Superior Court of Justice

COURT FILE NO.: CV-19-625450 DATE: 20201020 ONTARIO

BETWEEN:

Pharmascience Inc. Plaintiff/Respondent

– and –

Novartis Pharmaceuticals Canada Inc., Novartis Pharm AG and Novartis AG Defendants/Moving Party

COUNSEL: Ilan Ishai, for the Plaintiffs Sandra Barton and Alex Goor, for the Defendants

HEARD: August 14, 2020

NOTICE This matter is subject to a sealing order dated October 16, 2020.

REASONS FOR DECISION

Davies J.

A. Overview

[1] In January 2019, Novartis launched a patent infringement claim in the Federal Court against Pharmascience and seven other generic drug manufacturers of fingolimod, a drug used to treat multiple sclerosis. Pharmascience had approval from Health Canada to sell its generic version of the drug starting in early March 2019 but Novartis took the position that by marketing its generic drug, Pharmascience and the other generic manufacturers would be infringing Novartis’ patents.

[2] In March 2019, Novartis and Pharmascience entered into an agreement to settle the ongoing patent litigation. Novartis gave Pharmascience a non-exhaustive licence to sell its generic formulation of fingolimod. The Settlement Agreement specified the date on which Pharmascience was allowed to launch its fingolimod product. The Settlement Agreement also contained a confidentiality agreement, which prohibited Novartis from disclosing the terms of the agreement, including Pharmascience’s market entry date, to its affiliates or other third parties. Novartis entered into settlement agreements with the other seven generic drug manufacturers as well.

[3] Pharmascience now claims that Novartis breached their Settlement Agreement by disclosing Pharmascience’s market entry date to Novartis’ affiliates and to other generic manufacturers. Pharmascience also claims it was induced into signing the Settlement Agreement by Novartis’ assurance that Pharmascience had the earliest market entry date and that Novartis would keep Pharmascience’s market entry date confidential.

[4] When the statement of claim is read as a whole, it is clear that Pharmascience seeks expectation and compensatory damages for breach of contract. In the alternative, Pharmascience claims restitution for unjust enrichment resulting from the alleged breach of contract and/or misrepresentation and an accounting of the profit earned by Novartis through the sale in Canada of their patented fingolimod drug between March 2019 and the time of trial. Novartis does not take issue with Pharmascience’s breach of contract claim. However, Novartis brought a motion under Rule 21.01(1)(b) to strike Pharmascience’s claim for restitution in the form of disgorgement of profits on the basis that it discloses no reasonable cause of action.

[5] Novartis also brings a motion for an order bifurcating the issue of liability from the quantification of damages.

[6] For the reasons that follow I find that Pharmascience’s claim for restitution for unjust enrichment should not be struck. I also find that this is an exceptional case that justifies bifurcating the liability issues from the issues related to the quantification of damages.

B. Should the claim for an accounting and disgorgement of profits be struck?

[7] For the purpose of the motion to strike, I must take the facts as pleaded to be true and I must read the pleadings generously. Pharmascience’s claim for an accounting and disgorgement of profits should only be struck under Rule 21.01(1)(b) if it is plain and obvious that the claim has no reasonable prospect of success.[^1] Rule 21.01(1)(b) is not designed to prevent a party from advancing a claim that is likely to fail. It is also not intended to prevent a party from advancing a novel legal argument. It is only meant to dispose of claims that are doomed to fail.[^2]

[8] Novartis argues that the Court of Appeal’s 2015 decision in Apotex Inc. v. Eli Lilly is dispositive of this aspect of its motion because Pharmascience is advancing the same cause of action that was struck by the Court in that case.[^3] Pharmascience argues that its claim is distinguishable from the claim struck in Apotex v. Eli Lilly and that the facts pleaded are capable of supporting a claim for an accounting and disgorgement as an alternative remedy that could flow from both their claims for breach of contract and misrepresentation.

[9] There are two issues for me to decide on Novartis’ motion to strike:

(a) Is the Court of Appeal’s 2015 decision in Apotex v. Eli Lilly dispositive of Novartis’ motion to strike?

(b) If not, are the pleaded facts capable of supporting a restitutionary claim for unjust enrichment and an account for and disgorgement of profits as an alternative means of assessing damages?

[10] I find that Pharmascience’s claim is not the same as the claim made in Apotex. As a result, that case is not dispositive of this motion. I also find that the facts as pleaded by Pharmascience are capable of supporting a restitutionary claim in unjust enrichment, and for an account and disgorgement of profits as an alternative measure of damage.

i. Is the Court of Appeal’s 2015 decision in Apotex v. Eli Lilly dispositive of Novartis’ motion to strike?

[11] To determine whether the Court of Appeal’s decision in Apotex v. Eli Lilly is dispositive, it is necessary to analyze that decision in some detail and the context in which Apotex’s claim arose.

[12] In Apotex, Eli Lilly owned the patent for a drug used to treat attention deficit hyperactive disorder (ADHD). In 2008, Apotex formulated a generic version of the same drug. Apotex’s formulation was eligible to obtain approval under the Food and Drug Regulations for sale in Canada. However, Apotex could not sell its generic drug without infringing Eli Lilly’s patent so Apotex started the process to challenge the validity of Eli Lilly’s patent. In response, Eli Lilly commenced proceedings in the Federal Court to prohibit Health Canada from issuing a Notice of Compliance to Apotex for its generic ADHD drug (which Apotex needed before it could enter the market).

[13] At the same time, Teva Canada, another drug manufacturer with a generic version of Eli Lilly’s patented ADHD medication, started an action in the Federal Court challenging the validity of Eli Lilly’s patent. In 2010, Teva won its case and Eli Lilly’s patent was found to be invalid. Once the patent was found to be invalid in the Teva proceedings, Apotex was able to get the approvals necessary to launch its generic ADHD medication.

[14] Because Eli Lilly brought prohibition proceeding against Apotex, Apotex was prevented from entering the market with its generic ADHD drug for two years – from 2008 when its generic drug was ready to launch and 2010 when the patent was found to be invalid in the Teva case. Under the Patented Medicines (Notice of Compliance) Regulations (PMNOC regulations), Apotex was entitled to seek compensation from Eli Lilly for the losses it suffered during the two years its generic ADHD drug was improperly excluded from the market. However, under the PMNOC regulations, Apotex could not claim disgorgement of the $70 million in profits that Eli Lilly earned from its patented ADHD drug during the two years Apotex was excluded from the market.

[15] Apotex commenced an action in the Superior Court claiming relief under the PMNOC regulations. In addition to compensation under the regulations, Apotex also sought disgorgement of Eli Lilly’s profits as a remedy for unjust enrichment.

[16] The Court of Appeal struck Apotex’s claim for unjust enrichment and disgorgement of profits. The Court held that Apotex could not satisfy the test for unjust enrichment. To prove unjust enrichment, the Plaintiff must establish three things: (i) that the defendant was enriched; (ii) that there was a corresponding deprivation to the plaintiff; and (iii) there was no juristic reason for the enrichment.[^4]

[17] Courts in Canada have recognized two broad categories of unjust enrichment claims: the more traditional “transfer of wealth” cases where the defendant was enriched at the plaintiff’s expense and the “profiting from wrong” cases where it would be unjust to allow the defendant to retain a benefit acquired through its own wrongdoing.

[18] In the “transfer of wealth” cases, the plaintiff must show that there was an unjust transfer of wealth from the plaintiff to the defendant. The benefit does not need to flow directly from the plaintiff to the defendant. Nor does the plaintiff’s loss need to be equal to the defendant’s gain.[^5] But the plaintiff must show a causal connection between the defendant’s enrichment and the plaintiff’s deprivation: that the defendant was enriched at the expense of the plaintiff.

[19] Under the “profiting from wrong” theory of unjust enrichment, disgorgement may be available if the defendant has committed “an underlying legal wrong against a plaintiff, and the ordinary damages remedy for the underlying wrong is inadequate”. As the Court of Appeal noted, disgorgement in these cases is typically reserved for when there has been a breach of fiduciary duty or a breach of trust. However, in exceptional cases, disgorgement as a restitutionary remedy can also be granted where the “underlying legal wrong” is a crime or a breach of contract or a tort.[^6] In cases premised on “profiting from wrong”, the concept of “corresponding deprivation” takes on a slightly different meaning. A plaintiff may be able to prove a corresponding loss by showing that the defendant’s gain was “made possible” by the defendant’s wrongful act towards the plaintiff rather than proving a direct or indirect transfer of wealth.[^7]

[20] The Court of Appeal held that Apotex could not establish that its loss of profits corresponded to Eli Lilly’s gain under the “transfer of wealth” theory of unjust enrichment:

Apotex has pleaded unjust enrichment as a distinct cause of action based on the windfall earned by Eli Lilly due to the operation of the PMNOC regulations. However, the portion of the windfall that is not compensable under s. 8 of the PMNOC regulations, the monopolistic profit, was not in any way transferred from Apotex or lost by Apotex. There, the unjust enrichment claim as a stand-alone cause of action must fail on the ground that there is no corresponding deprivation.

[21] The Court held that even if Apotex had pleaded an underlying legal wrong – such as misrepresentation or abuse of process – disgorgement of profits was not available because Apotex was not the only party wronged by Eli Lilly and ordinary damages would be adequate to remedy any wrong. Eli Lilly’s patent was found to be invalid in separate proceedings. As a result, the pecuniary interests of consumers (who paid monopolistic prices for longer than appropriate) and other generic manufacturers were also implicated. The Court held that it would be inappropriate to award disgorgement of Eli Lilly’s monopolistic profits to Apotex alone. The Court also held that the PMNOC regulations provided a complete code with respect to the available remedies and that Apotex (and any other generic manufacturer who suffered a loss arising from Eli Lilly’s invalid patent) could be made whole through that scheme.

[22] Novartis argues that Pharmascience is making exactly the same claim here that was struck by the Court of Appeal in Apotex v. Eli Lilly and, like in that case, Pharmascience’s claim must fail. I disagree. In my view, Pharmascience’s claim is not the same and the Court of Appeal’s decision in Apotex is not dispositive of this motion.

[23] There are five features of the Pharmascience claim that distinguishes it from the unjust enrichment claim that was struck in Apotex.

[24] First, Pharmascience’s claim does not arise from the PMNOC regulatory scheme. Here, Pharmascience was not excluded from the market because of the Federal Court litigation under the PMNOC regime. Pharmascience was excluded from the market because of the terms of its Settlement Agreement with Novartis. One of the issues in this case will be whether Novartis induced Pharmascience into signing the agreement and whether that inducement had the effect of excluding Pharmascience from the market for longer than it otherwise would have been. The Settlement Agreement can only serve as a juristic reason for profits earned by Novartis after the date the agreement was entered if Novartis fulfilled its side of the agreement and/or if Pharmascience was not unlawfully induced to sign the agreement.

[25] Second, Pharmascience cannot recover its loss in this case through the PMNOC regime. Pharmascience agreed not to challenge the validity of Novartis’ patent as part of their Settlement Agreement. There has been no finding that Novartis’ patent is invalid, which is required to trigger the compensation scheme in the PMNOC regulations. As a result, the complete code that the Court found in Apotex to be an appropriate remedy is not available to Pharmascience here.

[26] Third, Pharmascience is not seeking disgorgement of profits in addition to compensation for its own lost profits. Pharmascience is advancing unjust enrichment and disgorgement as an alternative means of calculating the damages for the breach of contract and misrepresentation alleged.

[27] Fourth, Pharmascience has advanced its unjust enrichment claim primarily on the remedial “profiting from wrong” theory. Pharmascience alleges that Novartis committed an underlying legal wrong against them – by breaching the Settlement Agreement and/or unlawfully inducing them to enter into the Settlement Agreement through misrepresentation. They claim that it was Novartis’ wrongful acts that made it possible for Novartis to continue to earn profits they would not otherwise have made.

[28] Finally, under Pharmascience’s claim, it is the only party wronged. There is no suggestion that other generic manufacturers (or the public) have been harmed by Novartis’ conduct. Pharmascience claims that Novartis breached their bilateral agreement. This is a private dispute between two parties. The Court of Appeal’s concern about designating Apotex as the sole beneficiary of all the monopolistic profits in circumstances where the pecuniary interests of other parties were implicated does not arise here.

[29] Given the differences in the claims advanced, I find that the Court of Appeal’s decision in Apotex is not dispositive of this motion. The issue remains whether Pharmascience’s restitutionary claim for unjust enrichment and an account for and disgorgement of Novartis’ profits as an alternative measure of damages should nevertheless be struck, which turns on whether the pleaded facts are capable of supporting those claims.

ii. Are the pleaded facts capable of supporting a claim in unjust enrichment for disgorgement as an alternative means of assessing the damages?

[30] Pharmascience claims that it was the last of the eight generic drug manufacturers to reach a settlement agreement with Novartis in March 2019. Pharmascience also claims that it was given the earliest market entry date among the other generic manufacturers.

[31] There are three provisions of the Settlement Agreement that Pharmascience claims had the effect, when read together, of guaranteeing that Pharmascience would be the first generic fingolimod manufacturer to enter the market and that Pharmascience would have market exclusivity for some period of time.

[32] First, the Settlement Agreement gives Pharmascience permission to enter the market with its generic fingolimod drug on a specific date, which would be moved up if Novartis consented to another generic fingolimod drug entering the market on an earlier date or if another generic fingolimod drug entered the market without Novartis’ consent.

[33] Second, the Settlement Agreement contains a confidentiality agreement that prohibits Novartis from disclosing the contents of the agreement, including Pharmascience’s market entry date, to it affiliates (including its affiliates that produce generic drugs) or any third party until Pharmascience launched its product. Pharmascience claims that this provisions means that Novartis could not give Pharmascience’s market entry date to any other generic manufacturer.

[34] Third, the Settlement Agreement says that the execution of the agreement will not conflict with or result in the breach of any other agreement. Pharmascience claims that this provision must be interpreted to mean that the Settlement Agreements Novartis signed with the other generic manufacturers allowed Novartis to keep Pharmascience’s market entry date confidential. Put another way, if the other Settlement Agreements required Novartis to disclose Pharmascience’s market entry date, Novartis could not comply with the Pharmascience Settlement Agreement without breaching the other agreements.

[35] Pharmascience is advancing two distinct claims. First, it claims that Novartis breached the Settlement Agreement by disclosing the Pharmascience market entry date to its affiliate that produces generic drugs. Pharmascience alleges, in the alternative, that Novartis breached the agreement by offering the Pharmascience market entry date to other generic manufacturers. Pharmascience claims that the breach of contract deprived Pharmascience of “the advantage of introducing, without advance notice to its competitors, the first fingolimod product into Canada and thereby secure a large market share”.

[36] Second, Pharmascience claims that Novartis falsely represented that it had the earliest market entry date and that Novartis could and would keep the Pharmascience market entry date confidential. Pharmascience claims it was induced into entering the Settlement Agreement by these false representations. Pharmascience alleges that, in fact, the settlement agreements signed by Novartis with the other generic drug manufacturers required Novartis to disclose the Pharmascience market entry date to the other manufacturers and to allow other generic manufacturers to enter the market at the earliest date offered to any other company, including Pharmascience, in violation of Pharmascience’s Settlement Agreement.

[37] Pharmascience claims that it would not have signed the Settlement Agreement with Novartis if it had known that Novartis could not and would not keep its market entry date confidential. Pharmascience claims that if the Settlement Agreement had not been signed, it would have either continued the litigation over the validity of Norvartis’ patents and/or secured an earlier date to enter the market with its generic product.

[38] For the purpose of this motion, I must assume the facts pleaded to be true.

[39] In terms of the damages, Pharmascience advances alternative claims. First, Pharmascience claims expectation damages, which it describes as the difference between the profits Pharmascience would have earned as the first and only generics manufacturer on the market for some period of time and the profits Pharmascience actually earned through the sale of its generic fingolimod product. In the alternative, Pharmascience seeks restitution damages in the amount of the profits Novartis unjustly obtained as a result of its misrepresentation and breach of contract. Pharmascience argues that because of the misrepresentation and breach of the settlement agreement, Norvartis was able to continue to hold a monopoly in respect of its fingolimod and could sell its product for a higher price than it otherwise could have if Pharmascience entered the market earlier and as the first generic manufacturer.

[40] As a general rule, when a party sustains a loss as a result of a breach of contract, the Court will calculate the damages based on what the injured party would have received if the contract were performed. Courts generally avoid awarding restitution damages or disgorgement for breach of contract. There are, however, some circumstances where the Courts will look at the benefit to the defendant from the breach of contract as a measure of damages.[^8]

[41] The Supreme Court of Canada addressed the availability of disgorgement as a remedy for breach of contract in Atlantic Lottery Corp. v. Babstock. The Court confirmed that disgorgement of profits is only available for breach of contract in exceptional circumstances where damages, specific performance and injunctive relief are not adequate:

[D]isgorgement for breach of contract is available only where other remedies are inadequate and only where the circumstances warrant such an award. As to those circumstances, courts should in particular consider whether the plaintiff had a legitimate interest in preventing the defendant’s profit-making activity.[^9]

The Supreme Court noted that disgorgement may be appropriate where, for example, the plaintiff’s loss is “impossible to calculate” or where the plaintiff’s interest in the performance of the contract is not reflected by a pure economic measure.[^10] Ultimately, the Court held that what circumstances will justify disgorgement as a remedy for breach of contract are “best hammed out on the anvil of concrete cases”.[^11]

[42] Here, specific performance and injunctive relief are no longer available because of the passage of time. The issue, therefore, will be whether it is plain and obvious that damages will be an adequate remedy. Pharmascience has claimed an accounting and disgorgement of profits as an alternative remedy. Its primary position is that expectation damages should be awarded.

[43] Pharmascience has also advanced a claim that Novartis was unjustly enriched by its own wrongful acts and should not be entitled to keep the profits it earned as a result of its wrongful acts. Pharmascience has pleaded all the constituent elements of unjust enrichment on the theory that Novartis profited from its own wrong. Unlike in Apotex, Pharmascience has alleged that it was deprived and Novartis was enriched as a result of Novartis’ wrongful acts. Pharmascience claims that it was induced into the Agreement by the Novartis’ misrepresentation and that Novartis breached the Agreement, which should have given Pharmascience a competitive advantage over other generic manufacturers. Pharmascience claims that Novartis’ wrongful conduct resulted in lost profits to Pharmascience and increased profits for Novartis. Pharmascience claims that it would be unjust to allow Novartis to retain all its profits that were made possible by its wrongful conduct.

[44] Pharmascience has also pleaded that there is no juristic reason for Novartis’ enrichment. The regulatory regime that provided the juristic reason in Apotex for Eli Lilly to retain its monopolistic profits has no application here. In this case, Pharmascience and Novartis entered into a bilateral agreement. Pharmascience claims the Agreement assured that it would have the competitive advantage of being the first generic fingolimod product on the market. If the trial judge accepts Pharmascience’s interpretation of the contract and/or if the trial judge accepts that Novartis induced Pharmascience by misrepresentation into signing a contract it could not and would not fulfil because of agreements already reached with other generic drug manufacturers, the Court may find that Pharmascience has made out a claim for unjust enrichment and is entitled to damages based not on its loss but on Novartis’ gain.

[45] While it may be unlikely that the trial judge will order disgorgement as a remedy in this case, I cannot say on the basis of the pleadings that the restitutionary claim for unjust enrichment and an accounting and disgorgement of profits as an alternative measure of damages has no chance of success. The motion to strike the pleadings is, therefore, dismissed.

C. Should the issues of liability for breach of contract be bifurcated from the quantification of damages?

[46] As a general rule, litigants have a right to have all issues resolved in a single trial. Multiplicity of proceedings should be avoided. As a result, the Court’s inherent power to bifurcate is narrowly circumscribed.[^12] The Court may bifurcate the issues if it is in the interests of justice to do so, but only in the clearest of cases. The burden is on the defendant to establish that severance will result in the just, expeditious and least expensive determination of the matter on the merits.[^13]

[47] There are several factors that are relevant to my decision whether to bifurcate this trial, including:

• Whether the issues related to liability are separate from or intertwined with the issues related to the quantification of damages;
• Whether time and expense will be saved if the issues are severed or will severance cause delay;
• Whether a trial on liability will likely put an end to the action, significantly narrow the remaining issues or significantly increase the chance of settlement; and
• Whether the trial judge would have a better appreciation of the issues if there were a single trial.[^14]

[48] Notwithstanding the basic rule that litigants have a right to have all issues resolved in a single trial, the Federal Court routinely bifurcates the liability and damages issues in pharmaceutical patent disputes. In Apotex v. Lundbeck, the Court explained the reasons for bifurcation in these complex cases:

It is also true, as pointed out by Apotex, that bifurcation tends to be the rule rather than the exception in intellectual property matters. In my view, this is so not merely because actions in intellectual property tend to be complex, because the scientific and financial issues are often discrete and because parties are generally loathe to share sensitive commercial or financial information with potential competitors until their liability to do so has been established, but mostly because of the nature of the remedies available and sought in infringement actions. A successful plaintiff in an infringement action is entitled to the damages it has suffered as a result of the infringement, but may also be entitled to opt instead for an accounting of the profits realized by the defendant. Because the right to elect an accounting of profits is discretionary, parties would not, in an un-bifurcated action, know whether the option is available to the plaintiff until the final judgment has been rendered. As such, without bifurcation, both parties will necessarily conduct and be subject to discoveries, and trial time will necessarily be spent [sic] in leading evidence as to both parties’ revenues and expenses, even though only one side’s losses or profits can ever form the basis of an actual award. It is that inherent inefficiency that, in my view, most often justifies a bifurcation order.[^15]

[49] Novartis argues that it will be more efficient and less expensive if the liability and damages issues are bifurcated. Pharmascience argues that the cost and time savings are speculative and Novartis has not established that there are exceptional circumstances to justify departing from the normal practice of having all issues decided at a single trial.

[50] As a preliminary matter, Pharmascience argues that the bifurcation motion is premature because the pleadings are not closed and, as a result, the true scope of the issues in dispute have not crystalized. Novartis brought its bifurcation motion with its motion to strike as a matter of efficiency. Motions to strike are generally brought before the pleadings close. Bifurcation motions are generally brought after pleadings close.

[51] Nonetheless, Novartis filed a draft statement of defence as part of its motion record and undertook that the statement of defence it delivers will be the same as the draft submitted. I am, therefore, prepared to rule on the motion for bifurcation and rely on the draft statement of defence for that purpose.

[52] One of the key issues in this case will be how the Settlement Agreement should be interpreted and whether representations made before the agreement was signed are relevant.

[53] Novartis denies that Pharmascience was the last of the eight generic manufacturers to reach a Settlement Agreement. Novartis also denies that Pharmascience was told that it had the earliest market entry date. Novartis takes the position that any discussions about the market entry date during the negotiations are irrelevant because there is an “entire agreement” clause in the Settlement Agreement, which reads:

This Settlement Agreement sets forth the complete, final and exclusive agreement between the Parties with respect to the subject matter hereof and replaces any prior oral or written communication between the Parties.

[54] Novartis disputes Pharmascience’s interpretation of the agreement. Novartis denies that the Settlement Agreement guaranteed Pharmascience the earliest market entry date or that Pharmascience would be able to enter the market without notice to other generic manufacturers. Novartis denies that the agreement ensured that Pharmascience would be treated better than any other generic manufacturer or was entitled to market exclusivity.

[55] Novartis denies that it breached the Settlement Agreement by disclosing Pharmascience’s market entry date to its affiliates. Novartis also denies that the Settlement Agreement with Pharmascience prohibited Novartis from giving the same market entry date as Pharmascience to other generic manufacturers.

[56] In terms of damages, Novartis claims that Pharmascience suffered no damages because there was no breach of the contract. In the alternative, Novartis claims that even if it did breach the Settlement Agreement, Pharmascience did not suffer any damages because Pharmascience never would have been the first generic product on the market and never would have had any market exclusivity in relation to its generic fingolimod product.

[57] I am satisfied that there are exceptional circumstances that justify bifurcating the liability issues in this case from the assessment of damages. There are three factors that I have taken into account in reaching this decision.

[58] First, the issues related to liability are discrete from the issues related to damages in this case. Whether Novartis is liable at all will largely turn on the Court’s interpretation of the Settlement Agreement. This is a discrete issue from how the Court will assess damages if there was a breach of the agreement or misrepresentation. This is not the sort of case where the trial judge will have a better understanding of the issues if there is a single trial.

[59] Second, the liability issues, while not straightforward, will take significantly less time to resolve than addressing all the issues at once. The liability phase of the trial will also be able to proceed much sooner than if the parties have to wait until the evidence relevant to the quantification of damages is available.

[60] I accept that there is some complexity to the liability issue, particularly in relation to Pharmascience’s claim that it was impossible for Novartis to comply with the settlement agreements it entered into with Pharmascience and with the other generic manufacturers. This may well involve a request to examine third parties and requests for the production of documents from third parties. Nonetheless, the complexity of the liability issues in this case pales in comparison to the quantification of damages.

[61] The liability phase will have a relatively narrow focus on the content of the Settlement Agreements, discussions surrounding the Settlement Agreements and whether Novartis disclosed Pharmascience’s market entry date to anyone. The quantification of damages, on the other hand, will be exceedingly complicated. Pharmascience is seeking both expectation and restitution damages, which will require entirely different calculations involving different documentation, different timeframes and different areas of expertise.

[62] Novartis adduced expert evidence on this motion setting out the work that would be required to assess the damages in this case. The expert opined that there is no overlap between the financial documents that would be required to determine Pharmascience’s lost profits and to provide an accounting for Novartis’ profits. In addition, each assessment will require assistance from other experts.

[63] For example, an assessment of expectation damages will necessarily focus on the profits Pharmascience would have earned if it entered the market first and had a period of market exclusivity. The expert valuators would need information from the other seven generic manufacturers about when they would have entered the market in order to determine how long Pharmascience might have had any market exclusivity. The analysis would be forward‑looking from the point that Pharmascience entered the market or might have entered the market. The expert valuators would require expert opinions about the size of the overall market for fingolimod, Pharmascience’s share of the market and the price at which Pharmascience would have sold its generic product. The experts would also have to assess how the market share for Pharmascience would have changed over time as other generics entered the market. The expert opined that many of the documents needed for this analysis will not be available until the end of 2021 because of the scope of Pharmascience’s claim.

[64] Quantifying the claim for restitution or disgorgement of profits would focus on Novartis’ financial records for the period between March and November 2019. This will require a different set of documents and a different analysis altogether. The quantification of Novartis’ profits will be complicated by the fact that two of the defendants are Swiss entities that are required to comply with Swiss laws in respect of the production of documents.

[65] Based on the expert evidence tendered on the motion, I am satisfied that the quantification of damages will be an extremely lengthy and costly process. If the issues are not bifurcated, there will be a significant delay even commencing these proceedings because of the time it will take to generate the relevant information and produce expert reports. The liability phase of this matter could well be completed before the experts are even in a position to start work on quantifying the damages.

[66] Third, I am satisfied that bifurcation will likely save significant Court time and expense even if Novartis is found liable. The trial judge’s findings on the interpretation of the contract and the issue of liability will likely narrow the issues to be addressed at the trial on damages. It would also be open to the trial judge on the liability phase of the trial to decide which theory or theories of damages are available in light of the evidence adduced and the factual findings made. By way of example only, if the trial judge finds that there was a breach of the contract but no misrepresentation by Novartis, the Court might determine at the liability phase that expectation damages are adequate in this case. If the Court found that expectation damages are adequate, there would be no need for the parties to engage in the timely and costly process of quantifying Pharmascience’s alternative claim for restitution damages based on Novartis’ profits.

[67] Of course, if the Court finds that Novartis is not liable, all the time and money that would be spent quantifying damages will be saved. Novartis provided me with the decisions from five recent trials dealing with the quantification of damages only, which lasted between 15 and 18 days. Novartis argued that by bifurcating the trial, the Court could save 15 to 18 juridical days if it is not found to be liable. However, this argument could be made in every case and of little assistance here. It is not my role as the motions judge to pre-judge the ultimate merits of Pharmascience’s claim before any evidence is called.

[68] Similarly, there is also the possibility that if Novartis is found to be liable, they will have an added incentive to settle the damages portion of the trial. In my view, however, that possibility is too speculative to factor into my decision now.

[69] In all the circumstances and particularly in light of the expert evidence adduced, I am satisfied this is an exceptional case where bifurcation will result in the most just, efficient and cost effective determination of the issues. I, therefore, order that the issues of liability will be decided first and the quantification of damages will proceed after liability is determined, if necessary. The liability phase of the trial could also include a determination of whether Pharmascience is entitled to restitutionary damages or an accounting and disgorgement of profits if the trial judge is in a position to decide those issues on the evidence heard in respect of liability.

[70] I also order that the discovery and examination will also be bifurcated such that discovery and related matters relevant to the quantification of damages will proceed only if Novartis is found to be liable for some form of damages. This is a necessary corollary of my order bifurcating the trial and does not engage Rule 30.04(8), which deals with dividing the disclosure or production of documents within a single proceeding.[^16] The order to also bifurcate the discovery process is made pursuant to my inherent jurisdiction to control the process of this proceeding.

Davies J.

Released: October 20, 2020

COURT FILE NO.: CV-19-625450 DATE: 20201020

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Pharmascience Inc. Plaintiff

AND

Novartis Pharmaceuticals Canada Inc., Novartis Pharma AG and Novartis AG Defendant

REASONS FOR DECISION Davies J.

Released: October 20, 2020

[^1]: Paton Estate v. Ontario Lottery and Gaming Corp., 2016 ONCA 458 at para. 12; Wellington v. Ontario, 2011 ONCA 724, Hunt v. Carey Canada Inc., 1990 CanLII 90 (SCC), [1990] 2 S.C.R. 959 at p. 978 - 980 [^2]: Atlantic Lottery Corp. v. Babstock, 2020 SCC 19 at para. 19 [^3]: Apotex v. Eli Lilly, 2015 ONCA 305 [^4]: Kerr v. Baranow, 2011 SCC 10 at para. 32 [^5]: Moore v. Sweet, 2018 SCC 52 at para. 43 [^6]: Apotex, at para. 47 [^7]: Apotex, at para. 52 [^8]: Bank of America Canada v. Mutual Trust Co., 2002 SCC 43 at para. 26-33 [^9]: Babstock, at para. 52-53 [^10]: Babstock, at para. 59 [^11]: Babstock, at para. 55 [^12]: Elcano Acceptance Ltd. v. Richmond, Richmond, Stambler & Mills, 1986 CanLII 2591 (ON CA), 55 O.R. (2d) 56 (C.A.) [^13]: Bourne v. Saunby, [1993] O.J. No. 2606 at para. 26 [^14]: Unwin v. Crothers, 2005 CanLII 23337 (ON SC), 76 O.R. (3d) 453 at para.81; Bourne at para. 26 [^15]: Apotex v. Lundbeck, 2012 FC 414 at para. 38 [^16]: Unwin at para. 116