Canada: Regulatory Trends in the Courts: What’s New and What’s Coming

Published in gordongroup's BIOTECanada Insights, Spring 2004.

A vital prerequisite to marketing biologics, pharmaceutical and medical devices in Canada is successfully completing the product approval process. Two emerging trends from the courts may make the approval process even more important. Health Canada’s approval of drugs and devices has formed the basis of both claims and defences in recent product liability actions. These cases suggest that regulatory misstatements might be recognized by the courts as a basis for claims in negligence. On the other hand, a defence of regulatory approval might in some circumstances be available. Significant changes—both positive and negative—could be in store for companies making these products, should these claims and defences be recognized by the courts.

Allegations of "regulatory misrepresentation"—that is, misstatements made to regulatory authorities during the product approval process—have been advanced by plaintiffs as part of claims of negligent misrepresentation. The nature of these allegations is that, but for the defendant’s misstatements, Health Canada would never have approved the product, and so the drug or device in question would never have reached the market in general or the plaintiff in particular.

This argument is interesting because, in Canada, proof of negligent misrepresentation usually depends on the plaintiff’s being able to show that he or she actually relied on statements made by the defendant. For drugs and medical devices, however, it is unlikely that a plaintiff would have any idea of what the manufacturer might have said in its regulatory submission. So plaintiffs have attempted to base their claims on "indirect" misrepresentation—that is, they relied on Health Canada’s approval of the product, which was itself based on misinformation in the original submission.

For example, in Boulanger v. Johnson & Johnson Corp. (a proposed class action regarding the drug Prepulsid), the plaintiff sought damages for, among other things, certain defendants’ "fraudulent and/or negligent filings with Health Canada to obtain its approval for Prepulsid."¹ The defendants brought a motion to strike those allegations on the basis that no cause of action was disclosed.

The lower court struck out the claim on the ground, among others, that "indirect reliance" has not been recognized in Ontario. On appeal, the Court of Appeal for Ontario disagreed.

The Court of Appeal held, as did the lower court, that the regulatory misrepresentations as pleaded did not disclose a reasonable cause of action based on negligent misrepresentation; a plea of actual reliance is necessary. Here, the plaintiff did not plead actual reliance on the defendants’ regulatory submission, or on Health Canada’s approval of the product, and so the claim for negligent misrepresentation could not succeed.

Significantly, however, the Court of Appeal went on to find that the plaintiff’s allegations in this case could be sustainable as a claim for negligence,² and that this type of claim could, in the right circumstances, give rise to a claim for negligent misrepresentation:

While the appeal court’s decision in Boulanger has merely permitted this novel claim to proceed to trial, a change in the law may be coming: allegations of regulatory misrepresentation in the product approval process may be recognized as a basis for claims in negligence or negligent misrepresentation in Canada.

On the other side of the coin, can a manufacturer defend itself in product liability litigation on the basis that Health Canada carefully scrutinized the product and deemed it to be safe? The answer to this question in the pharmaceutical product liability arena has not been settled. In other areas, regulatory compliance does not foreclose a finding of negligence.⁴ However, it might do so in the tightly controlled regulatory regime governing drugs and medical devices.

In another context, the Supreme Court of Canada considered the defence of statutory compliance and noted that "mere compliance" with a statute does not, by itself, preclude a finding of civil liability. However, "[w]here a statute authorizes certain activities and strictly defines the manner of performance and the precautions to be taken, it is more likely to be found that compliance with the statute constitutes reasonable care and that no additional measures are required."⁵

Given the rigorous review process to which pharmaceuticals are subjected, there might be a viable argument that a manufacturer, having taken all steps required to obtain regulatory approval, has at the same time discharged all obligations to take care that the product is safe; or, the fact of obtaining regulatory approval could raise a rebuttable presumption that the manufacturer was not negligent.

The courts have not yet made definitive decisions about whether these novel claims and defences are available. However, rulings regarding whether they form part of Canadian law cannot be far off. For regulatory affairs personnel, claims based on regulatory misrepresentation would undoubtedly lead to more frequent requests for regulatory filings by prospective plaintiffs through access-to-information legislation. These claims could also lead to the need for even closer scrutiny of regulatory filings by companies and their counsel. On the other hand, for companies with unimpeachable filings, the defence of regulatory approval could reduce the risk and also the cost of product liability litigation.