Federal Court finds no error of law in order for production of financial statements

Background

In Pharmascience Inc. v. Janssen Inc., the Federal Court dismissed an appeal of the order of the Case Management Judge compelling Pharmascience to produce its financial statements from 2019 to present.

The underlying action was brought by Pharmascience under section 8 of the Patented Medicines (Notice of Compliance) Regulations, seeking damages for its lost profits resulting from the Defendants’ unsuccessful action for patent infringement under the Regulations.

Standard of review

Pharmascience alleged the CMJ had committed extricable errors of law in his assessment of relevance and proportionality concerning the production of the financial statements.

According to Hospira Healthcare Corporation v. Kennedy Institute of Rheumatology, extricable errors of law are reviewed on the standard of correctness.

Relevance

Pharmascience argued that the CMJ had inappropriately relied on Carvedilol to find that the financial statements were relevant to this proceeding and, in doing so, failed to appreciate that Carvedilol was neither binding nor persuasive. According to Pharmascience, this represented an error of law because it was an application of the wrong legal test or consideration of an irrelevant factor. In Carvedilol, Justice Mandamin had ordered production of financial statements on the basis that they were relevant to potential variable costs to be assessed for section 8 damages.

The Federal Court found that although the CMJ relied on Carvedilol in his assessment of the relevance of the financial documents, he did not consider himself found by the precedent; rather, he treated Carvedilol as having persuasive value. Furthermore, Pharmascience had not presented to the CMJ a developed argument as to why Carvedilol should be distinguished.

The Federal Court found that the CMJ had properly assessed the relevance of the financial documents in relation to issues raised in the Defendants’ pleadings, in particular: “(i) calculating PMS’s expenses using the full costs accounting approach; (ii) assessment of the PJI claim; and (iii) the discount rate applicable to PMS’s claim for future losses.”

The Federal Court concluded there was no extricable error of law in the CMJ’s assessment of the relevance of the financial statements.

Proportionality

Pharmascience argued that the CMJ had committed an error of law by not understanding the necessity to assess proportionality and by equating the proportionality principle to a requirement to show undue hardship.

The Federal Court agreed that the CMJ did not make an express finding on proportionality but, based on the transcript as a whole, found that the CMJ had performed a proportionality analysis. In particular, the CMJ considered scope by limiting the production of financial statements so it did not extend to the broader Pharmascience corporate group. The CMJ considered the evidence’s connection to the case by analyzing whether the financial statements would contain the information sought. The CMJ exhibited awareness of the potential for availability of information from other sources by deciding not to order production of another item because the information requested would be contained in the financial statements. The CMJ also considered whether production of the financial statements would require additional follow-up discovery and the existence of a protective order in the proceeding.

Finally, the Federal Court disagreed with Pharmascience’s position that the CMJ had equated proportionality with a requirement to show burden. Pharmascience’s argument was based on the CMJ’s comments in an earlier part of the hearing. Although the CMJ had questioned Pharmascience’s counsel concerning evidence of burden, this did not mean that the CMJ treated burden as the only consideration relevant to proportionality.

There was no error of law with respect to proportionality.

Conclusion

The Federal Court dismissed the appeal. A copy of the decision is available here.