Health Canada breached that duty and was thus negligent. The Court rejected the Crown’s arguments that there were policy reasons to negate the duty it owed to Apotex on the basis that Health Canada’s conduct was irrational and in bad faith and the liability was the result of the breached settlement agreement.

Apotex also alleged that Health Canada breached the settlement agreement by refusing to use the data concerning the non-Canadian reference product. Justice Hughes found that Health Canada had breached the settlement agreement but the claims was barred by a limitation period for contractual claims.

Justice Hughes held that Apotex was entitled to receive the profits that it would have made for the period beginning when it would have received an NOC had the Minister followed through on the settlement agreement and ending when it actually received an NOA.

Justice Hughes concluded, however, that Apotex should have mitigated its damages by conducting testing using a Canadian reference product. Justice Hughes held that this could have been done at the same time as the testing done on a different Apotex drug, Apo-Zidovudine:

[161] I find that a reasonable person, thinking in terms of economics, would have taken steps to mitigate its damages by July 2, 1991, the date Apotex wrote to HPB advising that it would mitigate its damages for Apo-Zidovudine (Exhibit 1, Tab 102). While the taking of Court proceedings is fine from a point of principle, from a point of economics, mitigation, instead of or in addition to Court proceedings, is what a reasonable person would have done.

The Crown’s liability thus ended on the date that Apotex would have received regulatory approval had it undertaken testing with a Canadian reference product.
Finally, the Court concluded that punitive damages were not appropriate because the conduct of Health Canada staff was not egregious enough to warrant such an award against the Crown.

The quantification of damages will proceed separately, as the action was bifurcated.

A copy of Justice Hughes’ Judgement and Reasons may be found here.