COURT FILE NO.: 491/06

DATE: 20061215

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

LANE, CARNWATH & E. MACDONALD JJ.

B E T W E E N:

APOTEX INC.

Applicant

• and -

MINISTER OF HEALTH AND LONG TERM CARE, EXECUTIVE OFFICER, LIEUTENANT GOVERNOR IN COUNCIL and ATTORNEY GENERAL OF ONTARIO

Respondents

• and -

CANADADIAN GENERIC PHARMACEUTICAL ASSOCIATION

Intervenor

Harry B. Radomski, Nando De Luca & Miles Hastie, for the Applicant

Lise G. Favreau, James Kendik & Christine Perruzza, for the Respondents

Edwin Hore & Kevin Zive, for the Intervenor

HEARD: November 17, 2006

CARNWATH J. :

1Apotex Inc. seeks judicial review of the respondents’ actions in enacting a pair of regulations concerning the dispensation of generic prescription drugs in the province. In Ontario, a regime exists where certain eligible persons are provided pharmaceuticals without cost (or at costs subsidized by the government). The effect of the regulations was to lower the price the government would pay for generic drugs to 50% of brand-name drugs.

2The issue to be decided is whether the government ignored its obligation of publication, public consultation and consideration after publicly proposing one set of regulations and then enacting a different set. Apotex, and the Canadian Generic Pharmaceutical Association as Intervenor (“CGPA”), say the government did ignore its obligations and the regulations are therefor ultra vires.

BACKGROUND

3Apotex is an Ontario company that carries on business as a manufacturer and distributor of pharmaceutical products. Apotex’s drug products are termed “generic” in the sense that they are formulations of active medicinal ingredients in respect of which other formulations have already been brought to market by “originator” manufacturers.

4The sale of pharmaceutical products is highly-regulated in Canada. The introduction of drugs, and their first health and safety assessment, is engaged by a federal drug regime before the provincial regulatory regime at issue in this proceeding is engaged.

5The reimbursement to an eligible person is governed by the Ontario Drug Benefit Act, R.S.O. 1990, c. O-10 (“ODBA”) and the regulations passed thereunder. The ODBA directs that pharmacists are not to charge eligible patients for certain eligible drug products. Rather, an officer of the Ministry of Health and Long-Term Care (the “Ministry”), who is designated as the “Executive Officer”, reimburses pharmacists for such costs.

6The ODBA empowers the Lieutenant Governor in Council (“LGIC”) to make regulations regarding the conditions a manufacturer must satisfy to have a drug eligible for reimbursement. Each eligible drug is listed in a published “Formulary”, the Ontario Drug Benefit Formulary, and is thus called a “listed drug product”.

7The regulation under the ODBA that sets out rules, criteria and conditions for eligibility for listing as a drug benefit on the Formulary is Ontario Regulation 201/96, as amended (the “OBDA Regulation”).

8In Ontario, there is a separate regime that determines whether or not pharmacists may substitute one brand of a drug for another brand of the same drug when filling a prescription. This regime is governed by the Drug Interchangeability and Dispensing Fee Act, R.S.O. 1990, c. P-23 (“DIDFA”), pursuant to which drug products are designated as “interchangeable” in the Comparative Drug Index to the same published Formulary (collectively, the “Formulary/CDI”).

9The regulation under the DIDFA that sets out rules, criteria and conditions for eligibility for listing on the Formulary is R.R.O. 1990, Regulation 935, as amended (“DIDFA Regulation”).

THE IMPORTANCE OF THE FORMULARY/CDI

10In Canada, the market for a medication is established by a ‘brand-name’ (i.e. originator) drug manufacturer, who typically develops and markets the drug under patent protection. As the sole supplier of the drug, this originator creates the market for the product by encouraging doctors to prescribe it for patients in preference to other drugs having similar uses as promoted by other originators.

11Once generic drug manufacturers obtain the necessary approvals for their product, they compete on price with the originators. Typically, they price their products lower than the originator brands of the same products. As a rule, they do not spend money promoting their products to doctors. Instead, they strive to ensure that pharmacies stock their comparable products and thus offer a low-cost alternative.

12Absent a pharmacist’s legal right to substitute or offer an interchangeable generic product for the brand-name product, generic brands would capture virtually no market.

13The combined operation of the DIDFA and the ODBA provides a means of ensuring the public has access to the lower cost generic alternatives at the pharmacy. The DIDFA prevents any legal action from being taken against a pharmacist who substitutes interchangeable products, thus permitting effective generic drug distribution. The ODBA limits the amount that a pharmacist will be paid for dispensing an interchangeable product to the amount of the lowest-priced interchangeable product, regardless of which product is actually dispensed, providing an incentive to dispense the cheaper generic product.

14As a condition of listing in the Formulary/CDI, the “70/90 Pricing Conditions” required that the first generic version of a drug product be priced at no more than 70% of the price of its originator, brand-name product. Second and subsequent interchangeable generic versions had to be priced at no more than 90% of the first generic version or 63% of the price of the originator brand-name product. The 70/90 Pricing Conditions have been a part of the DIDFA/ODBA regime since 1998.

15The Pricing Conditions can affect the generic drug industry’s bottom line in other provinces. Some provincial drug-pricing regimes require generic drug manufacturers to provide drugs in those provinces at the lowest price offered to any province. Drug-pricing in one province can have a significant impact upon price in other provinces.

THE TRANSPARENT DRUG SYSTEM FOR PATIENTS ACT, S.O. 2006, c. 14 (BILL 102)

16In April 2006, the Ontario Government announced Bill 102, designed to amend the DIDFA and the ODBA. Under the Bill, much of the legislation of the regime was to be determined by regulation; decisions regarding the implementation of the regime, such as administering the Formulary/CDI, vested in a newly-created “Executive Officer” of the Ministry.

17Following Bill 102’s introduction, the government proposed amendments to the Bill requiring the government to engage in a public notice and consultation process before making any regulations. Only then could the LGIC make regulations that would affect particular aspects of the interchangeability and drug benefit regime, such as those affecting conditions for listing drugs in the Formulary/CDI.

18As passed on June 20, 2006, s. 4 of Bill 102 added the provisions that follow to s. 14 of the DIDFA. Subsection 27(23) of Bill 102 added virtually identical provisions to ss. 18(8) to 18(15) of the ODBA:

Public consultation before making regulations

(10) The Lieutenant Governor in Council shall not make any regulation under subsection 12.1 (15) or clauses 14 (1) (a), (b) or (d) unless,

(a) the Minister has published a notice of the proposed regulation on the website of the Ministry and in any other format the Minister considers advisable;

(b) the notice complies with the requirements of this section;

(c) the time periods specified in the notice, during which members of the public may exercise a right described in clause (11) (b) or (c), have expired; and

(d) the Minister has considered whatever comments and submissions that members of the public have made on the proposed regulation in accordance with clause (11) (b) or (c) and has reported to the Lieutenant Governor in Council on what, if any, changes to the proposed regulation the Minister considers appropriate.

Contents of notice

(11) The notice mentioned in clause (10) (a) shall contain,

(a) a description of the proposed regulation and the text of it;

(b) a statement of the time period during which members of the public may submit written comments on the proposed regulation to the Minister and the manner in which and the address to which the comments must be submitted;

(c) a description of whatever other rights, in addition to the right described in clause (b), that members of the public have to make submissions on the proposed regulation and the manner in which and the time period during which those rights must be exercised;

(d) a statement of where and when members of the public may review written information about the proposed regulation; and

(e) all other information that the Minister considers appropriate.

Time period for comments

(12) The time period mentioned in clauses (11)(b) and (c) shall be at least 30 days after the Minister gives the notice mentioned in clause (10)(a) unless the Minister shortens the time period in accordance with subsection (13).

Shorter time period for comments

(13) The Minister may shorten the time period if, in the Minister’s opinion,

(a) the urgency of the situation requires it;

(b) the proposed regulation clarifies the intent or operation of this Act or the regulations; or

(c) the proposed regulations is of a minor or technical nature.

Discretion to make regulations

(14) Upon receiving the the Minister’s report mentioned in clause (10) (d), the Lieutenant Governor in Council, without further notice under subsection (10), may make the proposed regulation with the changes that the Lieutenant Governor in Council considers appropriate, whether or not those changes are mentioned in the Minister’s report.

19The importance of the foregoing provisions is twofold – first, a specific protocol of publication, consultation and consideration must be followed before the Minister reports to the LGIC in accordance with ss. (10)(b). Second, ss. (14) provides that upon receiving the Minister’s report, the LGIC may, without further notice, make the proposed regulation with the changes that the LGIC considers appropriate, whether or not those changes are mentioned in the Minister’s report. [emphasis added]

ANALYSIS

20Apotex submits the Minister did not follow the mandated procedure set out in ss. 10, 11 and 12 of Bill 102. A review of the record indicates otherwise.

21A notice of the proposed regulations under the ODBA and the DIDFA was published on the Minister’s website July 24, 2006 (Respondents’ Application Record, Tab 1B) (“RAR”).

22The notice comprises twelve pages. It contains proposed amendments to ss. 11, 12, 12.01 and 12.1 of O. Reg. 201/96 under the ODBA and proposed amendments to ss. 6, 7 and 8 of the Regulation 935 under the DIDFA. These sections establish the conditions a manufacturer must meet in order to have its products considered for listing on the Formulary/CDI and to have its products continued to be listed on the Formulary/CDI, including conditions in respect of pricing. The proposed amendments to pricing provided that in each case, as a condition for listing/designating or for continued listing/designating of a drug product on the Formulary/CDI, the manufacturer would be required to enter into an agreement with the Executive Officer, if required by the Executive Officer, that would specify a volume discount or other amount that would be payable by the manufacturer to the Minister of Finance.

23The notice provided that interested parties were invited to provide written comments on the draft regulations on or before August 23, 2006. Apotex did not make a written submission; however, the CGPA of which Apotex was a member did make a submission.

24On page 5 of the notice as published on the website, the following statement is found:

All comments and submissions received during the comment period will be considered during the preparation of the final regulations. Comments and submissions received after the comment period will not be considered. The content, structure and form of the proposed regulations are subject to change as a result of the comment process in the discretion of the Lieutenant Governor in Council, who has the final decision on the contents of any regulations.

This statement would appear to draw the reader’s attention to s. 14 of Bill 102 noted above.

25I find the notice as published on the Minister’s website met the requirements of s. 10(a) of Bill l02, in that it met the detailed requirements for the contents of the notice as set out in s. 11 of Bill 102.

26Apotex submits the Minister failed to consult members of the public in accordance with ss. 10 and 11 of Bill 102. A review of the record would indicate otherwise. As early as April 13, 2006, the Ministry published information about the government’s intention in respect of reducing the drug benefit price of generic drug products listed on the Formulary/CDI to a flat 50% price rule (RAR, Tab 1D).

27The mechanism by which the government would accomplish a reduction of the drug benefit price of generic products listed on the Formulary/CDI was the subject of discussion in which representatives of Apotex participated. The Drug System Secretariat of the Ministry (“DSS”), in meetings with the generic drug products industry, indicated the government was considering alternative methods, including a flat 50% price rule or a 70/90% price rule with a “clawback” (or volume discount). The purpose of a “clawback” was to bring the price the Ministry paid for generic drug products in respect of eligible persons to effectively a flat 50% price.

28Mr. Jack Kay, President and COO of Apotex, wrote Helen Stevenson, Director of the DDS, in an e-mail dated April 12, 2006. He opens the letter as follows:

We understand that one of the considerations is that all generics to be listed will have to be at 50% of the brand that is listed in the Formulary. (RAR, Tab 1F)

It is fair to conclude that Apotex knew in April of 2006 that the government was considering a flat 50% pricing formula.

29On April 28, 2006, Ms. Stevenson met with the CGPA, a meeting at which Mr. Kay was present. A chart submitted by the CGPA, entitled “Bill 102: Transparent Drug System for Patients Act”, notes a government proposal that “generic reimbursement price set at 50% of brand-name product price”. (RAR, Tab 1G)

30On May 30, 2006, Mr. Kay made a presentation to the Standing Committee on the TDSPA. His presentation included an objection to the flat 50% price reduction. (RAR, Tab 1J, pp. 3 & 4)

31On July 11, 2006, Ms. Stevenson again met with the CGPA, a meeting at which Mr. Kay was present. A CGPA briefing note distributed at the meeting states, “The government plans to leave listed reimbursement prices for generic pharmaceuticals at the 70/90 level instead of lowering it to 50% of the equivalent brand price, while recouping the difference through some form of rebate.” (RAR, Tab 1-O). Clearly, the government’s objective had not changed.

32During the consultation period mandated by Bill 102, a meeting took place between the DSS and the CGPA on August 9, 2006, a meeting at which Mr. Kay was present. The methods of price reduction intended to be carried out by the government were discussed. (RAR, Tab 1Q)

33My review of the record persuades me that the Ministry complied with the requirements to consult with members of the public respecting the proposed amendments. Indeed, Apotex and the CGPA knew from April of 2006 that it was the government’s intention to arrive at a 50% price reduction either by way of a flat 50% reduction from the name-brand price or by a 70/90 price reduction, combined with a “clawback” designed to arrive at a 50% price reduction. I reject the Apotex submission that the government failed to consult as required by ss. 10 and 11 of Bill 102. The requirements to give a specified time period for the public to respond to the notice, and to consult were met.

34It remains to consider whether the change to a flat 50% reduction from a 70/90 reduction, coupled with a “clawback” to achieve the 50% target, was so egregious as to satisfy this court that the Lieutenant Governor in Council acted beyond the bounds of the jurisdiction conferred by the enabling statute. (Thorne’s Hardware Ltd. v. Canada, 1983 20 (SCC), [1983] 1 S.C.R. 106 at p. 4 (QL version); Canada (Attorney General) v. Inuit Tapirisat of Canada, 1980 21 (SCC), [1980] 2 S.C.R. 735 at pp. 11 & 14 (QL version))

35I note that as late as August 23, 2006, the CGPA submitted to the Ministry that negotiated agreements on “clawbacks” would be “arbitrary, unfair and unworkable.” The CGPA went on to state that “[T]he current 70/90 pricing regime must remain in place … .” The CGPA was well aware the government’s objective was a 50% price reduction. Having objected to negotiations as “unworkable”, it should not have been surprised that the government abandoned the concept of negotiated agreements and returned to a direct flat-rate 50% price reduction.

36Apotex argues that because the text of the proposed regulation was silent as to the 50% reduction target, the notice requirements were not met. On the facts of the case, this submission cannot prevail: the 50% objective was well-known and the change in the method of achieving it is within the power of the LGIC.

37A reading of s. 14 of Bill 102 leads to no other conclusion than that the Legislature conferred on the Lieutenant Governor in Council the power without further notice, under ss. (10), to make the proposed regulation with the changes that the Lieutenant Governor in Council considers appropriate, whether or not those changes are mentioned in the Minister’s Report. I conclude that the Lieutenant Governor in Council did not exceed its jurisdiction in changing the method by which a reduction of 50% of the fee charged by the brand-name drug products was to be achieved.

38Absent a lack of jurisdiction, the court has no ability to interfere with Cabinet decisions of this nature:

Decisions made by the Governor in Council of public convenience and general policy are final and not reviewable in legal proceedings. Although…the possibility of striking down an Order in Council on jurisdictional or other compelling grounds remains open, it would take an egregious case to warrant such an action.

[Thorne’s Hardware, supra, p. 4]

39Apotex further submits it was denied procedural fairness on account of further legitimate expectations of notice, consultation and consideration. I reject this submission. In Reference Re Canada Assistance Plan (B.C.), 1991 74 (SCC), [1991] 2 S.C.R. 525 (QL version), the Supreme Court of Canada, through Sopinka J., is reported as follows:

59There is no support in Canadian or English cases for the position that the doctrine of legitimate expectations can create substantive rights. It is a part of the rules of procedural fairness which can govern administrative bodies. Where it is applicable, it can create a right to make representations or to be consulted. It does not fetter the decision following the representations or consultation.

60Moreover, the rules governing procedural fairness do not apply to a body exercising purely legislative functions. Megarry J. said so in Bates v. Lord Hailsham, [1972] 3 All E.R. 1019 (Ch. D.), and this was approved by Estey J. for the Court in Attorney General of Canada v. Inuit Tapirisat of Canada, supra, at p. 758. In Martineau v. Matsqui Institution Disciplinary Board, 1979 184 (SCC), [1980] 1 S.C.R. 602, Dickson J., as he then was, wrote (at p. 628):

The authorities, in my view, support the following conclusions:

2. A purely ministerial decision, on broad grounds of public policy, will typically afford the individual no procedural protection, and any attack upon such a decision will have to be founded upon abuse of discretion. Similarly, public bodies exercising legislative functions may not be amenable to judicial supervision.

These three cases were considered in Penikett v. Canada (1987), 1987 145 (YK CA), 45 D.L.R. (4th) 108 (Y.T.C.A.), leave to appeal to the Supreme Court of Canada refused, [1988] 1 S.C.R. xii, and the court concluded (at p. 120):

In these circumstances, the issues sought to be raised in paras. 12 and 12(a) [right to be consulted and duty of fairness] are not justiciable because they seek to challenge the process of legislation.

61The respect by the courts for the independence of the legislative power is captured by G.-A. Beaudoin, La Constitution du Canada (1990), in the following passage (at p. 92):

[TRANSLATION] The courts do not intervene, however, during the legislative process in Parliament and the legislatures. They have no interest as such in parliamentary procedure. They have made this clear in certain decisions. They respect the lex parliamenti.

The formulation and introduction of a bill are part of the legislative process with which the courts will not meddle. So too is the purely procedural requirement in s. 54 of the Constitution Act, 1867. That is not to say that this requirement is unnecessary; it must be complied with to create fiscal legislation. But it is not the place of the courts to interpose further procedural requirements in the legislative process. I leave aside the issue of review under the Canadian Charter of Rights and Freedoms where a guaranteed right may be affected.

40The LGIC did not exceed its jurisdiction. The doctrine of legitimate expectation does not apply.

THE REFUSALS ON THE CROSS-EXAMINATION OF HELEN STEVENSON

41Paragraphs 61 to 80 of the Apotex Factum set out Apotex’s allegations with respect to refusals given on Helen Stevenson’s cross-examination on her affidavit. Apotex sought to learn details of the Minister’s activities in preparing the report to the LGIC and the contents of the report. This issue was not addressed by Apotex in oral argument.

42If Apotex felt that the refusals were improper, its course was clear – to bring a motion to compel production on answers to questions refused. This it did not do.

43Both the ODDA and the DIDFA explicitly preclude the court from reviewing “any action, decision, failure to take action or failure to make a decision” by the Minister or the LGIC. There is one exception. If the Minister fails to take a step prescribed in the consultation provisions, judicial review is available.

44I agree with the submission of the respondents that the questions in issue are an attempt to find out how the regulation-making process evolved; a process which this court cannot review.

45I reject Apotex’s submissions on this point.

46The LGIC did not exceed its jurisdiction. The doctrine of legitimate expectation does not apply. The submissions on Ms. Stevenson’s affidavit are rejected.

47For the above reasons, the application for judicial review is denied. If counsel are unable to agree on costs, the parties may make brief written submissions as to costs within twenty days from the date of these reasons.