Judgments

[1997] 2 F.C. 681

T-1437-96

Hoffmann-La Roche Limited and Syntex Pharmaceuticals International Limited (Applicants)

v.

The Minister of National Health and Welfare and Nu-Pharm Inc. (Respondents)

Indexed as: Hoffmann-La Roche Ltd. v. Canada (Minister of National Health and Welfare) (T.D.)

Trial Division, Richard J.—Toronto, February 3; Ottawa, February 17, 1997.

Practice — Res judicata — Application to compel answers to questions directed to ownership, control, management, financial, commercial interests between two corporations upon cross-examination on affidavit — Applicants alleging estoppel, res judicata in originating notice of motion — Affidavit denying privity — “Privies” no longer defined as meaning only those claiming by inheritance, succession or assignment — On cross-examination as to denial of privity, applicants entitled to examine relationship between corporations — Control most explicit factor to determine existence of relationship.

This was an application to compel a Senior Vice-President of Nu-Pharm Inc. to answer questions directed to the question of ownership, control, management or financial or commercial interests existing between Nu-Pharm and Apotex, which he had refused to answer on cross-examination on his affidavit. The applicants asserted that the questions arose from the denial in the affidavit, that Nu-Pharm was a privy of Apotex, in response to allegations of res judicata and estoppel in the originating notice of motion. The applicants had alleged that Nu-Pharm and Apotex were privies, or acting in concert, in attempting to obtain an NOC for naproxen sustained release tablets, that Apotex had legal or de facto control over Nu-Pharm, and that Apotex was using Nu-Pharm to circumvent a court order. The respondent argued that the questions were not relevant to the issue of whether they were privies. It relied on the Black’s Law Dictionary definition of “privy”, which cites as examples persons claiming by inheritance, succession or assignment. The issue was the meaning of “privies”, the third condition for res judicata.

Held, the application should be allowed.

The present day notion of “privies” goes beyond the examples given in Black’s Law Dictionary. Undoubtedly a large number of factors can be identified to determine whether there exists such a close relationship between two corporations that what apparently concerns one actually pertains to the activities of the other, but the factor that is most explicit and most likely to cover all aspects of the concept is control. On cross-examination as to the denial of privity, the applicants are entitled to examine the relationship between the two corporations to ascertain whether one corporation is the alter ego of the other or whether they should be treated as one. The respondent may apply for a protective order concerning any answers which may be given concerning the relationship between Nu-Pharm and Apotex which might disclose information of a confidential nature.

STATUTES AND REGULATIONS JUDICIALLY CONSIDERED

Federal Court Rules, C.R.C., c. 663, R. 1600 (as enacted by SOR/92-43, s. 19).

Patented Medicines (Notice of Compliance) Regulations, SOR/93-133, s. 6.

CASES JUDICIALLY CONSIDERED

CONSIDERED:

Merck Frosst Canada Inc. v. Canada (Minister of National Health and Welfare) (1994), 55 C.P.R. (3d) 302; 169 N.R. 342 (F.C.A.); Laferrière v. Gariépy (1921), 62 S.C.R. 557; Angle v. M.N.R., [1975] 2 S.C.R. 248; (1974), 47 D.L.R. (3d) 544; 74 DTC 6278; 2 N.R. 397; Carl Zeiss Stiftung v. Rayner & Keeler Ltd. (No. 2), [1967] 1 A.C. 853 (H.L.); Roberge v. Bolduc, [1991] 1 S.C.R. 374; (1991), 78 D.L.R. (4th) 666; 39 Q.A.C. 81; 123 N.R. 1; Buanderie centrale de Montréal Inc. v. Montreal (City); Conseil de la santé et des services sociaux de la région de Montréal métropolitain v. Montreal (City), [1994] 3 S.C.R. 29; (1994), 63 Q.A.C. 191; [1995] 1 C.T.C. 223; 171 N.R. 191; Aluminum Company of Canada Ltd. v. The Corporation of the City of Toronto, [1944] S.C.R. 267; [1944] 3 D.L.R. 609.

REFERRED TO:

Rocois Construction Inc. v. Québec Ready Mix Inc., [1990] 2 S.C.R. 440; (1990), Q.A.C. 241; 112 N.R. 241; Dumont Vins & Spiritueux Inc. v. Celliers du Monde Inc., [1992] 2 F.C. 634 (1992), 42 C.P.R. (3d) 197; 139 N.R. 357 (C.A.); Gleeson v. J. Wippell, [1977] 1 W.L.R. 510 (Ch.D.); Re a Company, [1985] B.C.L.C. 333 (C.A.).

AUTHORS CITED

Black’s Law Dictionary, 6th ed. St. Paul, Minn.: West Publishing Co., 1990. “privy”.

Bower, George Spencer. The Doctrine of Res Judicata, London: Butterworths, 1969.

APPLICATION to compel a corporate officer to answer questions directed to ownership, control, management, financial or commercial interests existing between his corporation and another which he had refused to answer upon cross-examination on his affidavit, filed in response to an originating notice of motion alleging that the corporations were privies in attempting to secure an NOC for a patented medicine. Application allowed.

COUNSEL:

J. Sheldon Hamilton for applicants.

Andrew R. Brodkin and Iain MacKinnon for respondent Nu-Pharm Inc.

SOLICITORS:

Smart & Biggar, Toronto, for applicants.

Deputy Attorney General of Canada for respondent the Minister of National Health and Welfare.

Goodman Phillips & Vineberg, Toronto, for respondent Nu-Pharm Inc.

The following are the reasons for order rendered in English by

Richard J.: The applicants, who are the moving party in this motion, seek to compel the deponent, Richard Benyak, Senior Vice-President of Sales and Marketing with Nu-Pharm Inc., to answer certain questions which he refused to answer on his cross-examination held on January 10, 1997. The categories of questions which he refused to answer are as follows:

1-         Directors and Officers of Nu-Pharm and Relations to Apotex.

2-         Financial Interest of Nu-Pharm Officers in Apotex.

3-         Shareholders of Nu-Pharm and their Relation to Apotex.

4-         Change in Mr. Benyak’s position.

5-         Corporate Finance relations between Nu-Pharm and Apotex.

6-         Agreement between Apotex and Nu-Pharm with respect to the Naproxen Cross-Reference.

7-         Nu-Pharm/Apotex relations on Naproxen.

8-         Marketing of Naproxen slow release.

9-         Miscellaneous.

In their Originating Notice of Motion, the applicants allege, inter alia:

14. Given that Nu-Pharm’s letter[1] was sent only days after the Applicants commenced the second proceeding against Apotex relying upon, inter alia, the doctrine of res judicata, estoppel and merger, and given the similarity of language used by Apotex in the March 22, 1996 letter and that used by Nu-Pharm in the May 2, 1996 letter, Nu-Pharm and Apotex are privies or are otherwise co-operating or acting in concert, in attempting to circumvent the March 20, 1996 Order of Madame Justice Reed. At all times relevant, Nu-Pharm and Apotex have been privies or have been co-operating or otherwise acting in concert to obtain an NOC for naproxen sustained release tablets. Apotex has legal and / or de facto control over Nu-Pharm and has used said control in respect of the letter of May 2, 1996 from Nu-Pharm. Apotex is using Nu-Pharm to circumvent the aforesaid Order of Reed J. The information in Nu-Pharm’s NDS for naproxen sustained release tablets originated with Apotex.

In the affidavit filed on behalf of Nu-Pharm Inc., the deponent states:

12. There is absolutely no substance to the assertion made by the Applicants in the within case that Nu-Pharm is a privy of Apotex and the assertion that Nu-Pharm in essence conspired with Apotex to avoid the result of the Order of Madam Justice Reed in Court File No. 1898-93 involving Apotex.

The Court of Appeal[2] has held that an application under section 6 of the Patented Medicines (Notice of Compliance) Regulations[3] is not an ordinary action for infringement, but an application for judicial review governed by the 1600 rules [Federal Court Rules, C.R.C., c. 663 (as enacted by SOR/92-43, s. 19)]. There is no opportunity for either party to have recourse to discovery, whether oral or documentary. There is no obligation on the respondent to produce any affidavit at all, but where either party files an affidavit there is, of course, opportunity for the opposite party to cross-examine thereon. Such cross-examination is far more limited in scope than examination for discovery and, apart from questions going to the witness’ credibility, is limited to relevant matters arising from the affidavit itself.

Here the applicants claim that the series of questions refused to be answered by the witness arise from the affidavit, which is itself a response to the allegations in the originating notice of motion. The applicants have alleged res judicata and estoppel. The deponent, in his affidavit, has denied that Nu-Pharm Inc. and Apotex are privies or have conspired to avoid an earlier order of this Court. The respondent claims that questions directed to the question of ownership, control, management or financial or commercial interests existing between Nu-Pharm Inc. and Apotex are not relevant to the issue of whether they are privies (or that privity exists between them) since the word “privies” has a very limited meaning, such as persons claiming by inheritance or assignment.

I am not called upon to rule on the validity of the claim of res judicata or estoppel. I must consider the meaning of the word “privies” in the third prong of the res judicata test to determine whether the questions put to the witness are relevant to matters arising from his affidavit.

The doctrine of res judicata is based on a presumption juris et de jure, one might even say a rule of public order, that the conclusion reached by the judge is true: res judicata pro veritate habetur. It is based not on the consent of one of the parties, as might be inferred from the fact that he did not appeal from the judgment, but upon the unimpeachable truth of the terms of that judgment, which, when it became absolute, could no longer be questioned. And that presumption of truth has been admitted as a bar to any further action between the same parties regarding the same matter, and to make it impossible for the parties to obtain contradictory judgments.[4]

Res judicata is also designated by the generic term estoppel per rem judicatam. This form of estoppel has two species. In Angle v. M.N.R., [1975] 2 S.C.R. 248, Dickson J. (as he then was) wrote as follows [at pages 253-254]:

In earlier times res judicata in its operation as estoppel was referred to as estoppel by record, that is to say, estoppel by the written record of a court of record, but now the generic term more frequently found is estoppel per rem judicatam. This form of estoppel, as Diplock L.J. said in Thoday v. Thoday ([1964] P. 181), at p. 198, has two species. The first, “cause of action estoppel”, precludes a person from bringing an action against another when that same cause of action has been determined in earlier proceedings by a court of competent jurisdiction. We are not here concerned with cause of action estoppel as the Minister’s present claim that Mrs. Angle is indebted to Transworld in the sum of $34,612.33 is obviously not the cause of action which came before the Exchequer Court in the s. 8(1)(c) proceedings. The second species of estoppel per rem judicatam is known as “issue estoppel”, a phrase coined by Higgins J. of the High Court of Australia in Hoystead v. Federal Commissioner of Taxation ((1921), 29 C.L.R. 537), at p. 561:

I fully recognize the distinction between the doctrine of res judicata where another action is brought for the same cause of action as has been the subject of previous adjudication, and the doctrine of estoppel where, the cause of action being different, some point or issue of fact has already been decided (I may call it “issue-estoppel”).

Lord Guest in Carl Zeiss Stiftung v. Rayner & Keeler Ltd. (No. 2) ([1967] 1 A.C. 853), at p. 935, defined the requirements of issue estoppel as:

… (1) that the same question has been decided; (2) that the judicial decision which is said to create the estoppel was final; and, (3) that the parties to the judicial decision or their privies were the same persons as the parties to the proceedings in which the estoppel is raised or their privies ….

Therefore, three identities must be present; the identity of the object; the identity of action and the identity of persons. As the two other identities, the identity of parties is a sine qua non condition.[5]

I need not concern myself with the identities of object and of action on this motion. I need only deal with the identity of parties, in which the notion of “privies” is relevant. I start with the observation that there is a dearth of authority[6] upon the question of who are “privies”.

In a leading text on the subject we read:[7]

A judicial decision inter partes operates as an estoppel, in favour of, and against, parties and privies only, not third persons or strangers.

…

Conversely, two persons distinct in name, but substantially identical in title and interest, constitute in law one and the same party for the purposes of estoppel by res judicata, as for all others.

…

“Persons”, for the purposes of the rules now under discussion, means an artificial, as well as a natural, person. It therefore comprises corporations, whether aggregate, or sole, such as the Crown, which can take advantage of, and is bound by, any estoppel per rem judicatam, as much as any of the Queen’s subjects.

Counsel for Nu-Pharm relied on the Black’s Law Dictionary,[8] the definition of “privy” which reads as follows:

A person who is in privity with another. One who is a partaker or has any part or interest in any action, matter, or thing. In connection with the doctrine of res judicata, one who, after the commencement of the action, has acquired an interest in the subject matter affected by the judgment through or under one of the parties, as by inheritance, succession, purchase or assignment. Rhyne v. Miami-Dade Water and Sewer Authority, Fla.App., 402 So.2d 54, 55. See Insider; Privies; Privity.

As an adjective, the word has practically the same meaning as “private”.

In my opinion, the present day notion of “privies” in the third prong of the res judicata doctrine goes beyond the examples given in Black’s dictionary.

In Carl Zeiss Stiftung v. Rayner & Keeler Ltd. (No. 2),[9] Lord Guest wrote as follows:

The next requirement is that the judgment should have been between the same parties or their privies …. “Privies” have been described as those who are “privy to (the party) in estate or interest” (Spencer Bower on Res Judicata, p. 130). Before a person can be privy to a party there must be community or privity of interest between them …. It was argued for the respondents, although without clear authority in this country, that “privy” covers a person who is in control of proceedings. Reference was made to the American Restatement of the Law (Judgments) (1942), s. 84, where it is said that a person who is not a party but who controls an action is bound by the judgment as if he were a party if he has a proprietary or financial interest in the judgment as a privy… We were referred to a number of American cases dealing with privies. I am not prepared in this country to extend the doctrine to the extent which it apparently has reached in that country.

In Roberge v. Bolduc,[10] Madam Justice L’Heureux-Dubé wrote as follows:

This is not to say that the parties must be physically identical in both cases. It is the juridical identity of the parties that is required for the presumption of res judicata to apply, as Mignault, op. cit., contends, at p. 110:

[translation] And by identity of persons must be understood legal identity, not physical identity. (Emphasis in original.)

Nadeau and Ducharme, op. cit., at No. 573, p. 472, emphasize this distinction:

[translation] For res judicata there must be legal identity of the parties, not mere physical identity. The one may exist without the other. There is legal identity whenever one person represents another or is represented by him. (References omitted.)

…

The examples of representation by one party of another are too numerous to list or discuss here. Aubry and Rau, op. cit., at pp. 335-56, review them in detail and even such review is not necessarily exhaustive. Representation may depend on the facts of the particular case and the interests of the parties involved. Suffice it to say that, for the identity of parties in so far as it relates to res judicata, juridical identity is all that is required.

In an analysis of the relationship between two companies, one can look to the control one might exercise on the other. The notion of control is relevant between a parent company and subsidiary or affiliated companies. In Buanderie centrale de Montréal Inc. v. Montreal (City); Conseil de la santé et des services sociaux de la région de Montréal métropolitain v. Montreal (City),[11] Gonthier J. wrote as follows:

Additionally, in Smith, Stone & Knight, Ltd. v. Birmingham Corp., [1939] 4 All E.R. 116 (K.B.), Atkinson J. came to the conclusion that a parent company could sue the persons responsible for damage caused to one of its subsidiaries. For the case at bar, and regardless of this latter conclusion, most relevant is the way in which the judge arrived at the finding that the subsidiary was not operating on its own account but solely as an integral part of the parent company’s activities. To this end he consulted a number of decisions, all of which involved tax law, which needless to say is not without relevance to the case now before the Court. Using these decisions, he identified, at p. 121, six factors that could justify treating two corporations as one for tax purposes. I set them out below:

(1) Were the profits treated as the profits of the [parent] company?

(2) [W]ere the persons conducting the business appointed by the parent company?

(3) [W]as the [parent] company the head and the brain of the trading venture?

(4) [D]id the [parent] company govern the adventure, decide what should be done and what capital should be embarked on the venture?

(5) [D]id the [parent] company make the profits by its skill and direction?

(6) [W]as the [parent] company in effectual and constant control?

Finally, I note Aluminum Company of Canada Ltd. v. The Corporation of the City of Toronto, [1944] S.C.R. 267, which this time clearly dealt with tax law, and the following passage from Rand J., at page 271, which illustrates the special relationship sought by the courts in order to justify treating two corporations as one for tax purposes:

By the decision of this Court in the case of City of Toronto v. Famous Players’ Canadian Corporation Ltd. ([1936] S.C.R. 141), it is now settled that the business of one company can embrace the apparent or nominal business of another company where the conditions are such that it can be said that the second company is in fact the puppet of the first; when the directing mind and will of the former reaches into and through the corporate façade of the latter and becomes, itself, the manifesting agency. In such a case, it is not accurate to describe the business as being carried on by the puppet for the benefit of the dominant company. The business is in fact that of the latter. This does not mean, however, that for other purposes the subsidiary may not be the legal entity to be dealt with.

The question, then, in each case, apart from formal agency which is not present here, is whether or not the parent company is in fact in such an intimate and immediate domination of the motions of the subordinate company that it can be said that the latter has, in the true sense of the expression, no independent functioning of its own.

In light of the foregoing cases, a corporation may be regarded as the alter ego of another corporation when there is such a close relationship between them that what apparently concerns one actually pertains to the activities of the other. Undoubtedly a large number of factors can be identified to determine the existence of such a relationship: in my opinion, however, the one that is most explicit and most likely to cover all aspects of the concept is control.

It has been held that a trade relationship between two defendants is not a ground for holding that there was any privity of interest existing between them.[12]

However, the courts have lifted or pierced the corporate veil in order to achieve justice.[13]

On cross-examination of the denial of privity, the applicants are entitled to examine the relationship between the two corporations to ascertain whether one corporation is the alter ego of the other or whether they should be treated as one.

I have therefore concluded that the questions are relevant and proper and must be answered.

There is a sub-set of questions dealing with the Naproxen cross-reference which arise out of paragraphs 3, 10 and 13 of the affidavit. They read as follows:

3. In obtaining its Notices of Compliance, Nu-Pharm will either file its own, independent New Drug Submission, or alternatively, will cross-reference its New Drug Submission to that of another manufacturer that has already obtained a Notice of Compliance for the particular drug in use.

10. The Nu-Pharm submission for its Notice of Compliance for naproxen slow release tablets is a cross-referenced submission to the Apotex submission for naproxen slow release tablets, and indeed, as is evident from the formulation for the Nu-Pharm naproxen slow release tablets, it is the same as the Apotex formulation. Apotex will be manufacturing for Nu-Pharm its naproxen slow release tablets if, as and when Nu-Pharm obtains its Notice of Compliance.

13. The Nu-Pharm arrangement with Apotex regarding naproxen slow release tablets is consistent with the ongoing and prior arrangement between Nu-Pharm and Apotex in respect of a number of other drug products. In every case, Nu-Pharm, in its own right, must apply for and obtain its own Notice of Compliance. This is what it seeks to do with respect to naproxen slow release tablets.

Irrespective of my ruling on the questions concerning privies, the questions directed to this issue are relevant and proper and they must be answered by the witness.

The respondent, Nu-Pharm, is at liberty to apply to the Court for a protective order concerning any answers which may be given concerning the relationship between Nu-Pharm and Apotex which might disclose information of a confidential nature.

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