Court of Appeal for Ontario

Date: 2019-01-16 Docket: C64891

Judges: Strathy C.J.O., Benotto and Roberts JJ.A.

Between

Apotex Inc. Plaintiff (Respondent/Appellant by way of cross-appeal)

and

Nordion (Canada) Inc., Nordion Inc., Nordion (US) Inc., MDS (Canada) Inc., MDS Inc., MDS Pharma Services and MDS Pharma Services (US) Inc. Defendants (Appellants/Respondents by way of cross-appeal)

Counsel

John A. Campion, Antonio Di Domenico and Stephanie Clark, for the appellants/respondents by way of cross-appeal

Daniel S. Murdoch, Jordan S.A. Moss and Elizabeth (Libby) Nixon, for the respondent/appellant by way of cross-appeal

Heard: November 22, 2018

On appeal from the judgment of Justice Laurence A. Pattillo of the Superior Court of Justice, dated December 22, 2017, with reasons reported at 2017 ONSC 1323 and 2018 ONSC 2195.

Reasons for Decision

Strathy C.J.O.:

[1] Overview

[1] The appellants (collectively, "MDS") appeal a judgment in favour of the respondent ("Apotex") awarding damages of approximately $11.3 million, plus prejudgment interest of approximately $3.4 million.

[2] Apotex claimed damages for breach of contract and negligence in relation to MDS's performance of three "bioequivalence" studies to support Apotex's submissions to the United States Food and Drug Administration ("FDA") for the approval of two generic drugs for sale in the United States.

[3] The principal issue in MDS's appeal is whether the trial judge erred in finding that Apotex's action was commenced within the two-year limitation period. Apotex cross-appeals the trial judge's award of damages.

[4] These reasons explain why I would dismiss both the appeal and the cross-appeal.

[5] The following summary of the facts will put the issues in context. Detail will be added in the Analysis section, as required, to address specific issues raised in the appeal and cross-appeal.

I. Overview

[6] Apotex is a well-known Canadian manufacturer of generic drugs. A generic drug is equivalent to a patented drug that has come "off-patent", either because the patent has expired or because the patent has been found to be invalid.

[7] In order to sell a generic drug in the United States, a manufacturer must submit an "abbreviated new drug application" ("ANDA") to the FDA, to establish, among other things, that its generic drug is bioequivalent to the patented drug. In simple terms, bioequivalence means that the generic contains the same active ingredient as the patented drug and has the same efficacy. Bioequivalence is established through data generated in clinical trials of the drug.

[8] MDS was a global life sciences company that, among other things, conducted clinical research trials for pharmaceutical companies to support their regulatory filings. [1] Since at least 1990, MDS and its predecessor had conducted bioequivalence studies for Apotex for a variety of generic drugs.

[9] In May 1999, Apotex and MDS's predecessor entered into a Master Laboratory Services Agreement ("MLSA"). The MLSA set out general terms and conditions for research services provided by MDS to Apotex. Pursuant to the MLSA, Apotex entered into individual "project agreements" to conduct studies with respect to specific drugs that were the subject of ANDAs.

[10] In 2003 and 2004, Apotex entered into three project agreements with MDS to prepare bioequivalence studies to support submissions to the FDA for the approval of two generic drugs: (a) an agreement with respect to the drug Levo-Carb IR in May 2003; and (b) two agreements with respect to the drug Amoxi-Clav in May and August 2004. [2] As the trial judge identified at para. 57, the three project agreements followed a standard template and had many identical terms, including that the study was for "FDA submission" and the reports would be in a format "known to be acceptable to regulatory bodies". MDS's studies in relation to these projects were delivered to Apotex in 2004 (Levo-Carb IR) and 2005 (Amoxi-Clav) for submission to the FDA as part of Apotex's ANDAs for the two drugs.

[11] Testing and analysis for the studies was carried out by MDS at its research facility in Montreal (the "Montreal Facility"). Facilities that conduct bioequivalence studies for submission to the FDA are subject to inspection by the FDA to ensure compliance with regulatory requirements.

[12] To preview the conclusion of this story, Apotex filed ANDAs for Levo-Carb IR and Amoxi-Clav, which were supported by MDS's studies. The FDA informed Apotex that it would not accept the MDS studies as a result of concerns about the integrity of tests and studies carried out by MDS at the Montreal Facility. In order to obtain FDA approval for the drugs, Apotex had to repeat the studies or obtain independent third party certification of the MDS studies, resulting in additional costs and lost profits due to the delay in its ability to sell the drugs in the US market.

[13] In order to set the stage for the analysis of the limitation period issue, it is necessary to examine events both before and after MDS delivered the studies to Apotex. The issue is when Apotex "discovered" its claim within the meaning of s. 5(1)(a) of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B (the "LA 2002"). The trial judge found that although the first three requirements set out in ss. 5(1)(a)(i), (ii) and (iii) had been met on May 8, 2006, discovery was postponed by virtue of s. 5(1)(a)(iv) until Apotex knew "that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it".

FDA Inspections of the Montreal Facility

[14] The events giving rise to this claim took place between approximately mid-2003, when Apotex entered into the first of the three project agreements with MDS, and early January 2007, when the FDA rejected MDS's studies, and required Apotex to repeat or certify the studies.

[15] In July 2003, shortly after Apotex and MDS entered into the project agreement for the first of the three studies related to Levo-Carb IR, the FDA conducted an inspection of the Montreal Facility. The inspectors issued a notice called a "Form 483" to MDS, expressing their concerns about potential contamination in the laboratory and about the storage and preservation of samples. A Form 483 may be issued by an FDA inspector to identify areas where the inspector believes the practices of the facility do not align with the FDA's regulatory framework. The Form 483 is solely the opinion of the inspector and may be subsequently endorsed by the FDA through the issuance of an "Untitled Letter". While MDS responded to the Form 483, further FDA inspections over the next eight months led to the issuance of additional Form 483s expressing more concerns about conditions at the Montreal Facility.

[16] The trial judge found that there was no evidence that Apotex was aware of the FDA inspections or of the several Form 483s issued by the FDA between July 2003 and February 2004.

[17] In the meantime, MDS was proceeding with the Levo-Carb IR study for Apotex. In late February and early March 2004, MDS delivered its reports concerning Levo-Carb IR to Apotex. On April 2, 2004, Apotex submitted its ANDA for Levo-Carb IR, supported by the MDS bioequivalence study, to the FDA.

The First Untitled Letter

[18] A few weeks later, on April 26, 2004, the FDA issued an "Untitled Letter" concerning the Montreal Facility. An Untitled Letter is an endorsement of the opinion of an inspector contained in a Form 483. It provides the FDA's position on the inspector's observations and recommends corrective action. This letter, which was posted on the FDA website, was the first such letter that the Montreal Facility had received. It expressed concerns about the validity of bioequivalence data generated by MDS in light of the FDA inspectors' observations about the inadequacy of MDS's policies and procedures to address contamination issues. MDS advised Apotex of the Untitled Letter and said that it was addressing the FDA's concerns through new standard operating procedures.

[19] In the meantime, Apotex was moving forward with its ANDA for the second drug, Amoxi-Clav. On May 10, 2004, Apotex and MDS entered into a project agreement for the first of two studies related to Amoxi-Clav (fed). A second project agreement concerning Amoxi-Clav (fasted) was signed in August 2004.

[20] In May and June 2004, MDS assured Apotex that it was taking the necessary measures to address the FDA's concerns and to respond to the issues raised in the first Untitled Letter. MDS sent a formal response to the FDA on June 7, 2004.

[21] The FDA continued to raise concerns. It inspected the Montreal Facility again between mid-September and October 1, 2004 and issued additional Form 483s. These Form 483s related to documentation of sample storage conditions, the reporting of data, and a storage issue with respect to certain samples. They also expressed concerns about issues previously raised by the FDA, including the completeness of MDS's investigations. MDS responded to these concerns in October and November and continued to assure Apotex that it had matters in hand.

The Second Untitled Letter

[22] On December 21, 2004, the FDA issued a second Untitled Letter, expressing continued concern about the validity of bioequivalency studies conducted by MDS. The letter recommended that MDS review the validity of studies that it had done to support FDA submissions in the previous five years.

[23] On December 24, 2004, MDS wrote to Apotex regarding the second Untitled Letter, advising that it was having ongoing discussions with the FDA about the validity of its studies performed during 2000 to 2003 at the Montreal Facility. In this, and other correspondence with Apotex in December 2004 and January 2005, MDS stressed that it was working with the FDA to resolve the outstanding issues as soon as possible and to develop a five-year review plan ("FYR") to confirm the validity of its previous studies.

[24] On January 5, 2005, MDS issued its final report to Apotex concerning the Amoxi-Clav (fed) study.

[25] In early February 2005, MDS met with the FDA to discuss the FYR, which was to be a comprehensive review of bioequivalence studies conducted at the Montreal Facility. The FDA agreed with the overall approach of the FYR, subject to minor modifications agreed upon by MDS.

[26] In the meantime, MDS had been proceeding with the Amoxi-Clav (fasted) study and on February 28, 2005, MDS issued its final report for that study. On March 31, 2005, Apotex submitted its Amoxi-Clav ANDAs to the FDA.

[27] On May 20, 2005, at Apotex's request, MDS wrote to Apotex providing details of the FYR process. In this letter, MDS confirmed that the Levo-Carb IR and Amoxi-Clav studies were on the list of studies to be examined in the FYR.

[28] In mid-August 2005, Apotex sent an audit team to the Montreal Facility to audit the studies MDS had performed for Apotex and to assess the risks to Apotex's approved and pending ANDAs supported by MDS studies. The audit report, completed in December 2005, advised that the Levo-Carb IR study should be considered "moderate to high risk" of negatively impacting the pending ANDA approval, but that more evaluation was needed. Due to time constraints, very little data were reviewed concerning the Amoxi-Clav studies and no risk assessment could be made.

[29] During this time, the ANDAs for both drugs had been filed with the FDA, and Apotex had received "deficiency notices" from the FDA concerning the ANDAs which required, and received, responses from Apotex. These were routine notices, in the ordinary course, and were unrelated to concerns about the Montreal Facility or the integrity of MDS's studies.

[30] On March 24, 2006, FDA inspectors issued another Form 483 to MDS, expressing concerns about, among other things, the implementation and reporting associated with the FYR. MDS advised Apotex of the issuance of the Form 483 on March 28, 2006.

[31] On April 1, 2006, MDS voluntarily closed the Montreal Facility, although it continued with the FYR. It issued a press release on March 31, 2006 explaining the decision and the FYR.

April 24, 2006 Deficiency Letter

[32] The trial judge considered April 24, 2006 to be an important date. On that date, Apotex received a "deficiency letter" from the FDA relating to the Amoxi-Clav ANDAs, citing concerns about the studies conducted by MDS and advising that the application for approval could not proceed until the concerns were resolved. Although this letter related to the Amoxi-Clav ANDAs, Apotex expected that the FDA's position would apply to the Levo-Carb IR ANDA as well.

[33] Apotex contacted MDS to request a response to the FDA's deficiency notice. MDS replied that it had raised the Amoxi-Clav studies to "high priority" in the FYR. Apotex responded, on May 8, 2006, that it did not consider this response to be acceptable and asked MDS for a timeline to address the studies at issue. On May 8, 2006 [3] in an internal email chain, Apotex noted that if MDS were able to respond to the deficiency notice by the end of May 2006, the internally projected approval date for Amoxi-Clav should be shifted from August to November 2006.

[34] On June 20, 2006, MDS advised Apotex that its FYR investigation had concluded that the data for the Amoxi-Clav studies were valid and that its internal review board had confirmed the finding. MDS stated that it believed that it could have a response to the FDA's April 24, 2006 deficiency letter by the end of June. On July 7, 2006, MDS submitted a "closure report" to the FDA regarding the Amoxi-Clav studies, validating the studies in light of its review.

The Third Untitled Letter

[35] On August 31, 2006, the FDA issued a third Untitled Letter to MDS, stating, among other things, that MDS had failed to systematically investigate contamination and anomalous results, to conduct an effective review, and to demonstrate that the FYR was effective and capable of discriminating between valid and invalid studies. The issues raised in the letter were discussed between Apotex and MDS, and on September 13, 2006, MDS sent the FDA its response to the letter. It acknowledged that the FDA's inspections had identified deficiencies in its laboratory that raised questions about the validity of the bioequivalence data reported by MDS.

[36] On September 29, 2006, the FDA contacted Apotex with questions concerning the "dissolution specifications" for Amoxi-Clav. A representative of Apotex testified that the FDA generally only issues feedback or questions on dissolution specifications after the completion of the bioequivalence review. Apotex took this to mean that the validity of MDS's Amoxi-Clav studies was no longer an issue for the ANDAs. Based on this understanding, and the existence of unrelated issues pertaining to labeling that could delay approval, Apotex anticipated that it would receive FDA approval for Amoxi-Clav in late November or early December of 2006.

[37] On October 19, 2006, a meeting took place between MDS and the FDA at which time MDS provided information to support its position that the FYR had validated the studies that had been reviewed.

[38] On November 15, 2006, Apotex was informed by the FDA, for the first time since the FDA had started its re-review of the Amoxi-Clav ANDAs, that the issues with MDS had not been fully resolved and the FDA had continued concerns with the Amoxi-Clav ANDAs.

December 11, 2006 – FDA Informs Apotex of Its Options

[39] December 11, 2006 was another important date for the trial judge's analysis. On this date, the FDA informed Apotex that in order to proceed with the approval of its ANDAs, it might be necessary for Apotex to repeat the studies done by MDS, re-analyze the samples, or have a third party auditor review and certify MDS's studies. Apotex immediately began investigating which of the three options was appropriate in respect of each product impacted.

January 10, 2007 – FDA Informs Apotex It Cannot Accept the MDS Studies

[40] On January 10, 2007, the FDA informed Apotex that it could not accept MDS studies completed in the Montreal Facility between 2000 and 2004, including the studies for Levo-Carb IR and Amoxi-Clav. It formally advised Apotex of its three options to either repeat the studies, re-analyze the samples, or seek third party certification of the studies.

[41] Apotex repeated the studies for both drugs and obtained independent certification of the Amoxi-Clav studies. It ultimately amended or re-submitted its ANDAs for Levo-Carb IR and Amoxi-Clav, received FDA approvals for sale of the drugs in the US, and began to sell them in the US market until the FDA imposed an import ban unrelated to the MDS issues in early September 2009.

[42] Apotex commenced this action against MDS on November 10, 2008, claiming damages for breach of contract and negligence arising from the delay in the FDA's approval of the drugs and for the costs incurred to repeat or certify the studies.

Trial

[43] The trial took place over 16 days, in February, March, and May 2017. All the fact witnesses at trial were called by Apotex. MDS called no fact witnesses and relied on documents and the cross-examination of the Apotex witnesses. Both parties called expert evidence dealing primarily with damages. Judgment was reserved and was released on December 22, 2017. In a separate endorsement released April 26, 2018, the trial judge addressed the issue of the appropriate prejudgment interest rate: see 2018 ONSC 2195.

II. The Trial Judge's Reasons

(1) Breach of Contract and Negligence

[44] The trial judge found that MDS had breached its contracts with Apotex, specifically s. 8.1 of the MLSA which provided that MDS would:

… perform the Project in accordance with the current state of the laboratory research art and the Protocol. [MDS] will also comply with all applicable current government regulatory requirements, including United States standards of Good Laboratory or Clinical Practices as appropriate to the Project. …

[45] The trial judge rejected MDS's assertion that s. 8.1 applied solely to the performance of the individual studies and not to MDS's operations as a whole. He found that the wording of the provision was broad enough to extend to the operation of MDS's Montreal Facility.

[46] The trial judge found that MDS breached s. 8.1 as a result of: (1) its failure to comply with US regulatory requirements as determined by the FDA at the Montreal Facility; (2) its failure to respond to the FDA's concerns in accordance with industry standards and good practices; and (3) its failure to comply with s. 8.1 in conducting the studies themselves.

[47] The trial judge found MDS concurrently liable in negligence for breach of its duty of care in the performance of the studies.

(2) MDS's Defences: Limitation Period

[48] Two weeks before trial, MDS moved to amend its statement of defence to plead that the action had been commenced "more than two years after the causes of action pleaded were discovered by the Plaintiff." As Apotex consented to the amendment, the trial judge granted leave to amend on the first day of trial.

[49] The trial focused on contractual defences, Apotex's standing to assert the claims, the limitations argument, and damages. The trial judge rejected MDS's contractual defences and its argument that Apotex was not the corporate entity with standing to assert the claim.

[50] On the limitations issue, the trial judge carried out a painstaking review of the evidence pertaining to the interactions between Apotex and MDS, the FDA and MDS, and the FDA and Apotex. He made extensive findings of fact concerning: (a) MDS's issues with the FDA (paras. 65-89); (b) the status, at various times, of Apotex's ANDAs for Levo-Carb IR and Amoxi-Clav (paras. 90-110); (c) MDS's communications with Apotex concerning its FDA issues (paras. 111-122); and (d) Apotex's responses to the FDA's issues with MDS (paras. 123-152). These findings were based on the uncontradicted evidence of Apotex's fact witnesses, which the trial judge accepted, as well as documents that formed part of the trial record. These core findings of fact are unchallenged in this appeal.

[51] MDS argued that Apotex had knowledge of the breaches of contract and negligence, and of the adverse impacts flowing from them well before November 10, 2006, which marks two years before the action was commenced. MDS claimed that the limitation period began to run in early 2005, when the studies were delivered by MDS to Apotex or, at the latest, on April 24, 2006 when Apotex received the deficiency letter from the FDA regarding Amoxi-Clav.

[52] The trial judge rejected both these dates. He found that, prior to April 24, 2006, although Apotex was aware that MDS had "issues" with the FDA concerning its Montreal Facility, it had no knowledge that those issues impacted the studies. Based on its communications with the FDA and what MDS was telling it, Apotex understood that the FDA's review of the ANDAs was proceeding as expected and within Apotex's time estimates for obtaining the approvals. The trial judge found, at para. 215, that Apotex "had every reason to believe, based on its communications with the FDA in respect of the ANDAs, what it understood about the MDS' FDA issues and what MDS was telling it, that the Studies would pass the FYR and be accepted by the FDA."

[53] However, the trial judge found that the FDA deficiency letter of April 24, 2006 caused Apotex to recognize that FDA approvals were "at risk". This led Apotex to contact MDS demanding a response to the FDA notice. When MDS was unable to provide a satisfactory response, Apotex insisted that it do so.

[54] The trial judge found that May 8, 2006 was a critical date. On that date, as referred to earlier in these reasons, Bernice Tao, the Head of US Regulatory Affairs at Apotex, noted in an internal email that if MDS was able to submit a response to the FDA notice by the end of May 2006, Apotex's projected approval date for Amoxi-Clav, then set for August 2006, should be moved to November 2006. The trial judge found that the elements of ss. 5(1)(a)(i), (ii) and (iii) of the LA 2002 were met on May 8, 2006, because at that point, Apotex knew that the delay in approval of the drugs would result in lost profits. He summarized his conclusion, at para. 219:

Accordingly, as of May 8, 2006, I am satisfied that the three factors in s. 5(1)(a)(i) – (iii) of the Act were present for the first time: Apotex knew that damage has occurred (delay of approval = loss of profit); and that the delay had been caused by MDS' failure to comply with the FDA regulations.

[55] The trial judge observed that while ss. 5(1)(a)(i), (ii) and (iii) were met, it was nevertheless necessary to consider the application of s. 5(1)(a)(iv) of the LA 2002. Section 5(1)(a)(iv) provides that the limitation period does not begun to run, until the plaintiff knows that "having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy" the injury, loss or damage. Applying the principles set out by this court in 407 ETR Concession Company Limited v. Day, 2016 ONCA 709, 133 O.R. (3d) 762, leave to appeal refused, [2016] S.C.C.A. No. 509, and Presidential MSH Corporation v. Marr Foster & Co. LLP, 2017 ONCA 325, 135 O.R. (3d) 321, the trial judge found that the limitation period did not begin to run until December 11, 2006, when a representative of Apotex spoke to the FDA and learned that it would not accept MDS's studies. It was at this point that s. 5(1)(a)(iv) was satisfied. Up to that time, Apotex was not in a position to assess whether the FDA's concerns directly impacted the studies such that they would not be accepted by the FDA. He set out his reasons, at paras. 225-227:

On the facts of this case, I am satisfied that it would not have been appropriate for Apotex to have commenced a proceeding against MDS as at May 8, 2006. Rather, given what it knew at that date, it was more appropriate for Apotex to await the FDA's response to results of MDS' review of the Studies. Apotex and MDS had a long standing relationship regarding MDS conducting bioanalytical studies. Although the Studies were part of the FYR, Apotex had no indication that they would not be accepted by the FDA. MDS had been assuring Apotex that its issues with the FDA did not involve the Studies. What needed to happen was for the regulatory process involving the FYR to be concluded. Further, Apotex needed MDS' assistance to enable it to respond to the April 26, 2006 deficiency notice. Commencing an action could have jeopardized that assistance.

As it turned out, on June 20, 2006, MDS advised Apotex that the Amoxi-Clav Studies had passed its FYR. MDS subsequently submitted its closure report for the Amoxi-Clav Studies to the FDA on July 7, 2006. Based on the results of MDS' review and Apotex's subsequent communications with the FDA concerning other issues arising from the FDA's review of the Amoxi-Clav ANDAs, Apotex understood that the MDS Studies were no longer an issue for the FDA in respect of its approvals and they were back on track.

All of which combine to establish, in my view, that it was not appropriate for Apotex to have commenced a proceeding against MDS in May 2006 but rather to do as it did and await the outcome of MDS' review of the Studies and the FDA response. …

[56] The trial judge found that Apotex was not in a position to determine the impact of MDS's issues with the FDA on the ultimate acceptance of the Amoxi-Clav and Levo Carb IR studies until December 11, 2006. He concluded, at paras. 231, 233:

As a result, while the FDA's decision rejecting the MDS Studies was on January 10, 2007, based on the evidence, I find that while Apotex knew that the FDA still had issues with MDS in mid-November 2006, it was not until December 11, 2006 when Ms. Tao spoke to the FDA and learned that it was considering a number of options in respect of studies done by MDS, including repeating them, re-analyzing them or having them reviewed by a third party auditor that Apotex knew that the MDS Studies would not be accepted by the FDA, resulting in delay and damage.

Would a reasonable person with the abilities and circumstances of Apotex, have known about the issues concerning its claim earlier? For the reasons above noted, I conclude not. Although Apotex is a sophisticated and knowledgeable drug manufacturer who conducts its own bioequivalence studies, it was never in a position to assess whether the FDA's concerns involving the Montreal Facility directly impacted the Studies such that they would not be accepted by the FDA. The information it had from the FDA was from its Untitled Letters and the later Form 483s and what MDS told it which was that the Studies were not a problem and it was dealing with the FDA's concerns.

[57] Accordingly, the trial judge dismissed MDS's limitations argument and found that the action had been brought within the applicable limitation period.

(3) Damages and Prejudgment Interest

[58] The trial judge awarded damages of approximately $8.3 million to Apotex for lost profits caused by the delay in approval of the drugs for sale in the US market. Apotex also claimed the costs of repeating and certifying the MDS studies. The trial judge awarded approximately $3 million under this head of damages.

[59] The trial judge held that Apotex was entitled to prejudgment interest from the date of the commencement of the action until the date of judgment in accordance with the Courts of Justice Act, R.S.O. 1990, c. C.43. Apotex submitted that the appropriate rate was 3.3 percent per annum, the bank rate in effect for the last quarter of 2008, which was the quarter in which the action was commenced.

[60] MDS asked the trial judge to exercise his discretion under s. 130 of the Courts of Justice Act to fix a different rate than what the trial judge described as the "presumptive rate" under ss. 127 and 128. MDS noted that there had been a fluctuation in interest rates in the 9.25 years between the commencement of the action and judgment. Accordingly, MDS suggested that either the variable rate of interest over the period or the average rate would be more appropriate. The average rate over the 37 quarters was 1.15 percent and the variable rate was slightly lower. Interest rates over the period fell from a high of 3.3 percent in the last quarter of 2008 to 1 percent in the last quarter of 2017. Within that period, rates fluctuated from a high of 2.5 percent to a low of 0.5 percent.

[61] In a supplementary endorsement, the trial judge applied the "presumptive rate" of 3.3 percent per annum from November 10, 2008 (the date the action was commenced) to the date of judgment, and awarded prejudgment interest in the amount of $3,438,888.92. The trial judge noted that fluctuation of interest rates is only one factor to be considered in deciding whether to depart from the presumptive rate, and its significance depends on the extent of the fluctuation. In the case at bar, he found the extent of the fluctuation was not sufficient on its own to justify a deviation from the presumptive rate.

[62] The trial judge awarded interest from the date the action was commenced, rather than the date on which Apotex wrote a demand letter giving notice of its claim (January 8, 2007), to reflect what he considered to be a significant unexplained delay in commencing the action. He was not otherwise prepared to reduce the amount of interest, rejecting MDS's submission that the slow progress of the action from commencement to judgment (which amounted to nine years) justified a reduction in the prejudgment interest rate. He noted that the action was complex, and complex actions take time to complete. There was no evidence that Apotex delayed the action after it was commenced, or that an earlier production of Apotex's damage particulars would have shortened the time to trial. He also rejected MDS's submission that Apotex's failure to produce relevant documentation concerning its market share until the eve of trial should reduce the interest payable. He noted that this factor was accounted for in his assessment of the evidence concerning Apotex's market share for the purposes of damages for lost profits.

III. Issues on Appeal

[63] The significant issue raised on the appeal is whether the action, commenced on November 10, 2008, was statute-barred by s. 5(1) of the LA 2002.

[64] MDS also asserts that the trial judge erred in finding a breach of contract, in rejecting its argument that Apotex failed to mitigate its damages, and in the calculation of prejudgment interest. As we did not ask the respondent to address these issues in oral argument, my reasons for dismissing those grounds of appeal will be brief.

[65] By way of cross-appeal, Apotex contends that the trial judge erred in his assessment of the damages incurred by Apotex. We did not find it necessary to call on counsel for the respondent by way of cross-appeal to respond to this issue and again my reasons dismissing the cross-appeal will be brief.

IV. Analysis

(1) The Limitations Issue

[66] This action came to trial more than eight years after it began. Astonishingly, MDS did not plead the limitation period defence until the eve of trial.

[67] One might well ask: if the plaintiff ought to have discovered the material facts on which to base a claim more than two years before the action was commenced in 2006, how is it that MDS and its lawyers only "discovered" that the action was time-barred some ten years later? I suspect that they assumed exactly what the trial judge concluded: the limitation period did not begin to run until December 11, 2006, at the earliest, when Apotex discovered that the FDA would not accept the MDS studies.

[68] That being said, as I have noted, Apotex quite properly consented to the amendment of the statement of defence to allow MDS to plead the limitation period defence, and the trial judge allowed the amendment.

[69] MDS submits, as it did at trial, that the limitation period began to run more than two years before the commencement of the action. Apotex submits that while the trial judge's conclusion on the limitations issue is supportable on the basis of s. 5(1)(a)(iv) (i.e., that it was not "appropriate" for Apotex to bring an action until December 11, 2006), it was unnecessary to take that route. It submits that the trial judge's conclusion that Apotex knew that it had suffered actual loss by May 8, 2006 is inconsistent with the evidentiary record and with the trial judge's other findings of fact.

[70] To preview my conclusions, I agree with the trial judge that the action was not time-barred. I do not, however, agree with the manner in which the trial judge reached his conclusion and, in particular, his resort to s. 5(1)(a)(iv).

[71] I accept Apotex's submission that the trial judge erred in holding that the requirements in ss. 5(1)(a)(i), (ii) and (iii) were met on May 8, 2006. The trial judge failed to give full effect to the requirements of s. 5(1)(a) of the LA 2002. As I will explain, on the correct interpretation of the statute, and when all of the trial judge's findings of fact about Apotex's knowledge of the material facts are related to the elements of s. 5(1)(a), the claim was not discovered within the meaning of ss. 5(1)(a)(i), (ii) and (iii) until December 11, 2006. It was, therefore, unnecessary for the trial judge to apply s. 5(1)(a)(iv) to arrive at that conclusion.

[72] I will begin by setting out the relevant provisions of the LA 2002. I will then explain how those provisions apply to a breach of contract case. Finally, I will demonstrate how those provisions apply to the facts of this case.

The Limitations Act, 2002

[73] After many years of attempts at reform, the LA 2002 brought about a sea-change in the law of limitation periods in Ontario. That change has spread to other Canadian jurisdictions and its impacts are still being felt as its implications are clarified. The statute replaced "a complex, obscure and confusing regime of multiple limitation periods with a simple and comprehensive scheme": see Independence Plaza 1 Associates, L.L.C. v. Figliolini, 2017 ONCA 44, 136 O.R. (3d) 202, at para. 29; msi Spergel Inc. v. I.F. Propco Holdings (Ontario) 36 Ltd., 2013 ONCA 550, 310 O.A.C. 282, at para. 61. It did away with a patchwork of different limitation periods, of various lengths, and put in place a uniform and considerably shorter limitation period of two years for most actions. It also codified the common law "discoverability" principle as the trigger for the commencement of the limitation period.

[74] The LA 2002 applies to "claims pursued in court proceedings" other than those enumerated in s. 2(1). A "claim" is defined in s. 1 as: "a claim to remedy an injury, loss or damage that occurred as a result of an act or omission".

[75] Section 4 sets out the general two-year limitation period:

Unless this Act provides otherwise, a proceeding shall not be commenced in respect of a claim after the second anniversary of the day on which the claim was discovered.

[76] Thus, under the LA 2002, the limitation period runs when the claim is "discovered".

[77] Section 5(1) provides that a claim is discovered on the earlier of,

(a) the day on which the person with the claim first knew,

(i) that the injury, loss or damage had occurred,

(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,

(iii) that the act or omission was that of the person against whom the claim is made, and

(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and

(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).

[78] As this court observed in Longo v. MacLaren Art Centre Inc., 2014 ONCA 526, 323 O.A.C. 246, at para. 41, the items listed in s. 5(1)(a) are conjunctive:

The limitation period does not begin to run until the putative plaintiff is actually aware of all of those matters or until a reasonable person, with the abilities and in the circumstances of the plaintiff, first ought to know of all of those matters.

See also Crombie Property Holdings Ltd. v. McColl-Frontenac Inc., 2017 ONCA 16, 406 D.L.R. (4th) 252, at para. 35, leave to appeal refused, [2017] S.C.C.A. No. 85.

[79] To state an obvious point of importance in this case, the effect of ss. 5(1)(a)(i), (ii) and (iii) is that it is not sufficient that the plaintiff knows that he or she has suffered damage. The plaintiff must also know that the damage was caused by an act or omission of the defendant.

[80] Subsection 5(1)(a)(iv) adds an additional requirement not found in the former legislation: the person with the claim must know "that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it".

[81] Subsection 5(1)(a) has been described as a "subjective" test, because it looks to the claimant's subjective knowledge. On the other hand, s. 5(1)(b) has been described as a "modified objective" test because it looks to what a reasonable person with the abilities and in the circumstances of the plaintiff ought to have known: see Independence Plaza, at para. 74; Ferrera v. Lorenzetti, Wolfe Barristers and Solicitors, 2012 ONCA 851, 113 O.R. (3d) 401, at para. 70; Presidential, at para. 18.

[82] Section 5(2) creates a statutory presumption that a claim is discovered on the day the relevant act or omission took place:

A person with a claim shall be presumed to have known of the matters referred to in clause (1)(a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.

[83] To overcome this presumption, the plaintiff may point to evidence to establish that the claim was "discovered" on a date other than the date on which the "act or omission" took place. As this court observed in Morrison v. Barzo, 2018 ONCA 979, at para. 31: "The presumption is displaced by the court's finding as to when the plaintiff subjectively knew he had a claim against the defendants".

Commencement of the Limitation Period for Breach of Contract

[84] Before the reform of limitations law brought about by the LA 2002, the previous statute, the Limitations Act, R.S.O. 1990, c. L.15, looked to when the cause of action arose (an expression not used in the LA 2002) to determine the commencement of the limitation period. The "cause of action" for breach of contract accrued on the date of the breach and the limitation period began to run on that date: see Graeme Mew, Debra Rolph & Daniel Zacks, The Law of Limitations, 3d ed. (Toronto: LexisNexis, 2016) at §9.6; Robert Simpson Co. Ltd. et al v. Foundation Co. of Canada Ltd. et al (1982), 36 O.R. (2d) 97 (C.A.), at p. 105; Schwebel v. Telekes, [1967] 1 O.R. 541 (C.A.), at p. 544.

[85] This was the case whether or not damages had yet been incurred. Damages are not an essential element of the cause of action for breach of contract: Mars Canada Inc. v. Bemco Cash & Carry Inc., 2018 ONCA 239, 140 O.R. (3d) 81, at para. 32.

[86] Under the LA 2002, the limitation period for breach of contract does not necessarily run from the date of the breach. As I have observed, in contrast to the former statute, the date of the "act or omission" – the breach of contract itself – is not the only factor to be considered in determining when a claim is discovered under the LA 2002. Instead, the date on which the plaintiff knew of the occurrence of the act or omission is only one factor to be determined. In addition to that factor, the person with the claim must also know that the "injury, loss or damage had occurred" (s. 5(1)(a)(i)), that it was caused or contributed to by the act or omission (the breach of contract) (s. 5(i)(a)(ii)), and that the act or omission was that of the defendant (s. 5(1)(a)(iii)).

[87] As a result of the presumption under s. 5(2), the limitation period begins to run on the date of the breach (being the date of the "act or omission"), unless it is proven that the person with the claim did not know of one or more of the matters set out in s. 5(1)(a), and that a reasonable person would not have known of those matters.

[88] A plaintiff with a claim for breach of contract may displace the presumption in s. 5(2) if, for example, they establish that they did not know that "the injury, loss or damage" had occurred or, if it had occurred, they did not know that it was caused by an act or omission of the defendant – the breach of contract. But it is well-settled that the person need not know the extent of the injury, loss or damage to trigger the commencement of the limitation period. It is enough that they know that some damage has occurred. In Hamilton (City) v. Metcalfe & Mansfield Capital Corp., 2012 ONCA 156, 290 O.A.C. 42, at paras. 59-61, this court adopted the common law rule expressed in Peixeiro v. Haberman, [1997] 3 S.C.R. 549, at para. 18, that "some damage" is sufficient to start the running of the limitation period.

[89] To summarize, under the LA 2002, the limitation period does not begin to run until all of the factors enumerated in s. 5(1)(a) have been satisfied, unless a reasonable person ought to have known of their existence at an earlier date (s. 5(1)(b)). In breach of contract cases, those factors include knowledge that some injury, loss or damage was caused by or contributed to by the act or omission that is the breach of contract.

[90] I make two concluding observations before turning to the circumstances of this case.

[91] First, to determine when a claim is discovered in a breach of contract case, it is necessary to examine the terms of the contract and the nature of the alleged breach (the "act or omission") on which the claim is based: see Mew, Rolph & Zacks, at §9.5, citing to NFC Acquisition L.P. v. Centennial 2000 Inc., 2010 ONSC 733, 67 B.L.R. 218, at paras. 29-30, affirmed in 2011 ONCA 43, 78 B.L.R. (4th) 11; Hopkins v. Stockman, 2013 SKCA 118, 427 Sask. R. 4, at para. 10. As van Rensburg J.A. noted in Morrison v. Barzo, at paras. 33, 49, the application of the test in s. 5(1)(a) requires the identification or definition of the claims at issue. This is a necessary starting point.

[92] Second, in many cases, the act or omission, causation, and the injury, loss or damage will occur simultaneously, and will be discovered simultaneously. But this will not always be the case. In some cases, discovery of the "act or omission" will not start the limitation period running unless injury, loss or damage has occurred and has been discovered (s. 5(1)(a)(i)).

Application to This Case

[93] I now turn to the application of s. 5(1)(a) of the LA 2002 to the circumstances of this appeal.

[94] There is no issue in this case that the person against whom the claim is made, being MDS, was the person responsible for the plaintiff's injury. The focus in this case is on ss. 5(1)(a)(i), (ii), and (iv) of the LA 2002.

[95] The commencement of the limitation period in this case must be analyzed by reference to the nature of the contract, the manner of its performance, and the nature of the breach. The contract between Apotex and MDS was not a simple contract for the purchase of goods or services. Nor, as the trial judge found, was it simply a contract for the delivery of a written study. It was a contract for the delivery of a study conducted under conditions that met the requirements of the FDA, and that was in conformity with the requirements of the FDA.

[96] Moreover, this was a case in which manner of performance of the contract was required to be to the satisfaction of a third party – the FDA. The MLSA and the project agreements contemplated that MDS's studies would be submitted to the FDA to support approval of Apotex's ANDAs.

[97] The occurrence of a breach, and Apotex's knowledge of a breach, must be considered in light of these circumstances. They must also be considered in the context of the information Apotex was receiving from MDS, from the FDA, and from its own investigations into MDS's issues with the FDA.

The Act or Omission

[98] As I note above, in order to determine the "act or omission" in a breach of contract case, it is necessary to examine the terms of the contract and the breach alleged to be the basis of the claim. Here, the nature of the breach was a matter of dispute at trial.

[99] MDS argued that the delivery of the studies to Apotex brought its contractual obligations to an end and that the breach occurred on that date. The trial judge quite correctly rejected that argument. At the time the studies were delivered, Apotex did not know and could not have known that they were not compliant with FDA requirements.

[100] The trial judge found that the MLSA was the governing contractual document and that the relevant "act or omission" was MDS's breaches of s. 8.1 of the MLSA by:

• failing to comply with FDA regulatory requirements at the Montreal Facility (para. 160);
• failing to comply with US industry standards and good practices in the way it handled the FDA's concerns (paras. 160, 164); and
• failing to conduct the studies for Levo-Carb IR and Amoxi-Clav in compliance with US regulatory standards (paras. 167-169).

[101] These conclusions were based on the trial judge's interpretation of the contract in the context of the factual matrix and MDS has failed to demonstrate a palpable and overriding error in the trial judge's analysis: Creston Moly Corp. v. Sattva Capital Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 50, Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Corp., 2016 SCC 37, [2016] 2 S.C.R. 23, at para. 21.

[102] The complex issue in this case is determining when the breach of contract occurred. This was not a simple case of a party failing to perform by an agreed date or patently breaching the contract by refusing to perform.

[103] MDS's difficulties with the FDA preceded the completion of the studies. In fact, those difficulties preceded the project agreements for Amoxi-Clav and were ongoing right up to January 2007.

[104] The process of obtaining FDA approval of an ANDA is protracted in the best of circumstances. As noted by the trial judge at para. 33, it is a dynamic process that typically involves a degree of back-and-forth between the pharmaceutical company and the FDA to address the latter's concerns with the submission. Communications of this nature occurred between Apotex and the FDA in relation to Levo-Carb IR and Amoxi-Clav in this case, as outlined by the trial judge, at paras. 90-93, 99-100.

[105] The FDA's role as the regulatory body to which the studies were to be submitted is important to the assessment of contractual performance, and any breach thereof. The FDA's acceptance of the bioequivalence studies prepared by MDS was key to whether MDS had satisfied its contractual obligations to prepare studies acceptable for submission to the FDA. Moreover, throughout the process, not surprisingly, MDS was disputing the FDA's concerns and, as the trial judge found, was re-assuring Apotex that its issues with the FDA did not involve the studies, and that it was working with the FDA to address its concerns.

Causation

[106] The trial judge found that MDS's breaches (the relevant acts or omissions) were causative of Apotex's damages because:

• the results of the FYR were not accepted by the FDA and eventually led to the requirement that pharmaceutical clients of MDS, including Apotex, were required to remediate the bioequivalency studies conducted at the Montreal Facility from 2000 to 2004 (para. 163);
• MDS's mishandling of the FDA's concerns over the course of their dealings led to the FDA's January 2007 requirements that the studies be repeated or certified, and which directly impacted Apotex (para. 164); and
• Apotex determined in January 2007, following the FDA's letter, that the Levo-Carb IR study and the Amoxi-Clav studies done by MDS would not be accepted by the FDA and would have to be repeated or certified in order to proceed with the ANDAs (paras. 168-169).

[107] Significantly, none of these causative events were known to Apotex before December 11, 2006. As well, the consequences of MDS's act or omission only manifested themselves once the FDA had communicated to Apotex that the studies were not acceptable due to the regulatory compliance issues at the Montreal Facility.

Injury, Loss or Damage

[108] In determining when Apotex first knew that injury, loss or damage had occurred (s. 5(1)(a)(i)), the trial judge identified as significant Apotex's recognition, on May 8, 2006 that its projected approval date for Amoxi-Clav would have to be extended from August 2006 to November 2006 if MDS were able to submit a response to the FDA's April 26, 2006 deficiency notice by the end of May 2006. He concluded that, at that point, Apotex knew that "damage had occurred" within the meaning of s. 5(1)(a)(i). In particular, he stated: "delay of approval = loss of profit". He found that Apotex also knew on this date that "the delay had been caused by MDS' failure to comply with the FDA regulations": at para. 219.

[109] A trial judge's factual findings in relation to the commencement of the limitation period are entitled to deference on appeal: see Tapak v. Non-Marine Underwriters, Lloyds of London, 2018 ONCA 168, 76 C.C.L.I. (5th) 197, at para. 11, leave to appeal refused, [2018] S.C.C.A. No. 157. As I will explain, however, while I accept the trial judge's findings of fact, his conclusion that the limitation period began to run on May 8, 2006 is inconsistent with his findings of fact. This led to an error in his analysis of ss. 5(1)(a)(i), (ii) and (iii).

[110] In my view, the trial judge erred in the interpretation of the LA 2002, in concluding that the factors in ss. 5(1)(a)(i), (ii) and (iii) were met on May 8, 2006 because the delay in approval was caused by MDS's failure to comply with the FDA regulations.

[111] There are two reasons why the trial judge's conclusion cannot stand. First, as I have noted, the determination of when injury, loss or damage occurs calls for an examination of the terms of the contract and the performance required under the contract. The trial judge erred in finding that extension of Apotex's internal "approval date" was evidence of its knowledge of damage caused by an "act or omission" (being the failure of MDS to comply with the FDA regulations). The approval date was simply Apotex's internal estimate of when the ANDAs would be approved by the FDA. It was not a term of Apotex's contract with MDS, nor was it tied to any part of the FDA regulatory process. Apotex could extend its internal projected approval date for any number of reasons, having nothing to do with the actions of MDS – for example, a decision by Apotex to amend the ANDA (as, in fact, occurred) or a request by the FDA to Apotex for additional information unrelated to the MDS studies.

[112] Second, Apotex did not know on May 8, 2006 that the delay was caused by MDS's failure to comply with the FDA regulations. The May 8, 2006 email indicated that MDS was still investigating its response to the FDA and it was taking the position that its studies were compliant with FDA requirements. The FDA had not yet taken a firm position on the issue of whether the studies complied with its requirements, and it did not do so for another six months.

[113] Moreover, six weeks after the May 8, 2006 email, as the trial judge observed, at para. 236, Apotex's approvals for the drugs were "back on track":

As it turned out, on June 20, 2006, MDS advised Apotex that the Amoxi-Clav Studies had passed its FYR. MDS subsequently submitted its closure report for the Amoxi-Clav Studies to the FDA on July 7, 2006. Based on the results of MDS' review and Apotex's subsequent communications with the FDA concerning other issues arising from the FDA's review of the Amoxi-Clav ANDAs, Apotex understood that the MDS Studies were no longer an issue for the FDA in respect of its approvals and they were back on track.

[114] The trial judge's determination that s. 5(1)(a)(iv) applied and that the limitation period did not begin to run until December 11, 2006 is inconsistent with his conclusion that the other provisions of s. 5(1)(a) were satisfied by May 8, 2006. Specifically, the findings of fact made by the trial judge in his analysis of s. 5(1)(a)(iv) lend support to the conclusion that Apotex did not have the requisite knowledge underpinning ss. 5(1)(a)(i), (ii) and (iii) on May 8, 2006. The trial judge found, at para. 225, that it would not have been appropriate for Apotex to have commenced a proceeding against MDS on May 8, 2006 because Apotex had no indication on that date that the studies would not be accepted by the FDA. He said, at para. 225:

On the facts of this case, I am satisfied that it would not have been appropriate for Apotex to have commenced a proceeding against MDS as at May 8, 2006. Rather, given what it knew at that date, it was more appropriate for Apotex to await the FDA's response to results of MDS' review of the Studies. Apotex and MDS had a long standing relationship regarding MDS conducting bioanalytical studies. Although the Studies were part of the FYR, Apotex had no indication that they would not be accepted by the FDA. MDS had been assuring Apotex that its issues with the FDA did not involve the Studies. What needed to happen was for the regulatory process involving the FYR to be concluded. Further, Apotex needed MDS' assistance to enable it to respond to the April 26, 2006 deficiency notice. Commencing an action could have jeopardized that assistance. [Emphasis added.]

[115] It was not until January 7, 2007 that the FDA rejected the MDS studies, although the trial judge found that Apotex knew on December 11, 2006 that the studies would not be accepted based on direct communication between the FDA and Apotex.

[116] The inconsistency between the findings of fact and the conclusion on the s. 5(1)(a) analysis is to be found in paras. 231 and 233 of the trial judge's reasons which address Apotex's knowledge of the impact of MDS's issues with the FDA on the studies for Levo-Carb IR and Amoxi-Clav:

As a result, while the FDA's decision rejecting the MDS Studies was on January 10, 2007, based on the evidence, I find that while Apotex knew that the FDA still had issues with MDS in mid-November 2006, it was not until December 11, 2006 when Ms. Tao spoke to the FDA and learned that it was considering a number of options in respect of studies done by MDS, including repeating them, re-analyzing them or having them reviewed by a third party auditor that Apotex knew that the MDS Studies would not be accepted by the FDA, resulting in delay and damage.

Would a reasonable person with the abilities and circumstances of Apotex, have known about the issues concerning its claim earlier? For the reasons above noted, I conclude not. Although Apotex is a sophisticated and knowledgeable drug manufacturer who conducts its own bioequivalence studies, it was never in a position to assess whether the FDA's concerns involving the Montreal Facility directly impacted the Studies such that they would not be accepted by the FDA. The information it had from the FDA was from its Untitled Letters and the later Form 483s and what MDS told it which was that the Studies were not a problem and it was dealing with the FDA's concerns. [Emphasis added.]

[117] In my view, the trial judge's findings of fact made at paras. 231 and 233 can only lead to the conclusion that the factors set out in ss. 5(1)(a)(i), (ii) and (iii) of the LA 2002 were not met until December 11, 2006. As the trial judge found, until that date Apotex did not know "that the MDS Studies would not be accepted by the FDA, resulting in delay and damage."

[118] The trial judge's finding, at para. 219, that the limitation period had begun to run on May 8, 2006, under ss. 5(1)(a)(i), (ii) and (iii) [4], is inconsistent with his conclusion, at para. 231, that Apotex did not know until December 11, 2006 that "the MDS studies would not be accepted by the FDA, resulting in delay and damage." It is also inconsistent with the trial judge's finding, at para. 226, that by July 7, 2006, Apotex understood, based on MDS's review of the Amoxi-Clav studies and Apotex's subsequent communications with the FDA that "the MDS Studies were no longer an issue for the FDA in respect of its approvals and they were back on track." Finally, it is inconsistent with the finding, at para. 233, that before December 11, 2006, Apotex was "never in a position to assess whether the FDA's concerns involving the Montreal Facility directly impacted the Studies such that they would not be accepted by the FDA."

[119] It is true that the FDA's concerns about the validity of the studies caused delays in what Apotex had targeted as an estimated FDA approval date. As of May 8, 2006, Apotex knew that it was possible that the FDA would not approve the studies by its estimated target date. But it did not know that the delay had been caused by a breach of contract, as opposed to the stalling of the ANDA process while the FDA and MDS sorted out their disagreement about whether the issues at the Montreal Facility impacted the integrity of studies conducted by MDS. As the trial judge found, at para. 233, Apotex "was never in a position to assess whether the FDA's concerns involving the Montreal Facility directly impacted the Studies such that they would not be accepted by the FDA." That determination could only be made by the FDA, and Apotex's knowledge of this was necessarily contingent on communication from the FDA. While MDS failed to conduct the studies in compliance with US regulatory standards thereby breaching s. 8.1 of the MLSA, the breach did not cause Apotex injury, loss or damage until the FDA refused to accept the studies.

[120] To conclude, based on the trial judge's own findings, it was only on December 11, 2006 that Apotex knew and ought reasonably to have known all of the following:

(a) an act or omission, being a breach of contract, had occurred because the studies were unacceptable to the FDA for reasons related to conditions at the Montreal Facility where the studies were performed; and

(b) the act or omission had caused injury, loss or damage because the studies would have to be repeated or re-certified and the launch of the drugs in the US market would be delayed.

[121] While Apotex knew before December 11, 2006 that its projected launch date would be extended ("delay of approval = loss of profit", to use the trial judge's words), it did not yet know that an actionable breach of contract had occurred or that the delay had been caused by that breach. At the date identified by the trial judge, May 8, 2006, Apotex simply knew that the launch had been delayed, but it did not know that the delay had been caused by a breach of contract as opposed to the usual interplay between the FDA, the proponent, and FDA regulated laboratory facilities. As of May 8, 2006, FDA approval of the ANDAs with the original MDS studies was still possible.

[122] I turn to the remaining grounds of appeal and the cross-appeal.

(2) Breach of Contract and Mitigation

[123] MDS submitted in its factum, as it did at trial, that Apotex failed to establish that the studies were invalid or not compliant with the MLSA. MDS contends that it did not warrant that its studies would be accepted by the FDA.

[124] This objection is answered by the trial judge's interpretation of s. 8.1 of the MLSA, which was reasonable and is entitled to deference. It is also answered by the trial judge's meticulous analysis of the breach of contract issue, at paras. 154-176 of his reasons. While MDS is correct in stating that it did not warrant that the results of its studies would be accepted by the FDA, it did warrant that it would produce studies that would be acceptable for submission to the FDA. This required, as s. 8.1 recognized, that the studies be conducted in compliance with FDA regulations, and in a facility that was compliant with FDA regulations. Apotex did not have to show that the studies themselves were invalid to establish the breach. Rather, the FDA could not get to the stage of assessing ultimate validity because the threshold requirements for establishing validity were compromised. There was overwhelming evidence of serious deficiencies in MDS's facilities that compromised the integrity of MDS's clinical studies for Apotex, causing the FDA to conclude that the studies were not acceptable to support Apotex's ANDAs.

[125] Apotex also adduced factual and expert evidence that MDS failed to adequately respond to the FDA's concerns. On this issue, the trial judge accepted, "in its entirety" the evidence of Apotex's expert witness on the US regulatory framework for generic drugs. He found that MDS breached s. 8.1 of the MLSA in respect of each of the three projects. He observed, at para. 160:

… I am satisfied from the evidence that, as a result of its issues with the FDA, MDS breached s. 8.1 of the MLSA in respect of each of the three Project Agreements. The evidence of Ms. Crain, which as I've noted, I accept in its entirety, was that MDS failed to comply with U.S. regulatory requirements as determined by the FDA at the Montreal Facility; that the lack of compliance was serious in nature; and MDS ought to have foreseen that its lack of compliance had the potential to cause damage to its customers including Apotex. Further, MDS failed to comply with U.S. industry standards and good practices in the manner in which it handled the FDA's concerns during the period.

[126] In my view, the trial judge's findings of fact on this issue are fully supported by the evidence and are unassailable.

[127] As to mitigation, there was also substantial evidence, which the trial judge reviewed, concerning Apotex's response to the issues raised by the FDA, in the face of MDS's assurance that those issues were being resolved. The trial judge adequately addressed the mitigation argument put to him at trial. He found that it was reasonable for Apotex to allow MDS to address the FDA's concerns and to take steps to repeat or certify the studies once it learned that the FDA was not satisfied with MDS's efforts. MDS has not identified a palpable and overriding error in the trial judge's assessment of the evidence of mitigation.

(3) Prejudgment Interest

[128] As the trial judge noted, s. 130 of the Courts of Justice Act gives the court broad discretion to award interest at a rate other than the presumptive rate pursuant to ss. 127 and 128, where it is "just to do so". In declining to exercise that discretion, the trial judge considered the factors set out in s. 130 and the submissions of MDS. The trial judge was well-positioned to consider the factors set out in s. 130, including the circumstances of the case and other relevant considerations. MDS has identified no error in principle in the exercise of that discretion and I would dismiss this ground of appeal.

(4) The Cross-Appeal: Damages

[129] The focus of the cross-appeal is Apotex's claim for lost profits. It asserts that the trial judge erred in fixing those damages at $8.3 million, rather than approximately $12.6 million, based on the trial judge's determination of the delay period.

[130] The determination of lost profits required a calculation of two variables. First, the period during which Apotex would have sold the two drugs in the US market "but for" the delay caused by MDS's breaches – i.e. the delay period. Second, the net revenue Apotex would have earned during the delay period, based on its projected sales less its projected costs of manufacturing and distribution.

[131] The determination of projected sales depended, in part, on Apotex's estimated market share for the drugs in the generic market. The greater its market share, the higher the estimated sales during the delay period, and the greater the damages.

[132] The issue on the cross-appeal is the trial judge's finding concerning Apotex's prospective market share.

[133] Both parties called expert evidence to establish the "but for" world. Apotex adduced evidence of its sales of the drugs in the US market after they were approved by the FDA until sales ended due to the FDA's unrelated ban on imports of Apotex drugs in September 2009.

[134] Each party called an expert in business valuation and damages quantification who prepared a report explaining the quantification of Apotex's loss. Both experts followed the same methodology to determine Apotex's net revenues, but disagreed on Apotex's estimated market share for the drugs. MDS also called an expert witness who was qualified as an expert on the marketing and sales of pharmaceutical products, including generic drugs. He prepared an expert report on Apotex's estimated market share and critiqued the methodology used by Apotex's damages expert (who was not a pharmaceutical expert) to determine market share.

[135] MDS's damages quantification expert considered that the best predictor of Apotex's market share in the "but for" world was its actual market performance. He determined market share by calculating a weighted average based on the actual market share achieved by Apotex for each drug. Apotex's expert estimated market share based on the average and median market share achieved by "comparator" drugs manufactured by Apotex, and exercised his professional judgment to create a "smooth ramp up" of market share over the delay period.

[136] The trial judge preferred the evidence and approach of both of MDS's experts, which was based on the actual market share Apotex achieved during the period it sold Levo-Carb IR and Amoxi-Clav in the US market. Relying on the evidence of MDS's pharmaceutical sales and marketing expert, the trial judge rejected the approach to market share used by Apotex's damages expert. The trial judge further found that Apotex was not open and transparent prior to trial concerning its estimated market share at the time it entered the US market. Apotex failed to produce any documents concerning estimates for market share during discovery. It was only on the eve of trial that it produced a few documents pertaining to Amoxi-Clav market share.

[137] Apotex acknowledges the high level of deference given to a trial judge's award of damages, particularly in a case involving inherently difficult projections based on the assessment of conflicting expert evidence. In Naylor Group Inc. v. Ellis-Don Construction Ltd., 2001 SCC 58, [2001] 2 S.C.R. 943, Binnie J., speaking for the court, observed, at para. 80:

It is common ground that the Court of Appeal was not entitled to substitute its own view of a proper award unless it could be shown that the trial judge had made an error of principle of law, or misapprehended the evidence, or it could be shown there was no evidence on which the trial judge could have reached his or her conclusion, or the trial judge failed to consider relevant factors in the assessment of damages, or considered irrelevant factors, or otherwise, in the result, made "a palpably incorrect" or "wholly erroneous" assessment of the damages. Where one or more of these conditions are met, however, the appellate court is obliged to interfere. [Citations omitted.]

[138] In this case, the trial judge saw and heard the expert witnesses on both sides and observed their responses to the opposing party's criticism of their methodologies and conclusions. He rejected the evidence of Apotex's expert and gave cogent reasons for doing so, including his acceptance of the evidence of MDS's expert who had relevant expertise in matters of pharmaceutical sales and marketing – expertise that Apotex's expert did not have.

[139] The "palpable and overriding error" standard of review applies to a trial judge's assessment of conflicting expert evidence. Apotex invites us to prefer the evidence of its expert based on our own assessment of the evidence. I would not accept that invitation. The trial judge's analysis of the damages evidence was thorough and compelling, and no palpable and overriding error has been demonstrated.

V. Order

[140] For these reasons, I would dismiss the appeal and the cross-appeal. I would award costs as agreed by the parties: $70,000 to the respondent on the appeal and $30,000 to the respondent on the cross-appeal, both amounts inclusive of disbursements and all applicable taxes.

Released: "GS" JAN 16 2019

"George R. Strathy C.J.O."

"I agree. M.L. Benotto J.A."

"I agree. L.B. Roberts J.A."

Footnotes

[1] In 2010, MDS was subsumed by Nordion.

[2] One Amoxi-Clav study was described as "fed", because the subjects took the drug after a meal. The other was described as "fasted", because the drug was taken before eating.

[3] The trial judge identified the date of the email as May 8, 2006. The record suggests it may have been May 9, 2006. Nothing turns on the difference.

[4] "Apotex knew that damage has occurred (delay of approval = loss of profit); and that the delay had been caused by MDS' failure to comply with the FDA regulations": at para. 219.