FCA Upholds Ruling That Health Canada Liable For Negligence And Misfeasance In A Public Office

In Apotex Inc. v. Canada, 2017 FCA 73, the Federal Court of Appeal dealt with various appeals from the finding that Health Canada was liable to Apotex for negligence and misfeasance in a public office in their review of Apotex’ drug submission for Apo-trazadone.

Apotex filed a submission with Health Canada in 1988 for approval to sell a generic version of the drug trazadone. The submission referenced an allegedly identical US product to rely on bioavailability studies previously used in an American application. Health Canada did not approve the submission and advised that there was a “normal requirement” for a Canadian reference product and that Apotex would need to “conclusively prove” the US product to be identical to the “standard trazadone product marketed in Canada.”

After two lawsuits and a settlement agreement with Health Canada’s Health Protection Branch (HPB), Apotex received approval in 1995, by which time two generic competitors had already received approval to sell their versions of that drug in Canada. Apotex commenced an action for damages based on multiple causes of action, including negligence, breach of a settlement agreement, misfeasance in public office, and misrepresentation. In a rather scathing decision, the Federal Court found Health Canada liable to Apotex for negligence and because its officials committed the torts of misfeasance in a public office (see our previous post here).

The Trial Judge found that the settlement agreement transformed the relationship between the parties such that the HPB owed Apotex a duty of care. In the settlement agreement, the HPB agreed that it would consider Apotex’ submission on the basis of equivalency (i.e. rather than proof that the foreign-sourced reference product, Desyrel, was identical to the Canadian version). Justice Hughes had held that HPB breached the requisite standard of care when officials insisted on assessing Apotex’ submission on the standard of identicality, rather than the agreed-upon standard of equivalency. The Trial Judge further found that the HPB ignored the requirements of the settlement agreement, attempted to conceal this from Apotex and was aware that its conduct would likely injure Apotex. This constituted bad faith and the tort of misfeasance in a public office.

Health Canada and Apotex each appealed various aspects of the decision. Health Canada argued that the Trial Judge erred in concluding that a breach of contract could amount to misfeasance. It argued that once the Court found it liable for breach of contract, it was not open to find it liable in misfeasance for the same contract. The FCA disagreed. While a plaintiff cannot be compensated twice for the same loss, Apotex’ contract claim was found to be statute barred and there was thus no double compensation. The settlement agreement did not limit Apotex’s right to sue in tort. As set out in BG Checo, where conduct prima facie supports an action in contract and in tort, a party may sue in either or both, subject to any limit that the parties have placed on that right in their contract.

Health Canada also argued that the Trial Judge erred in law by finding that the settlement agreement created a relationship of proximity and also by failing to negate any prima facie duty of care based on policy considerations. The FCA again disagreed. The settlement agreement put Apotex in a different relationship with the HPB with respect to the Apo-Trazadone submission. The HPB agreed to review the submission on the standard of equivalency, which was a departure from its usual practice. Both the Trial Judge and FCA held that the HPB does not owe a duty of care to all drug companies with respect to all drug submissions. Thus, whether the imposition of a duty of care would affect the HPB’s discretion when it reviews drug submissions was not an issue. The Court of Appeal rejected the argument that imposing a duty of care on the HPB to comply with its agreement would have a chilling effect upon it as regulator. Rather, imposing a duty of care when a government actor chooses to enter into a contract and then breaches the agreement limits the class of claimants and the time in which liability may be affixed. The claimants are confined to those privy to the contract and the claim is subject to the applicable limitation periods. Apotex was entitled to assume that the HPB would carry out the obligation it agreed to.

The FCA also held that it was an error in law for the Trial Judge to find that Apotex failed to mitigate its damages. As the Supreme Court set out in Southcott, a defendant must establish that the plaintiff failed to make reasonable efforts to mitigate the loss. The FCA further held it was an error of law for the Court to dictate a single, reasonable course of action and to fail to consider the reasonableness of Apotex’ actual course of conduct, in peculiar circumstances where Apotex was seeking to advance a test case

[180] Thus, in the rather unique circumstances of this case, Apotex’ choice to pursue litigation was reasonable. It did not fail to mitigate its loss and it was an error of principle to require Apotex to mitigate its loss by requiring it to abandon its right to have the Health Protection Branch consider evidence to establish the bioequivalence of the Canadian and American reference standards and by requiring Apotex to do the very thing the settlement agreement was intended to avoid: a new bioavailability test using a Canadian reference product.

[181] Had Apotex so proceeded and obtained a notice of compliance, the issuance of the notice of compliance would have rendered moot the issue of the suitability of a foreign reference product. It follows that in any subsequent drug submission the suitability of a foreign reference product would remain a live issue; in the words of the Federal Court, the “battle lines” would be drawn again.

The FCA thus varied the trial judgment to remove the conclusion that Apotex failed to mitigate its loss.

A copy of the judgment can be found here.