Pfizer Canada Inc. v. Teva Canada Limited

Pfizer Canada Inc. v. Teva Canada Limited
Court (s) Database
Federal Court of Appeal Decisions
Date
2016-05-31
Neutral citation
2016 FCA 161
File numbers
A-422-14
Notes
A correction was made on June 30, 2016.
Digest
Decision Content
Date: 20160531
Docket: A-422-14
Citation: 2016 FCA 161
CORAM:
STRATAS J.A.
RYER J.A.
GLEASON J.A.
BETWEEN:
PFIZER CANADA INC.
Appellant
and
TEVA CANADA LIMITED
Respondent
Heard at Toronto, Ontario, on December 1, 2015.
Judgment delivered at Ottawa, Ontario, May 31, 2016.
REASONS FOR JUDGMENT BY:
STRATAS J.A.
CONCURRED IN BY:
RYER J.A.
GLEASON J.A.
Date: 20160531
Docket: A-422-14
Citation: 2016 FCA 161
CORAM:
STRATAS J.A.
RYER J.A.
GLEASON J.A.
BETWEEN:
PFIZER CANADA INC.
Appellant
and
TEVA CANADA LIMITED
Respondent
REASONS FOR JUDGMENT
STRATAS J.A.
A. Introduction [1] Pfizer appeals from the judgment dated June 30, 2014 of the Federal Court (per Zinn J.). The judgment is based on reasons dated April 3, 2014 (2014 FC 248) and subsequent reasons dated June 30, 2014 (2014 FC 634).
[2] Following fifteen days of trial, the Federal Court found Pfizer liable for damages under section 8 of the Patented Medicines (Notice of Compliance) Regulations, S.O.R. 93-133 in the amount of $92,228,000.00, pre-judgment interest in the amount of $32,539,550.36, post-judgment interest at the rate of 3.0% on $124,766,550.36 (the sum of the damages and prejudgment interest) from the date of judgment until payment, and costs.
[3] Pfizer appeals. It alleges that the Federal Court committed reversible error in a number of ways.
[4] I agree with Pfizer on one of the issues it raises, namely the Federal Court’s admission of and reliance upon hearsay evidence in the trial. While this Court has the power to consider the matter without the hearsay evidence and make the judgment the Federal Court should have made, I would not exercise that power in this factually-complex circumstance where the result is unclear. Rather, I would remit the matter to the Federal Court for redetermination.
[5] Therefore, for the reasons that follow, I would allow the appeal, set aside the judgment of the Federal Court, and remit the matter to the Federal Court for redetermination on this record, excluding the hearsay evidence. I would grant Pfizer its costs of the appeal.
B. Background facts [6] In the Federal Court, Teva sued Pfizer for damages arising from Pfizer's conduct under the PMNOC Regulations that improperly kept one of its corporate predecessors from selling its drug on the market. This suit was founded upon the legislative cause of action in section 8 of the PMNOC Regulations.
[7] In this summary of background facts, I shall describe the relevant drugs and the relevant parties and then review the portions of the PMNOC Regulations that relate to this appeal. Then I shall review what the parties did under those portions of the PMNOC Regulations that gave rise to Teva’s action for damages under section 8 of the PMNOC Regulations. Finally, I shall review the Federal Court’s reasons.
[8] Throughout these reasons, when I refer to a paragraph number in the Federal Court’s reasons, the relevant reasons are the first set of reasons dated April 3, 2014 (2014 FC 248).
(1) The relevant drug and the relevant parties [9] The innovative drug at issue in this matter is venlafaxine hydrochloride (“venlafaxine”) marketed under the name Effexor XR.
[10] The appellant, Pfizer, is the corporate successor to Wyeth and Wyeth Canada. Wyeth was the innovative manufacturer of venlafaxine. In these reasons, for the purposes of describing Wyeth’s conduct before it became part of Pfizer, I shall refer to Wyeth as “Wyeth (Pfizer).”
[11] The respondent, Teva, is the corporate successor to ratiopharm inc. During many of the events giving rise to its claim for damages under section 8 of the PMNOC Regulations, Ratiopharm sought to be a generic manufacturer of venlafaxine. In these reasons, for the purposes of describing Ratiopharm’s conduct before it became part of Teva, I shall refer to Ratiopharm as “Ratiopharm (Teva).”
[12] As the Federal Court noted in its reasons, Novopharm Limited and Pharmascience Inc. played a role as generic entrants into the market for venlafaxine. I shall refer to them as Novopharm and Pharmascience. Novopharm is now part of Teva. But in the interests of clarity and due to their less significant role in these reasons, it is not necessary to acknowledge their current status, as I have for Ratiopharm (Teva) and Wyeth (Pfizer).
(2) The PMNOC Regulations as they relate to this appeal [13] In order to market a new drug in Canada, an innovative drug manufacturer must, among other things, file a new drug submission and receive approval in the form of a notice of compliance from the Minister of Health. As part of that process, the PMNOC Regulations permit the manufacturer to list in a patent register all of the relevant patents pertaining to the submission.
[14] Later, a generic drug manufacturer wishing to make and market a generic version of the innovator’s drug may submit an abbreviated new drug submission demonstrating, among other things, that the generic formulation is bioequivalent to the innovator’s drug by cross-referencing clinical trials regarding safety and effectiveness undertaken by the innovator. This dispenses with the need for the generic manufacturer to undertake its own clinical trials.
[15] The generic drug manufacturer must address any patent listed in the patent register concerning the innovator drug: PMNOC Regulations, s. 5. It does so either by stating that it is not seeking the issuance of a notice of compliance until the patent expires or by alleging that the patent is not valid or will not be infringed by the making, using or selling of the generic drug. In furtherance of the allegation, it must serve a notice of allegation which contains a detailed statement of the factual and legal bases for the allegation.
[16] An innovator who wishes to challenge the allegation of invalidity or non-infringement in the notice of allegation must apply to the Federal Court within 45 days for an order prohibiting the Minister of Health from issuing a notice of compliance for the generic product before the expiry of the patent(s) that are the subject of the notice of allegation. If the innovator does that, the Minister of Health is precluded from issuing a notice of compliance to the generic manufacturer in most cases for twenty-four months or until the prohibition application has been dismissed: PMNOC Regulations, s. 7(1).
[17] A generic manufacturer may seek an order dismissing all or part of the prohibition application concerning patents it says are not eligible for inclusion on the patent register: PMNOC Regulations, para. 6(5)(a). If the motion is successful, the prohibition application is dismissed as against any improperly listed patents.
[18] If a prohibition application is ultimately unsuccessful either at first instance or on appeal, or if it is discontinued or withdrawn, the innovator may be liable for damages for “any loss suffered during the period”: PMNOC Regulations, s. 8(1). In assessing damages, a court is to take into account “all matters that it considers relevant”: PMNOC Regulations, s. 8(5).
(3) What happened under the PMNOC Regulations in this case [19] In this case, Wyeth (Pfizer) marketed an extended release version of venlafaxine hydrochloride under the name Effexor XR. Related to it is Canadian Patent 1,248,540, a patent that was to expire on January 10, 2006. It was listed on the Patent Register against Effexor XR.
[20] In 2005, Ratiopharm (Teva) wanted to market its generic version of venlafaxine hydrochloride and filed an abbreviated new drug submission on February 24, 2005. On December 9, 2005, Health Canada informed Ratiopharm (Teva) that it had completed its review of its abbreviated new drug submission but that it would not issue a notice of compliance until the requirements under the PMNOC Regulations were met.
[21] On December 20, 2005, on the eve of the expiry of the ’540 Patent, Canadian Patent 2,199,778, covering the extended release formulation of venlafaxine was issued. On December 23, 2005, Wyeth (Pfizer) listed it on the Patent Register against Effexor XR.
[22] In response, on the same day, Ratiopharm (Teva) served a notice of allegation. In its notice of allegation, Ratiopharm (Teva) accepted that its notice of compliance for its version of venlafaxine would not issue until the expiry of the ’540 Patent, namely January 10, 2006. Ratiopharm (Teva) also alleged that the newly-listed ’778 Patent was invalid or would not be infringed by its version of venlafaxine. On February 10, 2006, Wyeth (Pfizer) applied for prohibition preventing the Minister from issuing a notice of compliance to Ratiopharm (Teva). This triggered the automatic twenty-four month stay of the Minister’s ability to grant a notice of compliance to Ratiopharm (Teva) for its version of venlafaxine.
[23] Some time passed. Then, on December 18, 2006, Ratiopharm (Teva) filed a motion to dismiss Pfizer’s prohibition application. It submitted that the ’778 Patent was not eligible for listing on the Patent Register for Effexor XR.
[24] Following litigation of the motion in the Federal Court, the matter arrived in this Court. This Court agreed that the ’778 Patent was not eligible for listing on the patent register for Effexor XR. So it granted Ratiopharm (Teva)’s motion and dismissed Wyeth (Pfizer)’s prohibition application: Ratiopharm Inc. v. Wyeth, 2007 FCA 264, [2008] 1 F.C.R. 447, rev’g 2007 FC 340, 58 C.P.R. (4th) 154. This Court released its judgment on August 1, 2007.
[25] This removed the obstacles that stood in the way of Ratiopharm (Teva) receiving a notice of compliance to launch its version of venlafaxine. On August 2, 2007, the Minister granted Ratiopharm (Teva) its notice of compliance for its version of venlafaxine. Ratiopharm (Teva) launched its product into the Canadian market on September 18, 2007.
[26] Looking at this history with the benefit of hindsight, it can be said Wyeth (Pfizer) should not have listed its ’778 Patent on the patent register for Effexor XR and should not have brought a prohibition application. Put another way, Wyeth (Pfizer) improperly kept Ratiopharm (Teva)’s version of venlafaxine off the market. Under section 8 of the PMNOC Regulations, Ratiopharm (Teva) could seek damages for that.
[27] So Ratiopharm (Teva) did just that and started an action for damages in the Federal Court. Wyeth (Pfizer) counterclaimed on the ground that Ratiopharm (Teva)’s venlafaxine product infringed the ’778 Patent. Later, it discontinued that counterclaim.
(4) The Federal Court’s consideration of the damages claim [28] The Federal Court first considered the period of loss suffered that is compensable under section 8 of the PMNOC Regulations.
[29] The parties did not dispute the end date of that period of loss. Both agreed that under paragraph 8(1)(b) of the PMNOC Regulations, the end date is the date the prohibition application is withdrawn, discontinued, dismissed or reversed. Here, that date was August 1, 2007, the date this Court dismissed Wyeth (Pfizer)’s prohibition application.
[30] However, the parties disputed the start date of the period of loss. Teva submitted that the start date was January 10, 2006, the date the ’540 Patent expired. Pfizer, on the other hand, submitted that the start date could not be earlier than February 13, 2006, the date the Minister would have issued a notice of compliance to Ratiopharm (Teva) if it had served Pfizer with a notice of allegation relating to the ’778 Patent and Pfizer had not started a prohibition application.
[31] The Federal Court rejected Pfizer’s submission based on the wording of paragraph 8(1)(a) of the PMNOC Regulations. In its view, that paragraph governed the start date. Paragraph 8(1)(a) provides that the period starts “on the date, as certified by the Minister, on which a notice of compliance would have been issued in the absence of these Regulations, unless the court concludes that…a date other than the certified date is more appropriate.” The Minister certified the date as December 7, 2005. That date, in PMNOC Regulations parlance, is the patent hold date.
[32] Paragraph 8(1)(a), quoted above, by default sets the start date as the date the Minister certifies a notice of compliance would have been issued in the absence of the Regulations “unless the court concludes that…a date other than the certified date is more appropriate.” Here, the Federal Court found that there was a more appropriate date, namely the date of expiry of the ’540 Patent, January 10, 2006. It will be recalled that in its notice of allegation, Ratiopharm (Teva) accepted that its notice of compliance for its version of venlafaxine would not issue until the expiry of the ’540 Patent.
[33] On this point, the Federal Court concluded as follows (at paras. 64-65):
[64] In short, based on the evidence, [Wyeth (Pfizer)] knew that [Ratiopharm (Teva)] or another generic would be entering the market in January 2006 or very shortly thereafter and it chose to list the ’778 Patent in an attempt to evergreen its drug and prevent generic competition. It knew or ought to have known that a generic ready to enter the market in January 2006 would very likely serve it with a [notice of allegation], rather than wait many more years to gain entry into the venlafaxine market.
[65] In this case, but for the improper listing of the ’778 Patent on the Patent Register, all things being equal, [Ratiopharm (Teva)] would have received its [notice of compliance] and been in a position to launch its product on January 10, 2006. The earlier Patent Hold date [December 7, 2005] is an appropriate date to commence the [period of loss]; however, because no loss is claimed by [Ratiopharm (Teva)] prior to January 10, 2006, I accept [Ratiopharm (Teva)’s] submission that January 10, 2006, is a more appropriate commencement for the [period of loss] than the Patent Hold Date [December 7, 2005].
[34] Having determined the start date and the end date for the period of loss, the Federal Court then determined a number of issues: the size of the overall market for venlafaxine, the size of the generic venlafaxine market and Ratiopharm (Teva)’s market share, the time when Ratiopharm (Teva) and its competitors’ generic products would have been listed on the provincial formularies and the entry of competitors into the generic market, the overall value of Ratiopharm (Teva)’s lost sales in the relevant period, and whether any deductions should be made under subsection 8(5) of the PMNOC Regulations. Below, in the context of submissions made by Pfizer in this Court, I shall review in more detail the Federal Court’s reasons on the entry of Ratiopharm (Teva)’s competitors into the generic market.
[35] The Federal Court then considered the central issues in this appeal: the time when Ratiopharm (Teva) would have launched its venlafaxine product and the existence of any impediments to Ratiopharm (Teva) being able to supply the market. Teva submitted that it would have launched its product as soon as it could, on January 10, 2006, and there were no impediments to it obtaining the necessary product and supplying the full generic market. Pfizer disagreed.
[36] At the outset of its reasons on this point, the Federal Court held (at para. 148) that on the authorities Teva had to show “on a balance of probabilities that [Ratiopharm (Teva)] was able to supply the market.” In this case, that meant that Teva had to identify a supplier of the active pharmaceutical ingredient and show that that supplier had the capacity to supply the market over the relevant period. It noted (at paras. 149-152) that the only evidence offered on this point was that of Mr. Major, a witness called by Teva. Mr. Major was a former executive of Ratiopharm (Teva) and acted in that position at all material times.
[37] Mr. Major testified that Ratiopharm (Teva) relied upon a separate company, Alembic Pharmaceuticals, to manufacture its venlafaxine product. He testified that on a site visit over two weeks in 2004, he thoroughly inspected Alembic’s facility. From that, he formed the view that Alembic had sufficient capacity to produce Ratiopharm (Teva)’s venlafaxine product in the necessary quantities. Ratiopharm (Teva) had worked with Alembic before and Alembic was an eager and enthusiastic business partner of Ratiopharm (Teva) in such matters.
[38] In support of his testimony that Alembic had sufficient capacity to produce Ratiopharm (Teva)’s venlafaxine product in sufficient quantities at the relevant time, Mr. Major also relied on emails between Ratiopharm (Teva) personnel and Alembic personnel, most of which he was not copied upon. He also relied on what some colleagues at Ratiopharm (Teva) told him about Alembic’s ability to supply and on documents prepared by others. During my analysis, below, I shall review Mr. Major’s testimony in more detail.
[39] During Mr. Major’s testimony, Pfizer repeatedly objected on the ground that some of the evidence offered was inadmissible hearsay. In response to the objections, the Federal Court ruled that it would consider what weight to give to the evidence.
[40] Ultimately, the Federal Court released two reasons for judgment. In the first, on April 3, 2014 (reported at 2014 FC 248), the Federal Court found Pfizer liable and set out certain principles for the calculation of damages. In the second, on June 30, 2014 (reported at 2014 FC 634), the Federal Court quantified the damages award and calculated pre-judgment and post-judgment interest and costs. It then released its formal judgment.
[41] Overall, in its first set of reasons (2014 FC 248), the Federal Court found that Alembic would have been able to supply adequate quantities of Ratiopharm (Teva)’s venlafaxine product at the relevant time. It took into account all of the evidence offered by Mr. Major, holding (at para. 153) that “[a]lthough Mr. Major speaks as an observer rather than as an employee of Alembic, I find that his evidence is reliable.” It found that Teva had established loss under section 8 of the PMNOC Regulations and, thus, was entitled to damages.
[42] In its second set of reasons (2014 FC 634), the Federal Court quantified Teva’s damages and awarded pre-judgment and post-judgment interest and costs.
C. Issues on appeal [43] Pfizer appeals to this Court. In light of the submissions the parties have advanced, these reasons address six issues:
(1) Some basic issues concerning section 8 damages claims. Before us, the parties disagree on what must be proven and who bears the burden of proof in a claim under section 8 of the PMNOC Regulations.
(2) The hearsay issue. Pfizer submits that the Federal Court wrongly admitted and relied upon hearsay evidence in determining whether Ratiopharm (Teva) could have supplied the market with its venlafaxine product at the relevant time in sufficient quantities.
(3) The issue whether there was palpable and overriding error on a factual finding. Pfizer attacks one of the key factual findings the Federal Court made in support of its conclusion that Ratiopharm (Teva) could have supplied the market with its venlafaxine product at the relevant time in sufficient quantities.
(4) Other section 8 damages issues. Here Pfizer raises a number of issues. It submits that the Federal Court chose the wrong starting date for the period of Ratiopharm (Teva)’s loss and another generic drug manufacturer, Pharmascience, would have entered the hypothetical market and competed with Ratiopharm (Teva). Also it says that the Federal Court failed to attribute Novopharm’s rebates to Ratiopharm (Teva).
(5) Pre-judgment interest. Pfizer submits that the Federal Court calculated pre-judgment interest improperly.
(6) The disposition of this appeal: what should happen now? Pfizer primarily submits that if the Federal Court wrongly admitted and relied upon hearsay evidence, the remaining admissible evidence is insufficient to support a finding that Ratiopharm (Teva) could have supplied the market with venlafaxine. Thus, Ratiopharm (Teva) suffered no loss and so this Court, making the judgment the Federal Court should have made, should now allow the appeal and dismiss Teva’s action. Teva primarily submits that Pfizer is just asking for a reweighing of the factually-suffused findings of the Federal Court and so its appeal should be dismissed.
D. Analysis (1) Some basic issues concerning section 8 damages claims (a) General principles [44] A plaintiff suing for damages under section 8 of the PMNOC Regulations must show that it did in fact suffer a loss caused by the failed proceedings under the PMNOC Regulations. Section 8 provides that compensation is available for “any loss suffered” during the relevant period—usually starting from the date on which a notice of compliance would have been issued in the absence of the Regulations as certified by the Minister of Health and ending on the date of the termination of the prohibition application.
[45] If a plaintiff cannot prove a loss caused by the failed proceedings under the PMNOC Regulations during that period, it cannot recover section 8 damages. Typically most of the plaintiff’s loss will be its inability to sell its version of a drug during that period, in other words, the financial impact of lost sales. To assess that, the court must examine what would have happened had the defendant’s triggering conduct for section 8 damages not taken place.
[46] In effect, the court is examining a hypothetical world. What would have happened in that hypothetical world must be proven by admissible evidence and any permissible inferences from that evidence.
(b) Determining lost sales in the hypothetical world
[47] This Court offered much guidance on how to go about assessing the hypothetical world in Apotex Inc. v. Merck & Co., Inc., 2015 FCA 171, 387 D.L.R. (4th) 552 (Lovastatin). I acknowledge that Lovastatin concerned a claim for compensatory damages for patent infringement, not a claim for damages under section 8 of the PMNOC Regulations. But in both types of claims the court’s task is the same: to assess a hypothetical world where the defendant’s impugned conduct did not take place. And in both the overriding principle is the same: a plaintiff is to be compensated, no more, no less: AstraZeneca Canada Inc. v. Apotex Inc., 2013 FCA 77, 444 N.R. 254 at para. 7.
[48] In Lovastatin, the plaintiff claimed that the defendant, by making and selling infringing product, caused it to lose sales it could have made. The defendant submitted, among other things, that in the hypothetical world it would have been able to make the product in a non-infringing way. The sales would still have happened, cutting into the defendant’s sales just as actually happened.
[49] This Court held that to make out that argument, the defendant would have had to show, on the evidence, that in the hypothetical world it would have and could have had access to sufficient quantities of non-infringing product and would have and could have used it: Lovastatin, at paras. 32, 53, 55, 70, 77 and 78.
[50] Both “would have” and “could have” are key. Compensatory damages are to place plaintiffs in the position they would have been in had a wrong not been committed. Proof of that first requires demonstration that nothing made it impossible for them to be in that position—i.e., they could have been in that position. And proof that plaintiffs would have been in a particular position also requires demonstration that events would transpire in such a way as to put them in that position—i.e., they would have been in that position.
[51] Both elements have to be present. “Could have” does not prove “would have”; “would have” does not prove “could have”:
• Evidence that a party would have done something does not prove that it could have done something. I might swear up and down that I would have run in a marathon in Toronto on April 1 aiming to complete it, but that says nothing about whether I could have completed it. Maybe I am not fit enough to complete it.
• Evidence that a party could have done something does not prove that it would have done something. A trainer might testify that I was fit enough to complete a marathon race in Toronto on April 1, but that says nothing about whether I would have completed it. Perhaps on April 1 I would have skipped the marathon and gone to a baseball game instead.
[52] There must be evidence that the parties “would have” and “could have” ordered and supplied material at the relevant time. Evidence that a manufacturing plant had capacity at some time other than the relevant time for the assessment of loss under section 8 does not necessarily mean that the plant could have and would have had capacity in the hypothetical world at the relevant time. In the words of Lovastatin, without more it is an error to “[jump] from a statement as to manufacturing capacity to conclusions as to what [a generic] could and would do in the ‘but for’ [hypothetical] world” (at para. 77).
(c) The burden of proof concerning the hypothetical world [53] In the case at bar, Teva submits that it did not bear the burden of proof concerning what would and could have happened in the hypothetical world had its venlafaxine product not been kept off the market. It submits that Pfizer bore this burden of proof. It says that if evidence of what Alembic would have and could have done in the hypothetical world were needed from Alembic, Pfizer had to call that evidence.
[54] I disagree. Here too, Lovastatin, above, is instructive. In that case, this Court held that the plaintiffs bear the burden of proving the hypothetical world on the balance of probabilities as part of their damages claim (at para. 45).
[55] This is no surprise: in suits for breach of contract or for damages caused by a wrong, such as tort cases, the plaintiff usually bears the burden to prove what would have transpired had the breach or wrong not been committed, i.e., the persuasive burden to show what would have transpired in the hypothetical world: Red Deer College v. Michaels, [1976] 2 S.C.R. 324 at p. 330, 57 D.L.R. (3d) 386; Janiak v. Ippolito, [1985] 1 S.C.R. 146, 16 D.L.R. (4th) 1 at para. 32. The task of constructing the hypothetical world for the purposes of assessing compensatory damages is a factual inquiry using “robust common sense”: Clements v. Clements, 2012 SCC 32, [2012] 2 S.C.R. 181, at paras. 8 and 9.
[56] The analytical exercise of constructing a hypothetical world exists elsewhere in our law and the burden of proof remains upon the plaintiff/complainant. For example, in some competition cases, the decision-maker must examine the state of competition in a hypothetical world. There, the party alleging anti-competitive conduct bears the burden of proving on the basis of admissible evidence what would have transpired in the hypothetical world on the balance of probabilities. Mere possibilities short of probabilities do not suffice. See generally Tervita Corp. v. Canada (Commissioner of Competition), 2015 SCC 3, [2015] 1 S.C.R. 161 at paras. 49-51 and 66, citing F.H. v. McDougall, 2008 SCC 53, [2008] 3 S.C.R. 41 at paras. 40 and 49.
[57] There is nothing in section 8 of the PMNOC Regulations that would suggest a different conclusion on the burden of proof.
[58] Teva also offers the Supreme Court’s decision in Rainbow Industrial Caterers Ltd. v. Canadian National Railway Co., [1991] 3 S.C.R. 3, 84 D.L.R. (4th) 291 in support of its submission on the burden of proof. Rainbow Industrial Caterers does not assist Teva.
[59] The plaintiff, Rainbow, was a caterer bidding on a catering contract for CN. The defendant, CN, advised Rainbow of the number of meals it would have to prepare. Rainbow set its bid based on that estimate. CN awarded Rainbow the contract. But CN’s estimate was way too high and Rainbow lost money on the contract.
[60] Rainbow sued for damages caused by the estimate. Rainbow bore the burden of proving on the balance of probabilities what would have and could have happened in the hypothetical world where CN gave a proper estimate. See Rainbow Industrial Caterers at p. 14, citing D.W. McLauchlan, “Assessment of Damages for Misrepresentations Inducing Contracts” (1987), 6 Otago L.R. 370 at p. 388. In discharge of that burden, among other things, Rainbow presented evidence concerning what bid it would have made had the estimate not been faulty.
[61] In response, CN could have worked within the hypothetical world proposed by Rainbow and defended on the basis that Rainbow did not prove that certain events in that hypothetical world could have and would have happened. For example, CN could have argued that Rainbow did not adduce sufficient evidence of what would have transpired in the hypothetical world to meet the balance of probabilities standard or to prove its quantum of damages.
[62] But CN did not do that. Rather, CN offered a different hypothetical world, one where Rainbow still would have made a low bid to win the contract and still would have lost money. In effect, CN’s submission was that the real cause of Rainbow’s loss was not its faulty estimate but Rainbow’s strong desire to get the contract, even if it meant proposing terms favourable to CN.
[63] The Supreme Court held that Rainbow had proven what would have happened in the hypothetical world and its quantum of loss in that world. That discharged its burden. CN, by suggesting a different hypothetical world—in effect a different view of who caused the loss—set up, in the words of the Supreme Court, a “new issue” or what others might perhaps call a positive defence. In the Supreme Court’s view, a defendant that sets up a new issue bears the burden of proving it. The plaintiff, having proved its version of the hypothetical world, does not have to disprove other speculative hypotheses. The key passage in the Supreme Court’s decision in Rainbow Industrial Caterers is at p. 15:
Once the loss occasioned by the transaction is established, the plaintiff has discharged the burden of proof with respect to damages. A defendant who alleges that a plaintiff would have entered into a transaction on different terms sets up a new issue. It is an issue that requires the court to speculate as to what would have happened in a hypothetical situation. It is an area in which it is usually impossible to adduce concrete evidence. In the absence of evidence to support a finding on this issue, should the plaintiff or defendant bear the risk of non-persuasion? Must the plaintiff negative all speculative hypotheses about his position if the defendant had not committed a tort or must the tortfeasor who sets up this hypothetical situation establish it?
…
… In my opinion, [the answer to these questions is no]. [T]here is good reason for such reversal [of burden] in this kind of case. The plaintiff is the innocent victim of a misrepresentation which has induced a change of position. It is just that the plaintiff should be entitled to say “but for the tortious conduct of the defendant, I would not have changed my position”. A tortfeasor who says “Yes, but you would have assumed a position other than the status quo ante”, and thereby asks a court to find a transaction whose terms are hypothetical and speculative, should bear the burden of displacing the plaintiff’s assertion of the status quo ante.
[64] In the case at bar, Teva’s position was that in the hypothetical world, Ratiopharm (Teva) could have and would have obtained venlafaxine in sufficient quantities from Alembic. As Rainbow Industrial Caterers tells us, Teva bore the burden of proving that as part of its general burden to prove its loss.
[65] Suppose Pfizer took the position that Ratiopharm (Teva) would not have tried to obtain venlafaxine from Alembic but instead would have given up and pursued another business objective, such as getting another generic drug to market. Rainbow Industrial Caterers instructs us that Pfizer, setting up a different hypothetical, would have borne the burden of proof on that point. Put a different way, Teva would not have borne the burden of proving that it would not have pursued a different business objective.
[66] But Pfizer did not do that. Rather, it contested the very hypothetical that Teva relied upon in support of its damages claim—that Ratiopharm (Teva) would have and could have obtained venlafaxine in sufficient quantities from Alembic—and it submitted that Teva failed to prove that on the balance of probabilities. It is as if, in Rainbow Industrial Caterers, CN took the position that Rainbow had failed to adduce enough evidence to prove its version of what could have and would have happened in the hypothetical world. Under the reasoning in Rainbow Industrial Caterers, the burden of proof would have remained on the plaintiff, Rainbow.
(d) Did the Federal Court err on these matters of principle? [67] Pfizer submits that the Federal Court was not mindful of the foregoing principles. It suggests that the Federal Court only had regard to Alembic’s willingness and potential capacity—not actual capacity—to manufacture Ratiopharm (Teva)’s venlafaxine product at the relevant time. I disagree.
[68] Faced with an allegation that a first-instance court did not apply proper principles, an appellate court must assess what the first-instance court did by reviewing in a holistic, organic and fair way the reasons offered by the court against the record it was considering. Often first-instance courts do not describe the principles that bear upon a case in a perfectly precise or encyclopedic way. Yet, in many such cases, a holistic, organic and fair review of their reasons against the record shows they brought to bear all correct principles.
[69] It must be remembered that judges’ reasons—particularly after long complex trials involving many issues—are often the product of synthesis and distillation. When it comes time to draft reasons in a complex case, trial judges “are not trying to draft an encyclopedia memorializing every last [relevant] morsel.” Rather, they are trying to “distill and synthesize masses of information, separating the wheat from the chaff,” in the end “expressing only the most important…findings and justifications for them”: Canada v. South Yukon Forest Corporation, 2012 FCA 165, 431 N.R. 286 at para. 50.
[70] It is true that the Federal Court did not offer a great deal on the proper principles to be applied concerning the availability of s. 8 damages. However, it was mindful of these principles.
[71] It proceeded on the basis that the hypothetical world that Teva had to prove was one where Wyeth (Pfizer) did not improperly list its ’778 Patent and Ratiopharm (Teva) received its notice of compliance on December 7, 2005. In part for reasons set out later, the Federal Court committed neither legal error nor palpable and overriding error in proceeding on that basis.
[72] With that hypothetical world in mind, the Federal Court held that Teva had to “show on the balance of probabilities that [Ratiopharm (Teva)] was able to supply the market” (at para. 148). This is the “could have” portion of the analysis. And at a number of portions in its reasons, it showed it was alive to the issue whether Ratiopharm (Teva) wanted to supply the market and whether Alembic was willing to produce venlafaxine. This is the “would have” portion of the analysis.
[73] Overall, the Federal Court was very much alive to the need for a firm causal link between failed proceedings under the PMNOC Regulations and the claimed loss. At paragraph 57, it identified the damages as “those that the plaintiff generic suffered ‘by reason of the delayed market entry of its drug’ as stated in the Regulatory Impact Analysis Statement” for the PMNOC Regulations. And at paragraph 61, it identified “[t]he question for the Court” as “whether there is a causal connection between the failed PMNOC proceedings and the loss claimed as damages,” stressing again that the damages claimed must be “causally connected.”
[74] Even if I am wrong in my conclusion that the Federal Court was mindful of proper principles, this is of no consequence. The redetermination I propose will take place upon the proper principles set out in these reasons.
(2) The hearsay issue [75] Pfizer submits that even if the Federal Court appreciated that Teva had to prove it could have supplied its version of venlafaxine in the hypothetical world, it wrongly admitted hearsay evidence on this point.
[76] Pfizer submitted that the Federal Court wrongly adopted hearsay evidence from Mr. Major. Putting aside the first-hand evidence Mr. Major offered from his two week visit to Alembic’s manufacturing facility, some of the rest of his evidence consisted of things told to him by Alembic’s personnel or information from other Ratiopharm (Teva) employees who got that information from Alembic’s personnel. The former is hearsay, the latter is double hearsay. Pfizer says that the Federal Court erred in not excluding this evidence. Teva maintained that none of this evidence was hearsay and so the Federal Court properly admitted all of the evidence.
[77] I agree with Pfizer. The Federal Court improperly admitted hearsay evidence.
(a) General evidentiary principles [78] In considering evidentiary issues in complicated, high-stakes cases such as this, certain high-level principles are best kept front of mind.
[79] We start with a fundamental general principle: facts must be proven by admissible evidence: see R. v. Schwartz, [1988] 2 S.C.R. 443 at pp. 476-77, 55 D.L.R. (4th) 1; Canadian Copyright Licensing Agency (Access Copyright) v. Alberta, 2015 FCA 268, 392 D.L.R. (4th) 563 at para. 20; Canada v. Kabul Farms Inc., 2016 FCA 143 at para. 38. Put another way, a court can act only on the basis of facts proven by admissible evidence or evidence whose admissibility has not been contested: Kahkewistahaw First Nation v. Taypotat, 2015 SCC 30, [2015] 2 S.C.R. 548 at paras. 26-27.
[80] There are rarely-occurring exceptions to this. These include circumstances where facts are subject to judicial notice (see, e.g., R. v. Spence, 2005 SCC 71, [2005] 3 S.C.R. 458), facts are deemed or presumed by legislation to exist, facts have been found in previous proceedings in circumstances where they bind the court (see, e.g., Danyluk v. Ainsworth Technologies Inc., 2001 SCC 44, [2001] 2 S.C.R. 460), and facts have been stipulated or agreed to.
[81] In a civil case, absent one of those exceptions, admissibility must be the court’s first inquiry where an objection has been made. If the evidence is not admissible, it is not before the court in any way and, thus, the court cannot deal with it in any way.
[82] Appellate courts may interfere with admissibility decisions vitiated by errors of law: R. v. Fanjoy, [1985] 2 S.C.R. 233 at p. 238, 21 D.L.R. (4th) 321; R. v. Evans, [1993] 3 S.C.R. 653 at p. 664, 108 D.L.R. (4th) 32; Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; and in the case of hearsay evidence, see R. v. Saddleback, 2014 ABCA 166, 575 A.R. 203 at para. 8. Any factual findings that affect the application of a law of evidence are entitled to deference: R. v. Youvarajah, 2013 SCC 41, [2013] 2 S.C.R. 720 at para. 31.
[83] Recently, some rules of evidence have been liberalized, allowing for more flexibility. Seduced by this trend towards flexibility, some judges in various jurisdictions have been tempted to rule all relevant evidence as admissible, subject to their later assessment of weight. But according to our Supreme Court, this is heresy. The trend towards flexibility has not undermined the need for judges to take a rigorous approach to admissibility, separating that analytical step from others, such as determining the weight to be given to evidence: R. v. Khelawon, 2006 SCC 57, [2006] 2 S.C.R. 787 at para. 59.
[84] Sometimes courts—aiming to prevent trials from bogging down—provisionally