Monday, June 24, 2019

Standard for Proving Irreparable Harm Due to Inability to Pay

Arysta Lifescience North America, LLC v AgraCity Crop & Nutrition Ltd 2019 FC 530 Pentney J
            2,346,021 / flucarbazone sodium herbicide / EVEREST

It is notoriously difficult for a patentee to obtain an interlocutory injunction in Canada, primarily because of the stringent test applied in the Federal Courts in respect of irreparable harm, the second branch of the tripartite test for an interlocutory injunction set out in RJR-MacDonald [1994] 1 SCR 311. In this decision, the patentee, Arysta, was able to overcome that hurdle. Pentney J granted Arysta’s motion for an interim injunction, after finding that Arysta had established irreparable harm [72], the other elements of the RJR-MacDonald test were satisfied [40], [80] and also that the matter was urgent, as is required for an interim injunction [3], [81].

Despite the result, this decision does not, on its face, mark any relaxation of the stringent test for irreparable harm. Pentney J noted and accepted the FCA jurisprudence that establishes the threshold for irreparable harm as “very high” [21], and he emphasized the “particular circumstances of this case” [3], [81]. The decision nonetheless raises a question as to whether any different approach will be applied when the alleged irreparable harm stems from the defendant’s inability to pay a damages award, as it was here.

The case can be distinguished straightforwardly on the facts from the more typical Federal Court patent cases in which an interlocutory injunction is denied. In such cases the key question on irreparable harm is whether damages will be fully compensatory: see here for a review of some of the recent decision. In principle, of course, damages are intended to provide full compensation, so the question is whether, on the facts of the case, damages are so difficult to assess as to make it likely that the patentee will be undercompensated, should it win at trial. In this case, the focus was not the court’s ability to assess damages accurately, but rather on the defendant’s ability to pay any damages which might be awarded.

At first blush, such a distinction makes perfect sense: even if the court assesses damages perfectly, the plaintiff will clearly suffer irreparable harm if it is unable to actually recover the amount awarded. However, it is not clear that the distinction supports a different approach to irreparable harm in a case such as Arysta. The high threshold for irreparable harm in the Federal Courts stems, in principle, from an evidentiary principle. The FCA has consistently held that “the evidence as to irreparable harm must be clear and not speculative”: ICI v Apotex (1989) 27 CPR (3d) 345 (FCA) 351. That is, the jurisprudence does not say that difficulty in assessing damages can never in principle amount to irreparable harm, but rather that the difficulty in assessing damages must be established on a firm evidentiary basis. The rule that “the evidence as to irreparable harm must be clear and not speculative,” on its face applies to any allegation of irreparable harm, whether the substantive issue is difficulty of quantification or ability to pay.

So, when the patentee alleges irreparable harm based on the defendant’s inability to pay a damages award, it would seem that this inability to pay must be established on the basis of evidence which is clear and not speculative. However, Pentney J’s analysis did not turn on this general principle. Instead, he reviewed the jurisprudence on the evidentiary standard relevant to inability to pay in particular:

[46] The concern about an inability of the defendant to pay a damages award will be difficult to establish, since the information relevant to the question will be largely in the control of the defendant. The onus on the plaintiff for establishing irreparable harm on this basis has been variously expressed as: “a very serious doubt” (Bulman Group Ltd v Alpha One-Write Systems British Columbia Ltd (1981), 54 CPR (2d) 171, at p 172); or “strong indications that a substantial judgment would be uncollectable” (Dyckerhoff & Widmann AG v Advanced Construction Enterprises Inc, [1986] 1 FC 526, at p 534 (TD); or “reasonable grounds for concern that it is unlikely that any substantial monetary judgment… could be collected or enforced” (Titan Linkabit Corp v SEE See Electronic Engineering Inc (1993), 48 CPR (3d) 62, at p 78 (FCTD)).

It’s reasonable enough to cite authorities on the issue of ability to pay specifically, as that is a narrower subset of the more general question of irreparable harm, and so cases on that point should be more directly applicable. But cases on a narrower point should nonetheless reflect the application of the broader principle on the more specific facts, and it is not clear to me that the standard articulated in these cases is consistent with the more general requirement that the evidence of irreparable harm must be established on the basis of evidence that is “clear and not speculative.” The standard of “reasonable grounds for concern” (Titan Linkabit) seems to me to be clearly lower. “Strong indications” (Dyckerhoff) also strikes me as a lower standard, though perhaps “a very serious doubt” (Bulman) is closer to “clear and not speculative.” None of these cases explains how these standards fit with the modern requirement that the evidence of irreparable harm must be “clear and not speculative,” and indeed none of them mentions that standard, nor any of the current leading cases. No doubt this is simply because the “clear and not speculative” standard was not fully established when they were decided.

Nor does Pentney J clearly explain the relationship between these standards. On the facts, he held that irreparable harm had been established because Arysta had demonstrated “serious reason to doubt” whether AgraCity would be able to pay a damages award [50], and also that “Arysta has demonstrated, through clear and non-speculative evidence, that there is a substantial risk” that AgraCity would not be able to pay a damages award [53].

The phrase “serious reason to doubt” used at [50] seems to me to be a clearly lower standard than “clear and not speculative.” The evidence reviewed by Pentney J related to AgraCity’s ability to pay at [47], strikes me as somewhat speculative, at least by the standards normally used in establishing irreparable harm, though certainly adequate to raise a serious doubt. This suggests that Pentney J was applying a “serious reason to doubt” standard rather than a “clear and not speculative” standard, though of course he may simply have viewed the evidence differently, particularly given that I don’t have the benefit of the full record.

Pentney J’s statement at [53] seems to imply a distinction between the degree of risk (“substantial”) and the evidence (“clear and not speculative”). Perhaps that is a sound basis for reconciling the various standards, but I’m not sure such a distinction is consistent with the jurisprudence dealing with cases where the concern is quantification, rather than ability to pay.

If there is some kind of different standard, perhaps it is justifiable on the basis that “the information relevant to the question will be largely in the control of the defendant” [46]. A similar point was made in Bulman, when the court remarked that the serious doubt arose because “[t]here was in effect a refusal [by the defendant] to divulge information as to financial responsibility” (172). This does strike me as a principled evidentiary reason for distinguishing cases involving ability to pay from those involving difficulty of quantification. It is also an evidentiary point, which might therefore be taken as a refinement of the general evidentiary rule. Perhaps the principle is that the plaintiff must establish irreparable harm on the basis of evidence that is clear and not speculative, unless the relevant evidence is largely in the control of the defendant, in which case it is enough to raise a serious doubt. With that said, even if this point is consistent with Bulman, I don’t see it as driving the result in Bulman, which took a more holistic approach — indeed, Bulman considered ability to pay in the context of the balance of convenience as much as in the context of irreparable harm. And I don’t see this evidentiary point as explaining Titan Linkabit or Dyckerhoff, neither of which mentioned such any evidentiary difficulty.

In summary, Pentney J’s analysis of the significance of ability to pay is consistent with the cases he cited, which were on point, but those cases are relatively old, and it is not clear to me they are consistent with the modern requirement that the evidence of irreparable harm must be clear and not speculative. I do not mean this as any criticism of Pentney J. On the contrary, apart from this narrow issue, his application of the relevant principles to the facts strikes me as entirely sound. And to the extent that the decision illustrates a tension in the standard for irreparable harm, I am not suggesting that the older cases should be rejected, as I have long been critical of the current approach to irreparable harm: see Norman Siebrasse, ‘Interlocutory Injunctions and Irreparable Harm in the Federal Courts’ (2010) 88 Canadian Bar Review 517.

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