Federal Court of Appeal finds that Apotex did not fail to mitigate its damages in relation to Apo-Trazadone drug submission

by Smart & Biggar
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On April 6, 2017, the Federal Court of Appeal overturned the Federal Court’s finding that Apotex failed to mitigate the damage it incurred as the result of Health Canada’s misfeasance in public office and negligence in its processing of Apotex’s drug submission for Apo-Trazodone: Apotex Inc v Canada, 2017 FCA 73, varying 2014 FC 1087 (previously reported here). Apotex’s appeal, and Health Canada’s appeal and cross appeal, were otherwise dismissed.

Facts

This appeal arises from a lengthy dispute between Apotex and Health Canada as to whether Apotex was entitled to demonstrate the bioequivalence of Apo-Trazodone using a foreign reference product or whether a Canadian reference product was required. Health Canada insisted that Apotex use a Canadian reference product, unless the US product on which it wished to rely could be “conclusively proven to be identical” to the Canadian product. The ensuing application for judicial review was resolved on the basis of a settlement agreement in which Health Canada agreed that:

Any existing and further data provided by Apotex to establish that [Apo-trazodone] is chemically and therapeutically equivalent to a drug product sold in Canada will be considered. For the purposes of a comparative bioavailability study, the Health Protection Branch is prepared to consider evidence to establish equivalency between Canadian and non-Canadian reference standards. 

Following the settlement agreement, Health Canada refused to approve Apotex’s submission for Apo-Trazodone on the basis that Apotex had failed to adequately establish equivalence of the US and Canadian reference products. Apotex received approval to market Apo-Trazodone in 1995.

Federal Court decision

The Federal Court concluded that contrary to the settlement agreement, Health Canada had insisted that Apotex demonstrate identicality, rather than equivalence, to a Canadian reference product. The Court held that this constituted misfeasance in public office: as of the date of the settlement agreement, Health Canada knew that the submission was to be considered for equivalence, but ignored this and concealed it from Apotex.  The Court also held that Health Canada’s actions constituted negligence. The settlement agreement gave rise to a duty of care, and Health Canada breached the standard of care by insisting on assessing the submission for identicality. 

The Court found that Apotex ought to have received its NOC for Apo-Trazodone on November 26, 1991; damages accrued as of that date. However, the Court further found that Apotex’s damages ought to be reduced because it did not take reasonable steps to avoid its loss. A reasonable person would have mitigated the damage by conducting and submitting studies comparing Apo-Trazodone to a Canadian reference product. 

Federal Court of Appeal decision

Mitigation

As a general matter, a plaintiff is not entitled to recover compensation for a loss that could have been avoided by taking reasonable action.

The Court agreed with Apotex that the lower Court erred in its appreciation of the onus of proof in mitigation. Specifically, at paragraph 154, the Federal Court wrote that “[o]nus has no role to play in assessing mitigation; the duty of the Court is to look at the evidence in the record and determine whether and when it was appropriate to mitigate the losses claimed.”  This was an error of law: pursuant to Southcott Estates Inc v Toronto Catholic District School Board, 2012 SCC 51, the defendant bears the onus and must establish that the plaintiff failed to make reasonable efforts to mitigate its loss.

The lower court committed a further legal error by dictating a single, reasonable course of conduct - the conduct of bioequivalence studies against a Canadian reference product - rather than considering the reasonableness of Apotex’s actual course of conduct. On the very date on which the Federal Court found that Apotex ought to have taken mitigative action, Apotex wrote to Health Canada threatening both mandamus and damages, commencing an application for judicial review shortly thereafter.

The Court noted that a failure to mitigate can be justifiable where the plaintiff has a substantial and legitimate interest in seeking specific performance of a defendant’s obligation. On the facts of this case, Apotex had a clear business interest in establishing that foreign reference products were, as a general matter, acceptable. This was “not a case where Apotex clung to a point of principle without regard to the consequences”, as this issue transcended the Apo-trazodone drug submission. The Court concluded that “in the rather unique circumstances of this case, Apotex’s choice to pursue litigation [rather than to mitigate] was reasonable.”

Negligence

In rejecting Apotex’s arguments on negligence, the Court commented on whether and when Health Canada owes a manufacturer a duty of care in the drug submission process. 

The Court found that no prima facie duty of care arises explicitly or implicitly from the legislative regime. The Food and Drugs Act and regulations are neutral on the subject, and given that the legislation is directed to public health and safety through the regulation of drug manufacturers, the Court could not infer that Parliament intended Health Canada to owe a prima facie duty of care to all drug manufacturers with respect to all new drug submissions. Per the Court, “requiring the [Health Protection] Branch to be mindful of Apotex’s economic interests when exercising its discretion would place the [Branch] in a position of conflict between its obligations to Apotex and the duty it owes to the public.”

The Court further found that no duty of care arose between Apotex and the Health Protection Branch by virtue of their interactions prior to the settlement agreement. It rejected Apotex’s argument that the ongoing dialogue between a manufacturer and the Branch produced sufficient proximity to give rise to a prima facie duty of care. Rather, the Court adopted the finding of the Ontario Court of Appeal in Taylor v Canada (Attorney General), 2012 ONCA 479 that for a prima facie duty of care to arise between a regulator and individual, “the facts must demonstrate a relationship and connection between the regulator and the individual that is distinct from and more direct than the relationship between the regulator and that part of the public affected by the regulator’s work.” Until the settlement agreement, the Health Protection Branch’s relationship with Apotex was no different from its relationship with any other manufacturer. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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