The Supreme Court of Canada has granted leave to Katz Group Canada Inc. ("Katz Group") and Shoppers Drug Mart Inc. ("Shoppers") and related entities to appeal a decision of the Court of Appeal for Ontario, which upheld as lawful the banning by the Ontario government by regulation of the designation in the public formulary of so-called "private label" generic drugs.  The appeal, which is to be heard in May 2013, raises important issues concerning the respective roles of the legislative, executive and judicial branches of government in a major area of health and finance policy.

Subsidiaries of Katz Group and Shoppers applied to the Executive Officer, an Ontario government official, for listing, on the public drug formulary, of certain generic prescription drugs of which they were the "manufacturer".  (A "manufacturer" of  drugs does not necessarily make the drugs but is responsible under the applicable federal legislation for all licensing, reporting and recall obligations.)  The companies in question had outsourced the fabrication of the drugs to third parties, and intended to sell the drugs under their own labels.  The Executive Officer declined to list the drugs on the formulary because the Ontario government had announced that it intended to ban the listing of private label generic drugs.  That ban was subsequently effected by way of regulations, effective July 1, 2010, under the Ontario Drug Benefit Act (the "ODBA") and the Drug Interchangeability and Dispensing Fee Act  (the "DIDFA").

Both the Katz Group and Shoppers applied for judicial review of the regulations.  Initially, a three-judge panel of the Divisional Court unanimously found the private label ban to be ultra vires both the ODBA and the DIDFA as (i) falling outside the authority to enact regulations under those statutes because they purported to "prohibit" rather than "regulate", (ii) falling outside the purpose of the statutes and (iii) interfering with property and commercial rights without express authority under the statutes.

The Province of Ontario sought and obtained leave to appeal to the Ontario Court of Appeal from the decision of the Divisional Court.  On December 23, 2011, the Court of Appeal allowed the appeal in a 2-1 decision.  The majority held that a private label ban was authorized under the ODBA and the DIDFA, was consistent with the purposes of both statutes, and interfered with property and commercial rights only to the extent "necessarily implied" by the statutes.  The majority also held, in relation to an issue that the Divisional Court did not deal with, that the private label ban did not discriminate in the administrative law sense.  Justice Epstein wrote a strong dissent in which she opined that the ban was neither consistent with, nor rationally connected to the purpose of the statutes; was prohibitive, not regulatory; interfered with property and commercial rights without legislative authority; and discriminated without authority.

In their materials supporting their successful applications for leave to appeal to the Supreme Court of Canada, both Katz Group and Shoppers emphasized the important legal issues raised by the decision of the Court of Appeal.  These issues are obviously of interest to multiple players in the drug market across Canada, but are also of central importance in articulating the respective roles of the legislature and the executive in enacting regulations.

Among the "important questions of administrative law implicating the scope of executive power and the rule of law" raised by Shoppers and Katz Group in their leave applications were:

  1. How should a court determine whether a regulation falls within the object and purpose of a parent statute?  Does there have to be evidence before the court as to what the object and purpose are?
  2. How should a court distinguish between a regulatory prohibition and a condition?  (The enabling provisions of the ODBA and the DIDFA authorize regulations "prescribing conditions to be met" for listing drug products.  Shoppers and Katz Group argued that a regulation that bans the listing of private label drug products does not prescribe conditions to be met.)
  3. How clear must legislation be to authorize an interference with property and commercial rights by regulation?  Is it sufficient that the authority be "necessarily implied", as found by the Court of Appeal?
  4. What is the test for administrative law discrimination, and does the principle apply to regulations?
  5. Does a court owe deference or restraint to the government in reviewing whether a regulation is intra vires a parent statute?

Given these important legal issues, as well as the huge economic impact of the regulations on the generic drug industry, this case will undoubtedly be closely watched across the country.