2017 NLCA 45, 2017 NLCA 45

Council of Independent Community Pharmacy Owners Inc. (appellant) v. Her Majesty the Queen in Right of Newfoundland and Labrador (respondent) (14/113) Indexed As: Council of Independent Community Pharmacy Owners v. Newfoundland and Labrador 2017 NLCA 45 2 C.A.N.L.R. 107 Court of Appeal of Newfoundland and Labrador Welsh, White and Harrington JJ.A. July 25, 2017

Summary: The Pharmaceutical Services Act , SNL 2006, c. P-12.01 pursuant to which the Interchangeable Drug Products Formulary Regulations, 2012 , NLR 23/12 are made, requires the Minister of Health to maintain a list of generic drugs and brand-name equivalents in the Interchangeable Drug Products Formulary. A 2012 change to the Regulations removed the requirement that only a drug manufacturer could apply to have a drug listed in the formulary, allowing the formulary to include “private label” drugs supplied by companies that did not manufacture them.

The Council of Independent Community Pharmacy Owners (“CICPO”) believes that these private label generics are leading to drug shortages. CICPO applied for an order of mandamus , to compel the Minister to more stringently enforce paragraph 4 (

e) of the Regulations and remove pharmaceuticals from the formulary that fail to supply the whole province. An applications judge refused CICPO’s application and CICPO appealed. Held: Appeal dismissed. White J.A. (Welsh and Harrington JJ.A. concurring): Whether or not there is a public legal duty on the Minister to act is a question of law to be reviewed on the standard of correctness. In deciding whether to make an order against the Minister the applications judge had to apply the principles of mandamus , which include whether or not the Minister has a public legal duty to act.

The question in this case is whether the Act or Regulations give the Minister a public legal duty to remove drugs from the formulary because of shortages. The Regulations contemplate that drugs should not be included in the formulary unless the supplier can supply the whole province. Nevertheless, this requirement only applies before the advisory committee will consider an initial application. Once the drug is included in the formulary, the imperative language of

section 4 (

e) no longer applies. Once included, a drug remains in the formulary until it is removed. The requirements of

section 4 only apply once. The scheme for removing drugs is quite different. It is set out in section 19(4) of the Act which gives the Minister a discretion, as opposed to a duty, to remove drugs if it is “necessary” or “advisable in the public interest”. Unlike the initial application process, where each requirement must be met, the removal process is flexible and contextual. If a supplier is unable to supply the whole province with a drug, that is relevant and could support removal. But it is only one factor.

The record does not support a conclusion that the Minister is refusing to enforce the Act or Regulations . The Minister has a broad discretionary power to remove drugs in the public interest, weighing a number of competing factors.

There was therefore no public legal duty for the Minister to act. The appeal was dismissed. Cases cited: Katz Group Canada Inc. v. Ontario (Health and Long-Term Care), 2013 SCC 64, [2013] 3 S.C.R. 810 Apotex Inc. v. Canada (Attorney General), (FCA), [1994] 1 F.C. 742, aff’d (SCC), [1994] 3 S.C.R.1100 Distribution Canada Inc. v. M.N.R., [1993] 2 F.C.R. 26 (C.A.) Counsel: James Goodwin, for the appellant; Rolf Pritchard Q.C. and Mark Sheppard, for the respondent. This appeal was heard on April 4, 2017 before Welsh, White and Harrington JJ.A.

The following judgment was delivered on July 25, 2017 by White J.A. for the Court. ______________________________________________________________ White J.A.: [1] The Council of Independent Community Pharmacy Owners (“CICPO”) appeals from an oral decision and subsequent order of anapplications judge refusing to order the Minister of Health, by way of mandamus, to more stringently enforce paragraph 4(

e) of theInterchangeable Drug Products Formulary Regulations, 2012, NLR 23/12. [2] For the reasons that follow, I would dismiss the appeal. Background [3] The Pharmaceutical Services Act, SNL 2006, c P-12.01 attempts to ensure that whenever possible patients receive inexpensivegeneric drugs instead of expensive brand-name equivalents. It requires the Minister of Health to maintain a list of equivalent drugs, theInterchangeable Drug Products Formulary (s. 19).

When the formulary says two drugs are equivalent, pharmacists must prescribe the cheaper option unless the prescription forbids substitutions or unless the customer requeststhe more expensive drug (s. 21). [4] Pharmaceutical equivalency is not the only consideration in deciding whether to include a generic drug in the formulary. In thepharmaceutical services market, which is heavily regulated and characterized by imperfect competition, including generic drugs in aformulary can have unexpected effects on drug prices and availability. For an illustration, see e.g. Katz Group Canada Inc. v.

Ontario(Health and Long-Term Care), 2013 SCC 64, [2013] 3 S.C.R. 810. The price of drugs is a relevant consideration: see s. 4(

c) of theRegulations. And so, critically to this appeal, is the availability of a reliable supply of drugs across the province: see s. 4(e). [5] Until 2012, only a drug manufacturer could apply to have a drug listed in the formulary. In 2012 this requirement was removed,allowing the formulary to include “private label” drugs supplied by companies that did not manufacture them. These private label drugsare often supplied by companies like Sanis Inc., a wholly owned subsidiary of Shoppers Drug Mart Inc., which runs a large pharmacychain in this province.

Shoppers is in turn owned by Loblaws Inc, which owns another large pharmacy chain. [6] CICPO says that, in the complicated dynamics of the pharmaceutical market, private label generics are leading to drug shortages: … Prior to changes in the legislation in this province, shortages of pharmaceuticals occurred less than 5 times per year. In 2013 therewere over 30 shortages. Recently, there has been an alarming increase in the number of shortages.

Sanis Ltd., a wholly owned subsidiary of Shoppers Drug Mart Inc., is a Supplier of generic pharmaceuticals in this province but does notmanufacture its own pharmaceuticals. Sanis Inc. sources their products directly from other Suppliers. In two [instances], Sanis Inc. is theonly Supplier able to supply the generic pharmaceutical.

Where Sanis Inc. sources their pharmaceuticals from the other Suppliers, theother Suppliers must be withholding supply of these generic pharmaceuticals to patients in this province in order to supply Sanis Inc. [7] While CICPO appears to want the province to stop including private label generics in the formulary, it is seeking narrowerrelief. It says that, under the regulations, suppliers of generic pharmaceuticals have an ongoing obligation to supply the whole province. It seeks an order requiring the Minister to enforce that obligation and remove pharmaceuticals that fail to supply the whole province.

Analysis [8] In deciding whether to order the Minister to fulfill a public legal duty, the applications judge had to apply the principles ofmandamus, as set out in Apotex Inc. v. Canada (Attorney General), (FCA), [1994] 1 F.C. 742 at 767-768 (C.A.), aff’d (SCC), [1994] 3 S.C.R. 1100: 1. There must be a public legal duty to act: …. 2. The duty must be owed to the applicant: Generally, the rule is that mandamus cannot issue with respect to a duty owed to theCrown. Historically, this issue has been framed as one concerning standing to bring a mandamus application.

The Supreme Court hasconsiderably loosened the requirements for standing over the decades… 3. There is a clear right to performance of that duty, in particular: (

a) the applicant has satisfied all conditions precedent giving rise to the duty; … (

b) there was (

i) a prior demand for performance of the duty; (ii) a reasonable time to comply with the demand unless refused outright;and (iii) a subsequent refusal which can be either expressed or implied, e.g. unreasonable delay; … 4. Where the duty sought to be enforced is discretionary, the following rules apply: (

a) in exercising a discretion, the decision-maker must not act in a manner which can be characterized as “unfair”, “oppressive” ordemonstrate “flagrant impropriety” or “bad faith”; (

b) mandamus is unavailable if the decision-maker’s discretion is characterized as being “unqualified”, “absolute”, “permissive” or“unfettered”; (

c) in the exercise of a “fettered” discretion, the decision-maker must act upon “relevant”, as opposed to “irrelevant”, considerations; (

d) mandamus is unavailable to compel the exercise of a “fettered discretion” in a particular way; and (

e) mandamus is only available when the decision-maker’s discretion is “spent”; i.e., the applicant has a vested right to the performanceof the duty. … 5. No other adequate remedy is available to the applicant: … 6. The order sought will be of some practical value or effect: … 7. The Court in the exercise of its discretion finds no equitable bar to the relief sought: … 8.

On a “balance of convenience” an order in the nature of mandamus should (or should not) issue. (Underlining in original.) [9] The first question is whether the Act or Regulations give the Minister “a public legal duty” to remove drugs from the formularybecause of shortages. [10] The applications judge clearly identified the crucial issue as a determination of whether the first principle set out in Apotex hadbeen satisfied.

He concluded that it had not: This matter raises the issue of the proper boundaries between what a court can do, and what the legitimate role of government is, and thecourt really has the authority to interfere only when government is failing in the performance of a legal duty, and as the cases by bothsides made clear, the court will only interfere – well, the first condition of interfering with the operation of government in this sense iswhere there is what we refer to as a clear legal duty, which would normally be found in a statute.

It is not – the court does not have theauthority to interfere in the policy making of government, how government chooses to enforce its policies or conduct its operationsgenerally. [11] The Regulations contemplate that drugs should not be included in the formulary unless the supplier can supply the wholeprovince. That is a precondition for admission under s. 4 of the Regulations: An applicant shall provide the following before the advisory committee will consider its submission for a drug to be included in theformulary: … (

e) confirmation satisfactory to the minister or the advisory committee that the applicant is able to supply the drug to meet the needs ofthe market for that drug throughout the entire province; … [12] The Minister has no discretion to waive this requirement. Nevertheless, it only applies “before the advisory committee willconsider” an initial application. Once the drug is included in the formulary, the imperative language of s. 4(

e) no longer binds it.

[ 13 ] CICPO asserted that the formulary is renewed every six months and that the requirements of s. 4 must be met afresh each time. Perhaps the Minister republishes the formulary every six months, or reviews the formulary every six months. The copies of the formulary in the record are labelled as being effective for a six-month period. But that is a matter of administrative convenience; neither the Act nor the Regulations requires fresh applications every six months. Once included, a drug remains in the formulary until it is removed.

The requirements of s. 4 only apply once. [ 14 ] The scheme for removing drugs is quite different. It is set out in s. 19(4) of the Act : The minister may remove a drug from the formulary where (

a) the manufacturer is not adhering to the price quoted for the drug upon approval for entry into the formulary; (a.1) the manufacturer does not comply with pricing requirements set out in the regulations; (

b) removal from the formulary is advisable in the public interest; or (

c) the minister considers it necessary to do so. [ 15 ] This

section gives the Minister a discretion, as opposed to a duty, to remove drugs if it is “necessary” or “advisable in the public interest”. Unlike the initial application process, where each requirement must be met, the removal process is flexible and contextual. [ 16 ] If a supplier is unable to supply the whole province with a drug, that is relevant and could support removal. But it is only one factor.

The Minister would have to weigh it against other relevant factors, such as the effects of delisting a drug on patients who depend on it. [ 17 ] CICPO says the Minister has a public legal duty to enforce the legislative scheme, citing Distribution Canada Inc. v. M.N.R. , [1993] 2 F.C.R. 26 (C.A.). I am prepared to accept that. It is, however, only if the Minister “turned his back on his duties” or behaved with “bad faith or negligence”, as Desjardins J.A. said, that the Court could intervene. [ 18 ] But the record does not support a conclusion that the Minister is refusing to enforce the Act or Regulations .

The Minister has a broad discretionary power to remove drugs in the public interest, weighing a number of competing factors. CICPO has pointed to a number of instances where the Minister chose not to exercise that power. Taken either individually or together, the decisions not to remove drugs are not so irrational as to constitute evidence of bad faith. [ 19 ] In addition, the Minister provided an affidavit from the Acting Director of the Pharmaceutical Services Division outlining the Minister’s approach to shortages.

According to the affidavit, the primary cause of recent shortages is disruption in supply chains outside the province, and that an effective policy response must be coordinated with other provinces and territories. [ 20 ] I would not comment on the wisdom of the Minister’s approach, except to say that it is not evidence of bad faith or a refusal to enforce the Act .

As the applications judge said, “to enforce an ongoing supply of drugs or to take some kind of investigative steps … are political issues as opposed to legal issues.” [ 21 ] Whether or not there is a public legal duty on the Minister to act is a question of law to be reviewed on the standard of correctness. [ 22 ] The applications judge did not err in his determination that there is no public legal duty on the Minister to act. Conclusion [ 23 ] I would dismiss the appeal. I would agree with the applications judge that each party bear its own costs as the matter does have some general public importance.

Appeal dismissed.