Apotex Inc. v. Ontario (Office of the Lieutenant Governor), 2007 ONCA 570

DATE: 20070820

DOCKET: C45867

COURT OF APPEAL FOR ONTARIO

Rosenberg, Armstrong & Juriansz JJ.A.

BETWEEN:

APOTEX INC.

Applicant (Respondent)

and

LIEUTENANT GOVERNOR IN COUNCIL, MINISTER OF HEALTH and ATTORNEY GENERAL OF ONTARIO

Respondents (Appellants)

James Kendik for the appellants

Harry Radomski and Joseph Cosentino for the respondent

Heard: March 20, 2007

On appeal from an order of the Divisional Court (J.G.J. O’Driscoll and E.M. Macdonald JJ., and P.T. Matlow J., dissenting) dated May 30, 2006, with reasons reported at [2006] O.J. No. 2124.

JURIANSZ J.A.:

[1] The Lieutenant Governor in Council, the Minister of Health and the Attorney General of Ontario appeal from an order of the Divisional Court dated May 30, 2006. The Divisional Court allowed the respondent Apotex Inc.’s application for judicial review and quashed Regulation 59/04 made under the Drug Interchangeability and Dispensing Fee Act, R.S.O. 1990, c. P. 23 (“DIDFA”) insofar as it removed Apo-Flavoxate as an interchangeable drug product under the DIDFA.

Regulatory Regime

[2] A brief description of the regulatory regime governing pharmaceuticals in Ontario is necessary to understand the Divisional Court’s decision and the issues raised by the appeal.

[3] A drug manufacturer wishing to sell or advertise a drug in Canada must first obtain a Notice of Compliance (“NOC”) for that drug from the federal Minister of Health under the provisions of the Food and Drugs Act, R.S.C. 1985, c. F-27, and its regulations.

[4] Apotex, a generic drug manufacturer, holds a NOC for Apo-Flavoxate and is thus permitted to sell Apo-Flavoxate on the Canadian market. Apo-Flavoxate is a generic form of flavoxate hydrochloride, originally manufactured by Paladin Labs Inc. under the brand name Uripas. Apo-Flavoxate is 30% cheaper than Urispas.

[5] Once drug products are approved for sale by the federal Minister of Health, the extent to which one brand of drug product will be interchangeable with another is determined by provincial regulatory schemes.

[6] In Ontario, the DIDFA ensures that a consumer is offered the lowest priced drug by stipulating generic brands that are “interchangeable” in terms of safety and effectiveness to the brand name drug that may have been prescribed. Under the DIDFA, a pharmacist is required to dispense the lowest priced interchangeable brand of a prescribed drug unless the doctor specifies “no substitution” or the patient requests a higher price brand. The provincial Minister of Health publishes a schedule for designated interchangeable drug products known as the Comparative Drug Index (“CDI”).

[7] Under a separate provincial regime, certain eligible individuals are provided with prescription drugs at no cost. This regime is governed by the Ontario Drug Benefit Act, R.S.O. 1990, c. O-10 (“ODBA”). The ODBA defines categories of persons who are entitled to receive their prescription drugs free of charge and regulates the system by which pharmacists dispensing drugs to such persons are reimbursed by the government. The Ontario Drug Benefit Formulary (the “Formulary”) lists the drugs available to eligible persons free of charge under the ODBA.

[8] The CDI under the DIDFA and the Formulary under ODBA are published together as the Formulary/CDI. While both lists are published together, a drug may be listed on the CDI as an interchangeable drug but may not be listed in the Formulary as available free of charge to eligible persons under the ODBA. In this case, Apo-Flavoxate was designated as an interchangeable drug product under the DIDFA and was also listed as a benefit under the ODBA until its removal by the LGIC from both lists pursuant to Regulation 59/04.

[9] Section 14(1) of the DIDFA grants to the LGIC the power to make regulations prescribing the conditions for a product to be designated as interchangeable with other products.[^1] The LGIC may make regulations:

(a) prescribing conditions to be met by products or by manufacturers of products in order to be designated as interchangeable with other products;

(b) designating a product as interchangeable with one or more other products where the Lieutenant Governor in Council considers it advisable in the public interest to do so, but a product shall not be designated as interchangeable with another product if,

(i) it does not contain a drug or drugs in the same amounts of the same active ingredients in the same dosage form as the other products, or

(ii) the product or its manufacturer has not met the conditions described in clause (a);

(c) prescribing conditions to be met for a product to continue to be designated as interchangeable;

(d) prescribing circumstances in which persons may charge more than their usual and customary dispensing fees.

[10] Section 14 (1.1), which is central to this case, gives the LGIC the power to remove the designation of a product as an interchangeable product:

14(1.1) The Lieutenant Governor in Council may remove the designation of a product as an interchangeable product even if none of the conditions prescribed under clause (1)(c) are breached, if the Lieutenant Governor in Council considers it advisable in the public interest to do so.

[11] The parties largely agree on how the overall legislative scheme works in practical terms. The Minister recommends to the LGIC that drugs be listed or de-listed from the Formulary/CDI. The Minister is advised by the Drug Quality and Therapeutics Committee (“Committee”), which is an expert committee made up of practicing physicians and pharmacists. One of the functions of the Committee is to review the drugs listed on the Formulary/CDI to ensure their safety, efficacy and cost-effectiveness. Unlike the process that leads to the granting of a NOC under the federal legislation, the Committee reviews drugs on an on-going basis.

Chronology of Events

[12] On March 4, 2003, an expert subcommittee of the Committee concluded that there was insufficient evidence of the efficacy of flavoxate products and recommended to the Committee that it recommend to the Minister that all flavoxate products, including Apo-Flavoxate, be de-listed from the ODBA Formulary and no longer be generally reimbursable as an Ontario drug benefit.

[13] On July 9, 2003, the Committee agreed with the subcommittee that there was insufficient evidence of efficacy and recommended to the Minister that flavoxate products not be reimbursed under the ODBA, except that eligible persons who were already being prescribed Apo-Flavoxate or any other flavoxate products would continue to be eligible to be reimbursed for the drugs under a special mechanism provided by s. 8 of the ODBA.

[14] On August 14, 2003, the Ministry sent a letter to Apotex advising of the Committee’s recommendations. The letter indicated the Committee’s view that:

• Due to the poor quality of evidence, the efficacy of flavoxate over placebo cannot be established.

• There is no economic evaluation available.

• Flavoxate is considerably more expensive than oxybutynin, (which could also be used to treat urinary incontinence).

• Long-term, well-designed, directly comparative studies would assist in determining the efficacy and potential cost effectiveness of flavoxate compared to other therapeutic alternatives on the OBD Formulary.

• Based on the lack of clinical trial evidence to support its efficacy, flavoxate did not reasonably offer any clinical value.

[15] Effective April 6, 2004, Apo-Flavoxate was de-listed from the CID/Formulary pursuant to Regulation 59/04. Apotex brought an application for judicial review of the removal of Apo-Flavoxate as an interchangeable drug product under the DIDFA but did not challenge its removal as an eligible drug under the ODBA.

Divisional Court’s Decision

[16] A majority of the Divisional Court panel below held:

Any decision by the Ontario Minister to delist a drug product as interchangeable under the DIDFA constitutes a statutory power under section 1 of the Judicial Review Procedures Act, R.S.O. 1990, c J-1. The same may be said about the power of the LGIC to pass regulations giving effect to the delisting of the drug. Accordingly these decisions are reviewable by this court.

[17] The majority took the view that the appellants had erred by misapprehending and confusing the DIDFA and the ODBA legislative schemes. They observed that while the two schemes are linked, they serve different goals: “DIDFA focuses on interchangeability while the ODBA is geared towards a government reimbursement scheme related to provincial expenditures on prescription drugs.” They concluded that the decision to remove Apo-Flavoxate’s interchangeability designation under that DIDFA was patently unreasonable because it was not “rationally connected” with the decision to remove it as an eligible benefit under the ODBA.

[18] They also concluded that “[t]he circumstances that surround the Minister’s decision to remove the interchangeability status of Apo-Flavoxate constitute a denial of natural justice” (emphasis added). They noted that the respondent, upon being informed that the Minister intended to recommend to the LGIC that flavoxate hydrochloride tablets be de-listed as a benefit under the ODBA, had repeatedly requested that the Minister not recommend that Apo-Flavoxate be de-listed as an inter-changeable product under the DIDFA. They also requested that if the Minister did so recommend, that Apotex be advised. Apotex was not advised and was not given an opportunity to make representations as to the removal of Apo-Flavoxate from the CDI.

[19] The majority observed “[t]he duty of fairness has particular presence when the rights and interests of a person are affected. This is particularly so when a decision is made that results in the loss of pre-existing rights.” For this proposition the majority relied on Nicholson v. Haldimand Norfolk (Regional) Police Commissioners, [1979] 1 S.C.R. 311 at 324-326 and Apotex Inc. v. Ontario (Minister of Health) (1989), 71 O.R. (2d) 525 (Div. Ct.)] at 533 & 534.

[20] The majority made an order quashing Regulation No. 59/04, thus restoring Apo-Flavoxate to its former status as an interchangeable drug product for the purposes of the CDI.

[21] Matlow J. dissented. He found that the LGIC had done precisely what it was empowered to do by s. 14(1.1) of the DIDFA. He said the LGIC “clearly determined that it was not in the public interest to continue the designation of a drug whose efficacy had not been established and to effectively promote its sale by its inclusion on the list even at its lower price.”

Issues and Positions of the Parties

[22] The appellants raise two issues on appeal:

(1) Did the majority of the Divisional Court err in failing to appreciate that s. 14(1.1) of the DIDFA empowered the LGIC to remove the interchangeability designation of Apo-Flavoxate, which has not proven to be effective, in the public interest?

(2) Did the majority of the Divisional Court err by concluding that no rational basis had been put forth by the Ministry as to why Apo-Flavoxate was de-listed?

[23] The appellants submit that s. 14(1.1) of the DIDFA is a complete answer to Apotex’s application for judicial review. They submit that the majority of the Divisional Court erred in failing to appreciate that s. 14(1.1) of the DIDFA empowers the LGIC to issue a regulation removing the interchangeability designation of a drug product in the public interest. In this case, the drug product was not proven to be effective and so the majority of the Divisional Court erred by concluding that there was no rational basis for the de-listing of Apo-Flavoxate.

[24] In contrast, Apotex seeks to characterize the decision to remove the interchangeabiltiy designation as a Ministerial decision. At the operational level, says Apotex, it is the Minister who deals with and makes decisions with respect to the listing and de-listing of drug products. Without the Minister’s involvement and decision-making, there can be no recommendation to the LGIC, no approval by Cabinet and no regulation issued under the DIDFA. In this case, it was the Minister, acting on the Committee’s recommendation, who made the decision to de-list Apo-Flavoxate as a drug benefit under the ODBA and the Minister who placed that decision before the LGIC for implementation. The appellants’ invocation of the LGIC’s regulation making power, says Apotex, is an effort “to hide the de-listing of Apo-Flavoxate from judicial scrutiny under the cloak of a Cabinet decision ‘made by the LGIC in the public interest’”.

[25] Having identified the Minister as the substantive decision-maker, Apotex articulates its argument as an attack on the decision of the Minister. Apotex submits that “[t]he Ontario Minister must act fairly, and not arbitrarily, when exercising its authority”. It submits that “[a] decision to de-list Apo-Flavoxate’s designation as an interchangeable product under DIDFA must be exercised in a manner consistent with the rules of natural justice. The circumstances that surround the Ontario Minister’s decision to remove the interchangeability status of Apo-Flavoxate constitute a denial of natural justice.”

[26] Apotex further submits that the appellants have failed to challenge the majority’s finding that “the Minister’s decision” to remove Apo-Flavoxate as an interchangeable product under DIDFA was unfair and breached the rules of natural justice because Apotex was never granted an opportunity to make submissions that Apo-Flavoxate should maintain its interchangeability status under DIDFA.

Analysis

[27] I agree with the appellants that s. 14(1.1) is a complete answer to Apotex’s application for judicial review. In my view, there are fundamental flaws in Apotex’s position.

(a) No Ministerial Decision or Recommendation to De-List under the DIDFA

[28] While Apotex has tried to characterize the de-listing of Apo-Flavoxate as a Ministerial decision, the de-listing of Apo-Flavoxate under the DIDFA was made by a regulation enacted by the LGIC pursuant to s. 14(1.1) of the Act. Putting aside that the DIDFA does not grant the Minister a power to list or de-list drug products as interchangeable, in this case there is no Ministerial decision, or even recommendation, that Apotex can seek to attack.

[29] Even if one assumes that the Minister made a “decision” to accept the Committee’s recommendation and that the Minister placed before Cabinet a recommendation that the LGIC pass a regulation to give effect to the Committee’s recommendation, that does not advance Apotex’s argument. As pointed out by Apotex, the Committee recommended that Apo-Flaxovate be removed from the drug benefits provided by the ODBA; it did not recommend that Apo-Flavoxate be de-listed as an interchangeable drug under the DIDFA. Apotex therefore cannot point to anything that could be characterized as a “decision” or “recommendation” by the Minster to de-list Apo-Flavoxate under the DIDFA. Rather, as noted by Apotex, the Committee gave no consideration to the DIDFA.

[30] What, then, is at issue in this case is not the exercise of Ministerial discretion but rather the validity of Regulation 59/04 promulgated by the LGIC, which was quashed by the Divisional Court.

(b) Test for Challenging Validity of Regulation

[31] The rules governing procedural fairness and natural justice do not apply to public bodies exercising legislative functions: Donald J.M. Brown, John M. Evans & Christine E Deacon, Judicial Review of Administrative Action in Canada, looseleaf, vol. 2 (Toronto: Canvasback Publishing, 1998) at 7:233; Reference Re Canada Assistance Plan (B.C.), [1991] 2 S.C.R. 525.1; Reference Re Canada Assistance Plan (B.C.), [1991] 2 S.C.R. 525 at para 60. In this case, the exercise by the LGIC of its power to enact a regulation de-listing a drug product pursuant to the DIDFA in the public interest is legislative. While as the Divisional Court observed, the LGIC’s power to issue the regulation is a “statutory power” under the Judicial Review Procedures Act, it is not a “statutory power of decision” under that Act.

[32] As the appellants submit, the validity of a regulation may be reviewable only if the Cabinet has failed to observe a condition precedent set forth in the enabling statute or if the power is not exercised in accordance with the purpose of the legislation: Thorne’s Hardware Ltd v. The Queen, [1983] 1 S.C.R.106. There is no allegation that the LGIC acted in bad faith.

[33] This court has described the limited grounds upon which a court will review regulations. In Ontario Federation of Anglers & Hunters v. Ontario (Ministry of Natural Resources) (2002), 211 D.L.R. (4th) 741, Justice Abella stated at para. 41:

[T]he judicial review of regulations, as opposed to administrative decisions, is usually restricted to the grounds that they are inconsistent with the purpose of the statute or that some condition precedent in the statute has not been observed. The motives for their promulgation are irrelevant. This guiding principle is set out in Reference Re: Validity of Regulations in Relation to Chemicals, [1943] S.C.R. 1 at 12, [1943] 1 D.L.R. 248:

[W]hen Regulations have been passed by the Governor General in Council in professed fulfilment of his statutory duty, I cannot agree that it is competent to any court to canvass the considerations which have, or may have, led him to deem such Regulations necessary or advisable for the transcendent objects set forth.

[34] And, we are reminded by the Supreme Court of Canada in Thorne’s Hardware, supra at p. 112-113 that “[g]overnments do not publish reasons for their decisions; governments may be moved by any number of political, economic, social or partisan considerations.”

[35] Therefore, only in egregious cases will a court intervene and interfere with the exercise of delegated legislative powers conferred on Cabinets or Ministers. The authors of Judicial Review of Administrative Action in Canada, supra state at 15:3221:

Where delegated legislative powers are conferred on Cabinets and individual ministers, courts have normally assumed that they are intended to be broad in scope and that accountability for the exercise of those powers is primarily for the political process. Hence, although judicial intervention can be expected where regulations are not consistent with the purpose of the statute, or some statutory condition precedent has not been observed, judges have generally approached the review of the legality of orders-in-council and regulations made by the Cabinet and individual members in a most deferential manner. [Footnotes omitted; emphasis added.]

(c) Validity of Regulation 59/04

[36] The statutory basis for Regulation 59/04 is s. 14(1.1) of the DIDFA. The power that s. 14 (1.1) grants to the LGIC to remove interchangeability designations under the DIDFA is extremely broad. It empowers the LGIC to de-list a product even if it continues to meet the conditions prescribed for interchangeability where the LGIC considers it advisable in the public interest to do so. At the time the regulation was made, the DIDFA did not impose any procedural pre-conditions to the exercise of the LGIC’s jurisdiction under s. 14(1.1).

[37] The Cabinet enacted the regulation to remove Apo-Flavoxate and other flavoxate products from the DIDFA and the CDI. I agree with the appellants’ submission that “it is not the role of the court to assess and second-guess the merits of Cabinet decisions. The Government is accountable for such decisions only in the electoral process.”

[38] I do not accept Apotex’s argument that the fact that Apo-Flavoxate may still be sold pursuant to its federal NOC is in some way determinative of a consideration of the exercise of the LGIC’s provincial competence. Any resort by the LGIC to s. 14(1.1) to remove the interchangeability of a drug that holds a federal NOC may be said to increase the cost to the consumer. Here as noted above, the safety and effectiveness of pharmaceuticals is reviewed under the provincial legislation on an on-going basis. There is evidence on the record that flavoxate products are not effective and are considerably more expensive than oxybutynin, another drug used in the treatment of urinary incontinence. Given the great deference accorded legislative action, the delisting of Apo-flavoxate from the DIDFA cannot be said to be outside the statutory purpose of ensuring the public has access to the lowest cost effective drugs.

[39] I conclude that the majority of the Divisional Court erred in quashing Regulation 59/04 and in restoring Apo-Flavoxate to its former status as an interchangeable drug product for the purposes of the CDI.

Disposition

[40] I would allow the appeal and set aside the order of the Divisional Court. I would fix costs in the amount of $65,000 in favour of the appellants, calculated as follows: the return of the $30,000 costs awarded by the Divisional Court to the respondents, $20,000 in respect of the judicial review application, and $15,000 for the appeal.

“R. Juriansz J.A.”

“I agree M. Rosenberg J.A.”

“I agree R.P. Armstrong J.A.”

RELEASED: August 20, 2007

[^1]: The DIDFA has been amended since Apo-flavoxate was de-listed. I have set out the statutory provisions in effect at the time Regulation 59/04 was made.