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Health Canada liable for damages to Apotex for misfeasance in public office and negligence in review of Apo-Trazodone submission

On November 18, 2014, the Federal Court found the Minister of Health liable in tort for its failure to abide by a settlement agreement with Apotex, which significantly delayed the approval of Apotex’s generic trazodone product: Apotex Inc v Canada (Minister of Health), 2014 FC 1087. However, the Court held that the Minister was not liable for the full delay period, as Apotex ought to have mitigated its damages. Further, the Court found that Apotex’s action for breach of the settlement agreement was barred by a limitations period.

Apotex’s action for damages in tort and breach of contract, including punitive damages, stemmed from the approval process of Apotex’s Apo-Trazodone submission, which was filed in 1988. In its submission, Apotex used a United States reference product, as opposed to a Canadian reference product, to establish bioequivalence of Apotex's product. Health Canada insisted on a Canadian reference product, unless the United States reference product could be “conclusively proven to be identical” to the Canadian product. Apotex’s application for a judicial review of Health Canada’s insistence was discontinued when the parties agreed to a settlement in November 1990, the terms of which required that Health Canada assess the equivalence of the U.S. and Canadian products.

While Apotex submitted further data to establish such equivalence, Health Canada refused to approve the submission. Apotex applied for a second judicial review, which was dismissed by the Federal Court on the basis that Health Canada’s actions were not patently unreasonable. Health Canada finally approved Apotex’s submission in 1995, by which time two other generic manufacturers had already received approval. In 1998, Apotex commenced the within action for damages based on negligence, breach of a settlement agreement, misfeasance in public office and misrepresentation.

In its reasons, the Federal Court acknowledged that Apotex used its submission for Apo-Trazadone as a test case to determine whether a non-Canadian drug product could be used as a reference, and that “[i]n no way was Apotex the victim that it purports to be.” However, the Federal Court found that as of the date of the settlement agreement, Health Canada knew that it ought to have reviewed the submission on the basis of equivalency, but ignored that requirement and continued to conduct the examination of the submission on the basis of identicality, and that there was an effort to conceal this from Apotex. On this basis, the Federal Court held that Health Canada was liable for:

  • Misfeasance in public office: Health Canada acted in bad faith by continuing to examine Apotex’s submission on the basis of identicality, and that it was aware that that the delay or refusal to accept Apotex’s submissions would be likely to injure Apotex.
  • Negligence: Health Canada owed a duty of care to Apotex as a result of the settlement agreement, and there were no policy reasons in this case whereby Health Canada should be relieved of a finding of negligence, in part because the unique circumstances of this case would not lead to indeterminate liability. Health Canada’s “continued request for a Canadian reference standard in the face of evidence that proved equivalence between Canadian and U.S. products represented its adherence to a standard of identicality. This adherence to identicality constituted negligence.” The Federal Court further held that Health Canada’s breach of its duty of care caused a loss to Apotex.
  • Start of damages: The Federal Court held that it was reasonable to use the date of the settlement agreement, November 1990, as the date when Health Canada ought to have examined Apotex’s submission, and that approval ought to have taken approximately one year. On this basis, the Court found that damages started to accrue to Apotex as of November 1991.
  • Mitigation: The Court held that Apotex ought to have taken reasonable steps to avoid the unreasonable accumulation of damages. In this case, Apotex ought to have repeated the comparative studies using a Canadian reference product by July 1991, as it had done for a different drug submission. These tests would have taken approximately 3 to 6 months, and Apotex might have received its approval 15-18 months after completion of the tests, or November 1992.

The Court therefore held that the Minister of Health was only liable for Apotex’s damages accruing between November 1991 and November 1992, as well as the cost of the mitigating testing against a Canadian reference product. The quantum of damages is to be determined at a later trial. The Court did not find that any of the actions of Health Canada personnel were sufficiently egregious to warrant an award of punitive damages.

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