Federal Court of Appeal finds no Settlement Agreement between Allergan and Apotex

No settlement if, on an objective standard, there is no agreement on essential terms

In Apotex v Allergan,1 the Federal Court of Appeal considered whether settlement discussions between the parties had actually resulted in a binding settlement agreement. The case involved a patent infringement action by Allergan against Apotex in relation to the drug gatifloxacin. The settlement contemplated that Allergan would discontinue its patent infringement action against Apotex in exchange for Apotex undertaking not to manufacture or sell the drug. However, the precise scope of the restrictions to be placed on Apotex was at issue between the parties, leading to 23 months of negotiations. Ultimately, counsel for Apotex agreed to "recommend to its client" that Apotex accept certain terms that had been proposed by Allergan. Counsel for Allergan responded by advising Apotex that "our clients agree to accept."2

Based on its understanding that the parties had actually reached an agreement, Allergan subsequently moved for an order in the Federal Court to enforce its terms. Justice Hughes granted Allergan's motion, finding that the parties had substantially agreed to the terms of settlement, and characterizing the 23 months of negotiation as lawyers' "fussing and wordsmithing."3

The Court of Appeal overturned that decision, and in doing so provided clear guidance to parties as to when settlement discussions cross the line from negotiations and become a binding agreement.

What You Need To Know

  • Whether an agreement has been reached must be assessed on an objective standard. The Court of Appeal concluded that the motion judge had erred by being "distracted by Allergan's subjective view," that an agreement had been reached. The Court clarified that the proper question is whether the parties had a mutual intention to create binding legal relations, from the perspective of a reasonable bystander (i.e., an objective standard). Evidence as to the parties' subjective intention is therefore irrelevant.4
  • But this does not mean that a formal, signed agreement is required. The Court emphasized that the requirement of a mutual intention to create legal relations does not mean that there must be formality. Rather, "seemingly idle conversations can have binding, legal consequences."5 Thus, where parties do not wish to be bound until they have agreed to all terms they consider to be essential to the agreement, the Court encouraged parties to make their intentions clear in every offer communicated.6
  • The key question is whether the parties have agreed to all "essential terms." In determining whether a settlement agreement has been reached, the question is whether, viewed from the perspective of the reasonable business person, had the parties agreed to all "essential terms," or was there something essential left to be worked out? In this case, the terms at issue all related to the scope of restrictions to be placed upon Apotex. The Court of Appeal rejected the characterization of the negotiations on this point as "fussing and wordsmithing." Instead, it concluded that the scope of restrictions formed an important part of the consideration that Allergan was to receive under the contemplated agreement.7 Because there was no agreement on these "essential terms," there could be no settlement agreement.
  • Lawyer’s recommendations to clients to agree do not constitute agreement. The Court found that, even if the e-mail exchange had reflected consensus on the essential terms, there could be no agreement between the parties because counsel had merely agreed to recommend those terms to his client. The client—Apotex—had not actually accepted them. The Court noted that language such as "subject to my client’s instructions" or "I will seek instructions" is not language that can be "glossed over or ignored." Rather, this language clearly communicates to the opposite party that the lawyer has no authority to bind his or her client. 8
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    1 Apotex Inc. v Allergan, Inc., 2016 FCA 155 [Allergan CA]

    2 Ibid. at ¶ 74

    3 Allergan, Inc. v. Apotex Inc., 2015 FC 367 at ¶ 45

    4 Allergan CA at ¶ 21-22, 45-48, 60

    5 Ibid. at ¶ 24

    6 Ibid. at ¶ 52

    7 Ibid. at ¶ 33, 69-71

    8 Ibid. at ¶ 76, 80

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