Compound Interest May Be Awarded as Damages, but Must Be Proven, Not Presumed

Apotex Inc v Eli Lilly and Co 2018 FCA 217 Gauthier JA: Gleason, Laskin JJA aff’g 2014 FC 1254 Zinn J
            1,133,007 – 1,146,536 – 1,133,468 – 1,150,725 [Lilly Patents]
            1,095,026 – 1,132,547 – 1,136,132 – 1,144,924 [Shionogi Patents]

As previous posts this week have discussed, the FCA’s reasoning differed somewhat from that of Zinn J, but in the end it varied his decision only in respect of the award of compound interest, which it returned to him for redetermination. The FCA confirmed that compound interest is available when interest is claimed as a head of damages; but the loss cannot be presumed, and must be proven [156], [158].

Gauthier JA’s discussion started with a brief and helpful discussion of the law relating to compound interest, confirming that while compound prejudgment interest is not available when interest is claimed under s 36 of the FC Act (per 36(4)(b)), it may be awarded when interest is claimed as a head of damages [145]-[152]. (Gauthier JA largely summarized the principles she had stated in Cefaclor Liability FC 2009 FC 991 [665]-[675], but it is helpful to have these principles restated by the FCA itself.)

Gauthier JA also stated that “The Liability Decision was not reversed on appeal and is final. In light of this, in my view, it was not open to Apotex to argue that subsection 55(1) of the Patent Act does not allow for the granting of compound interest” [151]. This seems to be saying that it is not open to Apotex to make that argument because that issue was res judicata in this dispute. However, given Gauthier JA’s preceding discussion of the law, it would now seem to be clearly established more generally that 55(1) does allow compound interest to be awarded.

Procedurally, subsection 36(5) confers discretion on the FC to allow interest, and in a bifurcated proceeding such as this one, that discretion must be exercised at the liability stage (unless the parties agree otherwise) [149]. However, at the liability stage, the court cannot know whether an entitlement to interest will be established as a head of damages at the reference stage, so the award of simple interest under s 36 at the liability stage was in this case (and, presumably, normally should be) expressly conditional on interest not being awarded as damages at the reference phase [150].

The problem with Zinn J’s decision is not that he awarded compound interest, but rather that he awarded it on the basis of a presumption: “in today’s world there is a presumption that a plaintiff would have generated compound interest” [FC 118], [155] (FCA emphasis), and he awarded compound interest apparently on this basis. Gauthier JA held that there is no such presumption [156] (with the possible exception of some cases in equity [157]), and “a loss of interest must be proved in the same way as any other form of loss or damage” [158]. As to what kind of evidence could be used to establish compound interest as a loss, and the appropriate rate, Gauthier JA noted that various evidence was tendered on the issue, and had the Federal Court granted compound interest as damages on the basis of that evidence, rather than on the basis of a presumption, the FCA would not have intervened unless it was persuaded that the assessment was tainted by a palpable and overriding error [153].