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Source(s) of the individual document(s):

Lawyers, other representatives, expert(s), tribunal’s secretary

Award

GLOSSARY
Act US Federal Food, Drug and Cosmetic Act
ANDA Abbreviated New Drug Application
API Active Pharmaceutical Ingredients
Apotex The Claimants
Apotex-Canada Apotex Inc. (the Second Claimant)
Apotex-Holdings Apotex Holdings Inc. (the First Claimant)
Apotex-US Apotex Corp., a corporation organized under the laws of Delaware, USA
Apotex I & II Award The award on jurisdiction and admissibility dated 14 June 2013 made by the NAFTA tribunal (Toby T. Landau, Clifford M. Davidson, Fern M. Smith) in the UNCITRAL Arbitration between Apotex Inc. and the Respondent
Apotex Costs Submission The Claimants’ first submission on costs filed on 17 January 2014
Apotex Second Costs Submission The Claimants’ second submission on costs filed on 7 February 2014
Arbitration Agreement The arbitration agreement invoked by the Claimants resulting from their Request, NAFTA Articles 1116(1), 1117(1) and 1120(1)(b) and the ICSID Arbitration AF Rules
BNM Business Neatness Magnanimity BNM srl
BVL Ben Venue Laboratories in Bedford, Ohio, USA
[C.] [R.] [number] Exhibit [Claimant] [Respondent]
CDER The FDA’s Center for Drug Evaluation and Research, Office of Compliance
cGMP Current Good Manufacturing Practices
Counter-Memorial The Respondent’s Counter-Memorial dated 14 December 2012
DIOP The FDA’s Division of Import Operations and Policy
DWPE Detention Without Physical Examination
ECJ European Court of Justice
EIRs FDA’s Establishment Inspection Reports

 

Etobicoke The drug production facility operated by Apotex Inc. and located at Etobicoke, Ontario
Etobiocoke warning letter The warning letter issued by the FDA on 25 June 2009 in respect of Etobicoke
FAA The US Federal Arbitration Act
FARs Field Alert Reports
FDA The US Food and Drug Administration
Form 483 A standard form on which FDA inspectors record their written observations at the conclusion of an inspection of a drug production facility
GAO The US General Accounting Office
GMP Good Manufacturing Practices
Guide FDA’s Guide to Inspections of Foreign Pharmaceutical Manufacturers
Hearing The hearing on jurisdiction and the merits (liability) which took place at the World Bank in Washington DC, USA, from 18 November to 26 November 2013
ICAA Ontario’s International Commercial Arbitration Act
ICJ The International Court of Justice
ICSID (or the Centre) The International Centre for Settlement of Investment Disputes
ICSID Arbitration AF Rules ICSID Arbitration (Additional Facility) Rules in force as of April 2006
ICSID Convention Convention on the Settlement of Investment Disputes Between States and Nationals of Other States dated 18 March 1965
Import Alert The FDA’s amendment of Import Alert 66-40 on 28 August 2009 to include all products produced by the Etobicoke and Signet facilities
Jamaica-USA BIT Jamaica-USA bilateral investment treaty of 4 February 1994, which entered into force on 7 March 1997
Medsafe New Zealand’s Medicines and Medical Devices Safety Authority
Memorial The Claimants’ Memorial dated 30 July 2012
NAFTA North American Free Trade Agreement
NAI No Action Indicated
NDA New Drug Application

 

 

New York Convention The 1958 UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards
OAI Official Action Indicated
OOS Out-of-specification
PAI Pre-Approval Inspection
PCIJ The Permanent Court of International Justice
PQA Product Quality Assessment
Rejoinder The Respondent’s Rejoinder dated 27 September 2013
Rejoinder on Jurisdiction The Claimants’ Rejoinder on Jurisdiction dated 18 October 2013
Reply The Claimants’ Reply dated 24 May 2013
Reply Supp The Claimants’ Supplement to Reply dated 22 July 2013
Request (for Arbitration) The Claimants’ Request for Arbitration dated 29 February 2012
Sandoz The Sandoz/Novartis group of companies
Signet The drug production facility operated by Apotex Inc. and located at Signet Drive in Toronto, Ontario
Signet warning letter The warning letter issued by the FDA on 29 March 2010 in respect of Signet
TD. [day] [page] Transcript of the oral hearing from 18 to 26 November 2013, with day and page reference
Teva The Teva group of companies
TGA Australia’s Therapeutic Goods Administration
UNCITRAL Notes The UNCITRAL Notes on Organising Arbitral Proceedings
USA Costs Submission The Respondent’s submission on costs filed on 17 January 2014
x examination-in-chief
xx cross-examination
xxx re-direct examination

 

LIST OF LEGAL MATERIALS

Cases:

Abbott v. Abbott, 560 U.S. 1 (2010).

ADF Group Inc. v. United States of America, ICSID Case No. ARB(AF)/00/1, Award (9 January 2003) (Florentino P. Feliciano, Armand de Mestral, Carolyn B. Lamm).

Ahmadou Sadio Diallo (Republic of Guinea v. Democratic Republic of the Congo), 2007 I.C. J. Reports, p. 582 (24 May 2007).

Amco Asia Corp. v. Republic of Indonesia, ICSID Case No. ARB/81/1, Resubmitted Case, Decision on Jurisdiction (10 May 1988), 27 ILM 1281 (1988) (Rosalyn Higgins, Per Magid, Marc Lalonde).

Apotex Inc. v. United States, UNCITRAL, Award on Jurisdiction and Admissibility (14 June 2013) (Toby T. Landau, Clifford M. Davidson, Fern M. Smith).

Archer Daniels Midland Company and Tate & Lyle Ingredients Americas, Inc. v. The United Mexican States, ICSID Case No. ARB(AF)/04/5, Award (21 November 2007) (Bernardo M. Cremades, Arthur W. Rovine, Eduardo Siqueiros T).

Argentina v. BG Group PLC, 665 F.3d 1363 (D.C. Cir. 17 January 2012).

Argentina v. BG Group PLC, 572 U.S. — (5 March 2014).

Asteris & Greece v. Commission [1988] ECR 2181.

Bayview Irrigation District et al. v. United Mexican States, ICSID Case No. ARB(AF)/05/1, Award (19 June 2007) (Vaughan Lowe, Ignacio Gómez-Palacio, Edwin Meese III).

Bellarno International Ltd v. FDA, 678 F. Supp. 410 (E.D.N.Y. 1988).

Breardv. Green, 523 U.S. 371 (1998) (per curiam).

Cargill, Incorporated v. United Mexican States, ICSID Case No. ARB(AF)/05/2, Award (18 September 2009) (Michael C. Pryles, David D. Caron, Donald M. McRae).

Case Concerning the Delimitation of the Continental Shelf (U.K. v. France), 18 R.I.A.A. 272 (14 March 1978).

Chemtura Corporation v. Government of Canada, UNCITRAL, Award (2 August 2010) (Gabrielle Kaufmann-Kohler, Charles N. Brower, James R. Crawford).

Chevron Corporation (USA) and Texaco Petroleum Company (USA) v. The Republic of Ecuador, UNCITRAL, PCA Case No. 34877, Partial Award (30 March 2010) (Karl-Heinz Bockstiegel, Charles N. Brower, Albert Jan van den Berg).

Commission of the European Communities v. BASF AG & Others, [1994] ECR1-2555.

Cook v. FDA, No. 12-5176, 2013 U.S. App. LEXIS 14883 (D.C. Cir.) (23 July 2013).

Corfu Channel case, Judgment of 9 April 1949, 1.C.J. Reports 1949, p. 4.

Duke Energy Electroquil Partners and Electroquil, S.A. v. Republic of Ecuador, ICSID Case No. ARB/04/19, Award (18 August 2008) (Gabrielle Kaufmann-Kohler, Enrique Gómez Pinzón, Albert Jan van den Berg).

Effect of Awards of Compensation Made by the U.N. Administrative Tribunal, Advisory Opinion of 13 July 1954, 1.C.J. Reports 1954, p. 47.

Europe Cement Investment and Trade S.A. v. Republic of Turkey, ICSID Case No. ARB(AF)/07/2, Award (13 August 2009) (Donald M. McRae, Laurent Lévy, Julian D.M. Lew).

Gami Investments, Inc. v. The Government of the United Mexican States, UNCITRAL, Award (15 November 2004) (Jan Paulsson, Julio Lacarte Muró, W. Michael Reisman).

Gemplus S.A. et al. v. United Mexican States, ICSID Cases No. ARB(AF)/04/3 & ARB(AF)/04/4, Award (16 June 2010) (V.V. Veeder, L. Yves Fortier, Eduardo Magallón Gómez).

Genin v. Republic of Estonia, ICSID Case No. ARB/99/2, Award (25 June 2001) (L. Yves Fortier, Meir Heth, Albert Jan van den Berg).

Glamis Gold, Ltd. v. The United States of America, UNCITRAL, Award (8 June 2009) (Michael K. Young, David D. Caron, Kenneth D. Hubbard).

Gonzales v. O. Centro Espirita Beneficíente Uniao do Vegetal, 546 U.S. 418 (2006).

Grand River Enterprises Six Nations, Ltd., et al v. United States of America, UNCITRAL, Award (12 January 2011) (Fali S. Nariman, James Anaya, John R. Crook).

Hamdan v. Rumsfeld, 548 U.S. 557 (2006).

International Thunderbird Gaming Corporation v. United Mexican States, UNCITRAL, Award (26 January 2006) (Albert Jan van den Berg, Agustin Portal Ariosa, Thomas W. Walde).

Interpretation of Judgments Nos. 7 & 8 Concerning the Case of the Factory at Chorzow, 1927 P.C.I.J, (ser. A) no. 13 (16 December 1927).

L.F.H. Neer and Pauline Neer (U.S.A.) v. United Mexican States, 4 R.I.A.A. 60 (2006) (15 October 1926).

Lozano v. Alvarez, No. ll-2224-cv,, — F.3d —, 2012 WL 44790007 (2d. Cir. 1 October 2012).

Marvin Feldman v. United Mexican States, ICSID Case No. ARB(AF)/99/1, Award (16 December 2002) (Konstantinos D. Kerameus, Jorge Covarrubias Bravo, David A. Gantz).

Medellin v. Texas, 552 U.S. 491 (2008).

Merrill & Ring Forestry L. P. v. The Government of Canada, UNCITRAL, Award (31 March 2010) (Francisco Orrego Vicuña, Kenneth W. Dam, J. William Rowley).

Methanex Corporation v. United States of America, UNCITRAL, First Partial Award (7 August 2002) (V. V. Veeder, Warren Christopher, J. William Rowley).

Mexico v. Cargill, Inc., 2011 ONCA 622 (Can.) (4 October 2011).

Mobil Investments Canada Inc. and Murphy Oil Corporation v. Canada, ICSID Case No. ARB(AF)/07/4, Procedural Order No. 1, Decision of the Tribunal on the Place of Arbitration (7 October 2009) (Hans van Houtte, Merit E. Janow, Philippe Sands).

The Pious Fund of the Californias, Permanent Court of Arbitration, Award (14 October 1902).

Polish Postal Service in Danzig, Advisory Opinion, 1925 P.C.I.J. (Ser. B) No. 11 (May 16).

Pope & Talbot Inc v. The Government of Canada, UNCITRAL, Award on the Merits of Phase 2 (10 April 2001) (John Murray, Murray J. Belman, Benjamin J. Greenberg).

Pulp Mills on the River Uruguay (Argentina v. Uruguay), 2010 I.C. J. Reports, p. 14 (20 April 2010).

Rachel S. Grynberg, Stephen M. Grynberg, Miriam Z. Grynberg and RSM Production Corporation v. Grenada, ICSID Case No. ARB/10/6, Award (10 December 2010) (J. William Rowley, Edward W. Nottingham, Pierre Tercier).

Request for Interpretation of the Judgment of 15 June 1962 in the Case Concerning the Temple of Preah Vihear (Cambodia v. Thailand), Judgment of 11 November 2013 (ICJ).

Request for Interpretation of the Judgment of 20 November 1950, in the Asylum Case (Colombia v. Peru), Judgment of 27November 1950, I.C.J. Reports 1950, p. 395.

Rompetrol Group N.V. v. Romania, ICSID Case No. ARB/06/3, Award (6 May 2013) (Franklin Berman, Donald Francis Donovan, Marc Lalonde).

S.D. Myers, Inc. v. The Government of Canada, UNCITRAL, Partial Award (13 November 2000) (J. Martin Hunter, Edward C. Chiasson, Bryan P. Schwartz).

Smoking Everywhere, Inc. v. FDA, 680 F. Supp. 2d 62 (D.D.C. 2010) (14 January 2010).

Sottera, Inc. v. FDA, 627 F.3d 891 (D.C. Cir. 2010) (2011) (7 December 2010).

Southern Pacific RR Co. v. United States, 168 U.S. 1 (1897).

Sumitomo Shoji America, Inc. v. Avagliano, 457 U.S. 176 (1982).

Textilwerke Deggendorf GmbH (TWD) v. Commission, [1997] ECR 1-2549.

Trail Smelter Case (United States of America v. Canada), 3 R.I.A.A. 1938 (11 March 1941).

United Parcel Service of America Inc. v. The Government of Canada, UNCITRAL, Award on the Merits (24 May 2007) (Kenneth Keith, Ronald A. Cass, L. Yves Fortier).

Waste Management, Inc. v. United Mexican States, ICSID Case No. AB(AF)00/3, Award (30 April 2004) (James Crawford, Benjamin R. Civiletti, Eduardo Magallón Gómez).

White Industries Australia Limited v. Republic of India, UNCITRAL, Award (30 November 2011) (J. William Rowley, Charles N. Brower, Christopher Lau).

Other Sources:

Amerasinghe, Chittharanjan F, International Arbitral Jurisdiction (2011).

American Law Institute, Restatement (Second) of Foreign Relations Law of the United States (1965).

Bederman, David J., Agora: Medellin: Medellin’s New Paradigm for Treaty Interpretation, 102 Am. J. Int’l L. 529 (2008).

Cheng, Bin, General Principles of Law as Applied by International Courts and Tribunals (1953).

Claim of Company General of the Orinoco Case, Report of French-Venezuelan Mixed Claims Commission of 1902 (1906, Ralston, Jackson H., ed.).

Dodge, William, National Courts and International Arbitration: Exhaustion of Remedies and Res Judicata Under Chapter Eleven of NAFTA, 23 Hastings Int’l & Comp. L. (2000).

Dumberry, Patrick, The Fair And Equitable Treatment Standard: A Guide To NAFTA Case Law On Article 1105 (2013).

FDA, Guide to Inspections of Foreign Pharmaceutical Manufacturers (May 1996).

FDA, Guide to International Inspections and Travel.

Grand River Enterprises Six Nations, Ltd., et al v. United States of America, UNCITRAL, Rejoinder of the United States (13 May 2009).

Hudson, Manley O., The Permanent Court of International Justice (1934).

ICSID Arbitration (Additional Facility) Rules (2006).

International Law Association, Interim Report, "Res Judicata" and Arbitration, International Law Association, Berlin Conference on International Arbitration (2004).

Kinnear, Meg N., Bjorkland, Andrea K., and Hannaford, John F. G., Investment Disputes Under NAFTA: An Annotated Guide to NAFTA Chapter 11 (2006, updated March 2008).

Lowe, Vaughan, Res Judicata and the Rule in International Arbitration, 8 RADIC 38 (1996).

NAFTA Free Trade Commission, Notes of Interpretation of Certain Chapter 11 Provisions (31 July 2001).

North American Free Trade Agreement, U.S.-Can.-Mex. (17 December 1992) 32 I.L.M. 289 (1993).

Rosenne, Shabtai, III The Law and Practice of The International Court, 1920-1995 (2006).

Schreuer, Christoph and Reinisch, August, Legal Opinion, CME Czech Republic B.V. v. Czech Republic, UNCITRAL (20 June 2002).

Sohn, Louis B. and Baxter, R. R., Responsibility of States for Injuries to the Economic Interests of Aliens, 55 Am. J. Int’l L. 545 (1961).

Statute of the International Court of Justice, United Nations Charter.

Treaty Between the United States of America and Jamaica Concerning the Reciprocal Encouragement and Protection of Investment, U.S.-Jam. (4 February 1994) T.I.A.S. No. 00103.

UNCITRAL Notes on Organising Arbitral Proceedings (2012).

Vandevelde, Kenneth, U.S. International Investment Agreements (2009).

Vienna Convention on the Law of Treaties, (24 April 1970) S. Treaty Doc. No. 92-12, 1155 U.N.T.S. 331.

PART I- THE ARBITRATION

(1) The Parties

1.1.
Apotex-Holdings: The First Claimant is Apotex Holdings Inc. ("Apotex-Holdings"). It is a privately owned corporation organised under the Canada Business Corporations Act, a Canadian federal law. It functions as a holding company, by way of vertical integration, for the investments of the Apotex group of companies, consisting of companies formed and operating in Canada and elsewhere in the world (including the USA). The principal place of business of Apotex-Holdings is 150 Signet Drive, Toronto, Ontario M9L 1T9, Canada.
1.2.
Apotex Inc.: The Second Claimant is Apotex Inc. (also called "Apotex-Canada" in these proceedings). It is a company incorporated under the laws of the province of Ontario, Canada. The principal place of business of Apotex Inc. is also 150 Signet Drive, Toronto, Ontario M9L 1T9, Canada. Apotex Inc. is indirectly owned and controlled by Apotex-Holdings. It operates several facilities in Canada, two of which are relevant to these arbitration proceedings.
1.3.
Apotex-US: Apotex Corp, is a corporation organized under the laws of Delaware, USA, authorised to transact business in the state of Florida ("Apotex-US"). Its principal place of business is 2400 North Commerce Parkway, Suite 400, Weston, Florida 33326, USA. The First Claimant (Apotex-Holdings) indirectly owns and controls Apotex-US (which is not a named party to this arbitration).
1.4.
Apotex: For ease of reference, the Claimants are collectively described by the Parties and below as "Apotex."
1.5.
The Respondent: The Respondent is the United States of America, a Party to the North American Free Trade Agreement ("NAFTA") which entered into force on 1 January 1994.

(2) The Arbitration Agreement

1.6.

This arbitration takes place under an arbitration agreement invoked by the Claimants resulting from their Request for Arbitration dated 29 February 2012, NAFTA Articles 1116(1), 1117(1) and 1120(1)(b) and the ICSID Arbitration (Additional Facility) Rules (the "ICSID Arbitration AF Rules"). For ease of reference, this arbitration agreement is here called the "Arbitration Agreement."

1.7.
The Respondent denies the jurisdiction in this Tribunal asserted by the Claimants for their claims against the Respondent under the Arbitration Agreement.

(3) The Arbitral Tribunal

1.8.
The Tribunal is comprised of three arbitrators, appointed pursuant to NAFTA Article 1123, as follows:
1.9.
The Claimants appointed Mr. J. William Rowley, a national of Canada and the United Kingdom, of 20 Essex Street Chambers 20 Essex Street, London WC2R 3 AL United Kingdom and (at that time) also of McMillan LLP Brookfield Place, 181 Bay Street, Suite 4400, Toronto, Ontario, Canada M5 J 2T3.
1.10.
The Respondent appointed Mr. John Crook, a national of the United States of America, of 10610 Belfast Place, Potomac, Maryland 2084, USA.
1.11.
The Parties agreed on the appointment of Mr. V.V. Veeder, a national of the United Kingdom, as the third and presiding arbitrator, of Essex Court Chambers, 24 Lincoln’s Inn Fields, London WC2 3EG, United Kingdom.
1.12.
The Tribunal was constituted on 11 June 2012 in accordance with Article 6(3) of the ICSID Arbitration AF Rules.
1.13.
Ms. Eloise Obadia, ICSID Legal Counsel, was designated to serve as the Secretary of the Tribunal. Ms. Obadia was later replaced as Secretary of the Tribunal by Mr. Monty Taylor, ICSID Legal Counsel, with Ms. Martina Polasek, also ICSID Legal Counsel, acting as Alternate Secretary of the Tribunal.

(4) The Arbitral Procedure

1.14.
Request: On 6 March 2012, Apotex-Holdings and Apotex Inc. submitted on their own behalf and on behalf of Apotex-US their Request for Arbitration dated 29 February 2012 against the Respondent ("the Request") pursuant to Article 2 of the ICSID Arbitration AF Rules.
1.15.
The Request, as supplemented by the Claimants’ subsequent letter dated 8 March 2012, was registered by the Secretary-General of ICSID pursuant to Articles 4 and 5 of the ICSID Arbitration AF Rules on 16 March 2012. The Secretary-General notified in writing the Parties of such registration on the same day.
1.16.
The Tribunal held a first session with the Parties at the World Bank in Washington DC, USA on 24 July 2012. The Parties confirmed that the Tribunal was properly constituted and that no Party had any objection to the appointment of any member of the Tribunal. It was also confirmed (inter alia) that the applicable ICSID Arbitration AF Rules would be those in force as of April 2006 and that the procedural language would be English. The agreement of the Parties was eventually embodied in Procedural Order No. 1 of 29 November 2012 signed by the President of the Tribunal and circulated to the Parties.
1.17.
Also on 24 July 2012, the Tribunal issued a Confidentiality Agreement and Order signed by the President of the Tribunal and the Parties. An Amended Confidentiality Agreement and Order was issued by the Tribunal on 30 October 2013, also signed by the President of the Tribunal and the Parties.
1.18.
At the first session, the Parties confirmed their disagreement on the legal place of the arbitration, albeit that the Parties agreed that the geographical place of the oral hearing(s) would be the World Bank, Washington DC, USA. As to the legal place of the arbitration, the Claimants proposed Toronto, Canada and the Respondent proposed Washington DC or alternatively New York, USA. The Tribunal decided that it would determine the place of arbitration without a hearing on the issue. After considering the Parties’ written submissions, the Tribunal decided upon New York, NY, USA, as the legal place of this arbitration pursuant to Article 20(1) of the ICSID Arbitration AF Rules. The Tribunal communicated this decision to the Parties by letter dated 6 November 2012.
1.19.
By the same letter, the Tribunal also confirmed the Parties’ agreement that the geographical place for all the procedural meetings and oral hearings was the seat of ICSID, at the World Bank’s offices in Washington DC, USA.
1.20.
The reasons for the Tribunal’s decision with respect to the legal place of arbitration are set out in the Tribunal’s "Decision on the Place of Arbitration" attached to this Part I below, as Appendix A.
1.21.
Apotex Memorial: On 30 July 2012, the Claimants filed their Memorial. With the Memorial, the Claimants also filed, in writing: (i) an Expert Report of Mr. Howard M. Rosen dated 30 July 2012; (ii) an Expert Report of Mr. Sheldon T. Bradshaw and Mr. Ron M. Johnson dated 30 July 2012; (iii) a Witness Statement of Mr. Kiran Krishnan dated 27 July 2012; (iv) a Witness Statement of Mr. John Flinn dated 30 July 2012; (v) a Witness Statement of Mr. Gordon Fahner dated 30 July 2012; (vi) a Witness Statement of Dr. Jeremy Desai dated 30 July 2012; (vii) a Witness Statement of Mr. Bruce Clark dated 27 July 2012; (viii) a Witness Statement of Mr. Edmund Carey dated 29 July 2012; (ix) a Witness Statement of Mr. Jeff Watson dated 30 July 2012; and (x) a Witness Statement of Ms. Bernice Tao dated 29 July 2012.
1.22.
On 29 October 2012, the Tribunal issued a procedural order concerning the procedural timetable for this proceeding.
1.23.
USA Counter-Memorial: On 14 December 2012, the Respondent filed its Counter-Memorial, including its objections to jurisdiction and a request to have the Tribunal address those objections to jurisdiction as a bifurcated preliminary matter. With its Counter-Memorial, the Respondent also filed, in writing: (i) a Witness Statement of Mr. Michael R. Goga dated 12 December 2012; (ii) a Witness Statement of Mr. Lloyd Payne dated 12 December 2012; (iii) a Witness Statement of Commander Debra M. Emerson dated 13 December 2012; and (iv) a Witness Statement of Dr. Carmelo Rosa dated 14 December 2012.
1.24.
On 28 December 2012, the Claimants filed written observations on the Respondent’s request for bifurcation, to which the Respondent filed a written response on 10 January 2013. On 16 January 2013 the Claimants filed their written observations on that response.
1.25.
On 25 January 2013, the Tribunal issued its procedural order on the Respondent’s request for bifurcation. The Tribunal dismissed the Respondent’s request and ordered that both the jurisdictional and liability issues in the proceeding be addressed in the remaining written procedure and heard during the oral procedure at the same hearing, with all quantum issues (including interest) to be addressed in a later phase of this proceeding (if and to the extent relevant).
1.26.
On 7 February 2013, a non-disputing party, Business Neatness Magnanimity BNM srl ("BNM"), made an application to file a non-disputing party submission in the arbitration. Mr. Barry Appleton, another non-disputing party, also made an application on 8 February 2013. These applications were made in accordance with Procedural Order No. 1, which allowed amicus applications (for permission to file a substantive amicus submission) by 8 February 2013.
1.27.
Mexico’s Article 1128 Submission: On 9 February 2013, the United Mexican States filed a written submission as a non-disputing State Party pursuant to NAFTA Article 1128.
1.28.
The Claimants filed observations on BNM’s application on 15 February 2013; and the Respondent indicated by letter of the same date that it was taking no position on BNM’s application. With respect to Mr. Appleton’s application, the Respondent filed observations on that application on 15 February 2013; and the Claimants indicated by a letter on the same day that they were taking no position on that application.
1.29.
On 1 March 2013, the Tribunal informed BNM and Mr. Appleton by separate letters that their respective applications were denied by the Tribunal. These letters indicated that detailed reasons for the decisions would follow; and these were provided in two separate procedural orders dated 4 March 2013, respectively (i) "Procedural Order on the Participation of the Applicant, BNM, as a Non-Disputing Party" and (ii) "Procedural Order on the Participation of the Applicant, Mr. Barry Appleton, as a Non-Disputing Party."
1.30.

On 15 March 2013, the Claimants and the Respondent requested the Tribunal to decide on the production of documents disputed between them. To that end, pursuant to Paragraph 14.2.7(v) of Procedural Order No. 1, the Claimants and the Respondent submitted to the Tribunal disputes under their respective schedules for document production for decision by the Tribunal. On 20 March 2013, the Respondent filed observations on the Claimants’ request; and the Claimants made submissions on 22 and 24 March 2013 regarding the Respondent’s observations. On 29 March 2013, the Tribunal issued a "Procedural Order on the Parties’ Respective Requests for Document Production."

1.31.
On 14 May 2013, the Tribunal issued a "Procedural Order on the Schedule Regarding the Parties’ Respective Privilege Logs, Further Submissions and Certifications."
1.32.
Apotex Reply. On 24 May 2013, the Claimants filed their Reply, together with, in writing: (i) a Second Expert Report of Mr. Sheldon T. Bradshaw and Mr. Ron M. Johnson dated 24 May 2013; (ii) a Second Witness Statement of Mr. Gordon Fahner dated 24 May 2013; (iii) a Second Witness Statement of Mr. Edmund Carey dated 24 May 2013; (iv) a Second Witness Statement of Ms. Bernice Tao dated 24 May 2013; (v) a Second Witness Statement of Dr. Jeremy Desai dated 23 May 2013; and (vi) a Second Witness Statement of Mr. Kiran Krishnan dated 23 May 2013.
1.33.
Following written exchanges between the Parties, on 11 June 2013 the Claimants and the Respondent filed further requests for the Tribunal to decide on the production of documents disputed between them. On 5 July 2013, the Tribunal issued a "Procedural Order on Document Production Regarding the Parties’ Respective Claims to Privilege and Privilege Logs."
1.34.
On 22 July 2013, the Claimants filed a Supplement to their Reply of 24 May 2013.
1.35.
USA Rejoinder: On 27 September 2013, the Respondent filed its Rejoinder on Merits and Reply on Objections to Jurisdiction together with, in writing: (i) a supplemental Witness Statement of Dr. Carmelo Rosa dated 27 September 2013; and (ii) an Expert Report of Mr. William W. Vodra dated 20 September 2013.
1.36.
Apotex Rejoinder on Jurisdiction: The Claimants filed their Rejoinder on Jurisdiction on 18 October 2013.
1.37.
On 31 October 2013, the Tribunal held a pre-hearing organisational meeting with the Parties by telephone conference.
1.38.
The Hearing: A hearing on jurisdiction and the merits took place at the World Bank in Washington DC, USA, from 18 November to 26 November 2013 (the "Hearing"), recorded by verbatim daily transcript.1 In addition to the three Members of the Tribunal and the Secretary and Alternate Secretary of the Tribunal, those present at the Hearing were:

For the Claimants:

Counsel

Mr. Barton Legum Salans FMC SNR Denton Europe LLP

Ms. Anne-Sophie Dufêtre Salans FMC SNR Denton Europe LLP

Ms. Brittany Gordon Salans FMC SNR Denton Europe LLP

Ms. Lara Elbomo Salans FMC SNR Denton Europe LLP

Mr. John Hay Dentons US LLP

Ms. Ulyana Bardyn Dentons US LLP

Ms. Kristen Weil Dentons US LLP

Mr. Johan Buys Dentons US LLP

The Claimants’ Representatives

Dr. Jeremy Desai Apotex Inc.

Ms. Roberta Loomar Apotex Inc.

Expert Witnesses

Mr. Sheldon T. Bradshaw Hunton & Williams LLP Mr. Ron M. Johnson Becker & Associates Consulting

For the Respondent:

Counsel

Ms. Mary McLeod U.S. Department of State

Ms. Lisa J. Grosh U.S. Department of State

Mr. John D. Daley U.S. Department of State

Mr. Jeremy K. Sharpe U.S. Department of State

Mr. Neale H. Bergman U.S. Department of State

Mr. David M. Bigge U.S. Department of State

Mr. John I. Blanck U.S. Department of State

Ms. Alicia L. Cate U.S. Department of State

Ms. Nicole C. Thornton U.S. Department of State

Ms. Abby Lounsberry U.S. Department of State

The Respondent’s Representatives

Ms. Wendy Vicente U.S. Food and Drug Administration

Ms. Elizabeth Philpy U.S. Food and Drug Administration

Mr. Diogo Simas U.S. Food and Drug Administration

Mr. Maan Abdulda U.S. Food and Drug Administration

Ms. Hidee Molina U.S. Food and Drug Administration

Ms. Jennifer Thornton Office of the United States Trade Representative

Mr. Gary Sampliner U.S. Department of Treasury

Mr. Zachary Gold U.S. Department of State

Mr. Daniel Michaeli U.S. Department of State

Mr. Zachary Stuart U.S. Department of State

Ms. Lana Ulrich U.S. Department of State

Mr. Thomas Weatherall U.S. Department of State

Factual Witnesses(subject to sequestration)

Cdr. Debra M. Emerson U.S. Food and Drug Administration

Mr. Michael R. Goga U.S. Food and Drug Administration

Mr. Lloyd Payne U.S. Food and Drug Administration

Dr. Carmelo Rosa U.S. Food and Drug Administration

Expert Witness

Mr. William W. Vodra Arnold & Porter LLP (retired)

For the United Mexican States:

Mr. Salvador Behar The Embassy of Mexico in Washington DC, USA

1.39.
Oral Testimony. At the Hearing, the Tribunal heard oral testimony from the following factual and expert witnesses:2

(i) Called by the Claimants:

Mr. Sheldon T. Bradshaw [x TD2,265, xx TD2,277]

(ii) Called by the Respondent:

Cdr. Debra M. Emerson [x TD3,696, xx TD3,703];

Mr. Lloyd Payne [x TD3,739, xx TD3,744];

Mr. Michael R. Goga [x TD3,808, xx TD3,812];

Dr. Carmelo Rosa [x TD3,824, xx TD3,828, xxx TD4.1023]; and Mr. William W. Vodra [x TD4.1094, xx TD4.1118, xxx TD4.1161],

1.40.
Costs Submissions: After the Hearing, the Parties filed their written submission on costs on 17 January 2014. The Respondent filed its written submission on costs together with, in writing: (i) a Witness Statement of Mr. David M. Bigge dated 17 January 2014; (ii) a Witness Statement of Ms. Mary T. Reddy dated 16 January 2014; and (iii) a Witness Statement of Mr. Jeremy K. Sharpe dated 17 January 2014.
1.41.
The Claimants filed a second costs submission on 7 February 2014. The Respondent did not elect to file a reply costs submission.3
1.42.
Closing the File-. The proceeding was closed, as regards the issues here expressly decided in the Operative Part, on 1 August 2014, by the Tribunal’s letter dated 1 August 2014 as earlier notified to the Parties by the Tribunal’s letters dated 14 March and 24 July 2014 under or by analogy to Article 44(1) of the ICSID Arbitration AF Rules.
1.43.
Redactions: This award is issued to the Parties in a non-redacted form. The Parties agreed, as regards any wider publication, to a procedure for redacting confidential information in Paragraph 21.2 of the Tribunal’s Procedural Order No.l, as later confirmed by the Parties in their respective email messages to the Tribunal dated 29 July 2014.

(5) The Parties’ Dispute (Jurisdiction and Merits)

1.44.
Jurisdiction: As already indicated above, the Claimants submit that this Tribunal has jurisdiction to decide all their claims advanced in this arbitration under NAFTA and the ICSID Arbitration AF Rules. The Respondent disputes that submission, having made timely objections that the Parties’ dispute is not within the competence of the Tribunal under Article 45(2) of the ICSID Arbitration AF Rules.
1.45.

Merits: The named Claimants (i.e. Apotex-Holdings and Apotex Inc.) make claims for breach by the Respondent of several of its obligations under NAFTA and the Treaty Between the United States of America and Jamaica Concerning the Reciprocal Encouragement and Protection of Investment of 4 February 1994 ("Jamaica-USA BIT") both for themselves and also (by Apotex-Holdings) for Apotex-US. The Claimants also claim interest and costs (the latter under Article 52(1)(j) of the ICSID Arbitration AF Rules). The Respondent, without prejudice to its jurisdictional objections, denies any liability to the Claimants (for themselves and also for Apotex-US); and, in turn, the Respondent claims costs (also under Article 52(1)(j) of the ICSID Arbitration AF Rules).

1.46.
As indicated above, by its procedural order of 25 January 2013, the Tribunal ordered the bifurcation between (i) the joined jurisdiction and liability issues and (ii) all quantum issues. Hence, the Hearing addressed only the former issues; and the latter issues are not here addressed by the Tribunal.
1.47.
The Parties’ dispute, as to both jurisdiction and the merits (liability), is further described below in Part II.

(6) The Parties’ Claims for Relief

1.48.
The Tribunal here records the formal relief sought from the Tribunal by the Parties at successive stages of this arbitration.
1.49.
The Claimants: The Claimants, by their Request (Paragraph 89), request an award, "on behalf of Apotex-US and on their own behalf’ in their favour in the terms there specified pursuant to NAFTA Articles 1116(1) and 1117(1), as re-stated in their Memorial (Paragraph 572), their Reply (Paragraph 532) and their Rejoinder on Jurisdiction (Paragraph 127).
1.50.
(i) The Claimants’ Request: Section V, Paragraph 89 (page 19) states: "As a result of the actions and breaches of the Government of the United States of America described above, the Claimants, on behalf of Apotex-US and on their own behalf, respectfully intend to request an award in their favour:

(a) Finding that the United States of America has breached its obligations under the NAFTA;

(b) Directing the United States of America to pay damages in an amount to be proven at the hearing but which the Claimants presently estimate to be in the hundreds of millions of US dollars;

(c) Directing the United States of America to pay interest on all sums awarded;

(d) Directing the United States of America to pay the Claimants’ costs associated with these proceedings, including professional fees and disbursements;

(e) Ordering such other and further relief as the Tribunal deems appropriate in the circumstances."

1.51.
(ii) The Claimants’ Memorial: Paragraph 572 (page 171) states: "As a result of the actions and breaches of the Government of the United States of America described above, the Claimants respectfully intend to request an award in their favour:

(a) Declaring that the United States of America has breached its obligations under Articles 1102, 1103 and 1105 of the NAFTA;

(b) Ordering the United States of America to pay damages in an amount to be proven at the hearing but which the Claimants presently estimate to be in the hundreds of millions of US dollars, including pre-award interest;

(c) Ordering the United States of America to pay the Claimants’ interest and taxes on all sums awarded;

(d) Ordering the United States of America to pay the Claimants’ costs associated with these proceedings, including professional fees and disbursements;

(e) Ordering such other and further relief as the Tribunal deems appropriate in the circumstances."

1.52.
(iii) The Claimants’ Reply. Paragraph 532 (page 179) states: "As a result of the actions and breaches of the Government of the United States of America described above, the Claimants respectfully request a decision in their favour:

(a) Dismissing the US jurisdictional objections;

(b) Declaring that the United States of America has breached its obligations under Articles 1102, 1103 and 1105 of the NAFTA;

(c) Ordering that the Claimants’ claims to damages and interest be addressed in the subsequent phase of this arbitration, and decided in the final award;

(d) Reserving decision on Claimants’ request for an award of costs, including professional fees and disbursements, until the next phase of this arbitration;

(e) Ordering such other and further relief as the Tribunal deems appropriate in the circumstances."

1.53.
(iv) The Claimants’ Rejoinder on Jurisdiction: Paragraph 127 (page 47) relevantly states: "For the foregoing reasons and those set out in its previous submissions, claimants Apotex Holdings and Apotex-Canada respectfully submit that the US objections to jurisdiction should be dismissed.... and a decision entered in accordance with the submissions set out at paragraph 532 of the Apotex Reply."
1.54.
The Respondent: The Respondent, by its Counter-Memorial (Paragraph 402, page 204), requests an award from the Tribunal:

(1) Upholding the Respondent’s jurisdictional objections; and/or

(2) Dismissing the Claimants’ claims in their entirety and with prejudice; and

(3) Ordering that the Claimants bear the costs of these proceedings, including the Respondent’s costs for legal representation and assistance.

This claim for relief was re-stated in the Respondent’s Rejoinder to like effect (Paragraph 378, page 192).

PART I - APPENDIX A

The Reasons for the Tribunal’s Decision on New York as the Legal Place of the Arbitration under Article 20(1) of the ICSID Arbitration AF Rules

(1) Introduction

A.1.
As described in Part I above, the Tribunal decided that the legal place of this arbitration was New York, New York, USA under Article 20(1) of the ICSID Arbitration AF Rules; and the Tribunal communicated that decision to the Parties by letter dated 6 November 2012. The Tribunal here sets out its reasons for that decision. For practical purposes, the effect of the Tribunal’s decision is relevant only to its award made under the ICSID Arbitration AF Rules. It was not relevant during the arbitration given the Parties’ consensus on the geographical place of this arbitration, namely the seat of ICSID at the World Bank, Washington DC, USA.
A.2.
As also described in Part I, in consultation with the Parties, the Tribunal agreed to hold the first session in person in Washington DC on 24 July 2012. The legal place of arbitration was one of the items listed on the agenda for this first session. Earlier, on 17 July 2012, the Parties had submitted their written observations on the agenda and had indicated that they were unable to reach agreement on the legal place of arbitration. The Claimants were then proposing Toronto, Canada; and the Respondent was then proposing Washington DC, USA, later also proposing New York, New York, USA.
A.3.
It was common ground between the Parties that it was not open to the Tribunal to choose another legal place of arbitration, its choice being limited by NAFTA’s Chapter Eleven, Article 19 of the ICSID Arbitration AF Rules and the Parties’ proposals to one of the three places disputed by the Parties; namely (i) Toronto, (ii) Washington DC or (iii) New York. In other circumstances, the Tribunal might have wished to choose a legal place of arbitration neutral for all Parties; but such a choice was not open to the Tribunal in this arbitration.
A.4.
At the first session, the Parties confirmed their disagreement over the legal place of arbitration; and it was agreed that the Tribunal would determine the issue after receiving the Parties’ written submissions on the issue without any additional oral hearing.
A.5.
As directed by the Tribunal at the first session, the Claimants filed their written submission on the legal place of arbitration on 24 August 2012 (the "Claimants’ submission") and the Respondent filed its written submission on the legal place of arbitration on 31 August 2012 (the "Respondent’s submission").
A.6.
On 11 September 2012, the Claimants applied for the Tribunal’s permission to make a short written reply submission on the issue and for the Respondent to make a short written rejoinder submission to the Claimants’ reply.
A.7.
On 12 September 2012, the Tribunal granted the Claimants’ application; and it directed the Claimants to file their reply submission by 17 September 2012 and the Respondent to file its rejoinder submission by 26 September 2012.
A.8.
The Parties filed their respective further written submissions, the Claimants on 17 September 2012 (the "Claimants’ reply submission") and the Respondent on 26 September 2012 (the "Respondent’s rejoinder submission").
A.9.
By Procedural Order of 2 October 2012, the Tribunal confirmed its receipt of the Parties’ written submissions as to the respective merits and demerits of the Parties’ proposed legal places of arbitration. The Tribunal noted that it had not received submissions from the Claimants as regards New York, which had been suggested (in the alternative) as a possible legal place of the arbitration by the Respondent in its rejoinder submission. Accordingly, the Tribunal invited the Claimants’ brief written comments as regards the Respondent’s alternative suggestion of New York, to be filed by 10 October 2012. The Claimants filed such submission on that date (the "Claimants’ surreply submission").
A.10.
As requested by the Tribunal, on 10 October 2012 the ICSID Secretariat also filed comments on the legal places suggested by the Parties, pursuant to Article 20(1) of the ICSID Arbitration AF Rules.
A.11.
In arriving at its decision on New York as the legal place of arbitration, the Tribunal took into account all the Parties’ written submissions and the written comments of the ICSID Secretariat. For the purposes of stating reasons for the Tribunal’s decision, it is not necessary to refer in full to these submissions and comments.

(2) The Parties’ Relevant Submissions

A.12.
In summary, the Parties’ disagreement on the legal place of the arbitration was between the Claimants in favour of Toronto and the Respondent in favour of Washington DC or, alternatively, New York. The Parties agreed that the Tribunal could be guided, in the exercise of its discretion under Article 20(1) of the ICSID Arbitration AF Rules, by the general considerations set out in Paragraph 22 of the UNCITRAL Notes on Organising Arbitral Proceedings (the "UNCITRAL Notes").1
A.13.
In summary, the UNCITRAL Notes’ general considerations comprise the following: (i) the suitability of the law on arbitral procedure of the place of arbitration (the lex loci arbitri); (ii) whether there is a multilateral or bilateral treaty on the enforcement of arbitral awards between the State where the arbitration takes place and the State or States where the award may have to be enforced; (iii) the convenience of the parties and the arbitrators, including travel distances; (iv) the availability and cost of support services needed for the arbitration; and (v) the location of the subject-matter in dispute and the proximity of evidence.
A.14.
It can be seen that most of these considerations relate to the geographical place of arbitration, as distinct from its legal place. As to the latter, only the first and second considerations (i) and (ii) are potentially material to the legal place of this arbitration. Hence, the considerations (iii), (iv) and (v) here provided no assistance to the Tribunal. In Mobil Investments Canada Inc. v. Canada, the tribunal noted that: "the place that is selected to hold any hearings and the place of arbitration raise different considerations. The latter raises considerations of a jurisdictional nature, by bringing the arbitration into the jurisdiction of a particular court in whose geographical ambit the place of arbitration is established."2
A.15.
As to the second consideration (ii) relating to the existence of an international treaty, the Parties agreed that it is not here a decisive consideration since both Canada and the USA are parties to the 1958 UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention").3 Moreover, Article 19 of the ICSID Arbitration AF Rules requires this arbitration to be held only in States that are parties to the New York Convention. Hence, the consideration (ii) here provided no assistance to the Tribunal.
A.16.
As to the first consideration (i) relating to the lex loci arbitri, in summary, the Claimants submitted that Toronto should be the legal place of this arbitration. Recognising that Toronto was not a neutral place (given the two Claimants’ Canadian nationalities), the Claimants submitted that all three suggested legal places (Toronto, New York and Washington DC) were incapable of being neutral since none of them was a jurisdiction that was neither that of the Claimants nor that of the Respondent.4 The Claimants, therefore, contended that neutrality was here best addressed by fixing the legal place of the arbitration in Toronto where the Canadian courts would treat all the Parties with equality.5
A.17.
In summary, the Respondent submitted that the legal place of every arbitration against the Respondent under NAFTA’s Chapter Eleven has been in the USA, forming a well-founded accepted practice by disputing parties which should be followed by the Tribunal in this arbitration. The Respondent further submitted, with respect to the consideration (i), that Washington DC and New York were equally suitable and found support from the fact that six NAFTA tribunals have found the laws of the USA to be appropriate for arbitrations under NAFTA’s Chapter Eleven.6 The Respondent therefore pressed for Washington DC or, in the subsidiary alternative, New York.
A.18.
The Parties also disagreed on the suitability of their proposed legal places with respect to the law on arbitral immunity and quorum. It is appropriate to consider these two differences in turn.

(3) Arbitral Immunity

A.19.
The Claimants submitted that, in Toronto, arbitrators who exercise judicial functions are (as a general rule) immune from claims of negligence or breach of contract. In Washington DC, according to the Claimants, arbitrators are immune from liability to the same extent as a judge of a DC court acting in a judicial capacity, such immunity being governed by common law and subject to various exceptions.7 The Claimants indicated that, as regards New York, there "may be exceptions" to arbitral immunity.8
A.20.
The Respondent submitted that arbitrators and arbitral institutions enjoy in the USA the broadest degree of immunity from suit for actions taken within their duties and that the exceptions identified by the Claimants were inapposite.9
A.21.
The Tribunal does not consider that any difference regarding arbitral immunity between the three proposed legal places, if it exists at all, is materially significant for this case. Accordingly, this factor here provided no assistance to the Tribunal.

(4) Quorum

A.22.
The Claimants submitted that Ontario’s International Commercial Arbitration Act (the "ICAA") does not specifically address the question of quorum but does provide for the number of arbitral votes required for an arbitral decision. In the absence of agreement between the parties to an arbitration (subject to Ontario law), the tribunal may conduct the arbitration as it considers appropriate, subject to the provisions of the ICAA.10 The Claimants further submitted that with respect to an arbitration, the legal place of which is situated in Washington DC, the United States Federal Arbitration Act (the "FAA") is silent with respect to quorum requirements while the lex loci arbitri in DC (under the DC Arbitration Act) requires the presence of all arbitrators at the hearings on the merits.11 The same is true, according to the Claimants, under New York arbitration law.12
A.23.
The Respondent did not comment on this factor.
A.24.
Given the effect of Articles 22(2) and 24(1) of the ICSID Arbitration AF Rules, the Tribunal does not consider that any relevant difference exists as regards quorum between the three proposed legal places. Accordingly, this factor here provided no assistance to the Tribunal.

(5) The Lex Loci Arbitri

A.25.
The Claimants submitted that the law applicable to arbitration proceedings with a legal place of arbitration in Washington DC is the DC Arbitration Act, to the extent that it does not conflict with the FAA.13 As regards setting-aside proceedings in the USA, according to the Claimants, the law applicable is the FAA, including setting-aside proceedings both in Washington DC and New York.14 The Claimants contended that it was difficult to predict in advance whether the provisions of the DC Arbitration Act or the New York state law would apply or if they would be held to limit or hinder the goals of the FAA.15
A.26.
In Toronto, the Claimants submitted that the lex loci arbitri is contained in the ICAA, which incorporates the UNCITRAL 1985 Model Law on International Commercial Arbitration (with minor variations).16
A.27.
The Claimants submitted that selecting Washington DC, or New York, as the legal place of this arbitration would create for the Parties an "uneven playing field for post-award proceedings."17 The Claimants asserted that the law applicable to arbitration proceedings in Washington DC or New York is not suitable because it requires US courts to defer to the views of the US Government on the interpretation of treaties, such as NAFTA. Treaty interpretation, as the Claimants submitted, is often the central issue presented before the judicial body responsible to determine an application to set aside an arbitration award made under a treaty.18 According to the Claimants, this creates a presumption in favour of the US Government’s views (albeit rebuttable) which is unfairly disadvantageous to the Claimants.19
A.28.
The Claimants also asserted that the courts in Washington DC are more "interventionist" than the courts of Ontario, which have shown due deference for arbitral awards and limited judicial intervention in the arbitral process.20 To that effect, the Claimants cited the decision in Mexico v. Cargill, Inc,21 of the Ontario Court of Appeals in support of their case that reviewing courts in Ontario take a narrow view when questions of jurisdiction are raised in proceedings to set aside arbitral awards; and that they also carefully limit the issues to be addressed so as to ensure that they are "true questions of jurisdiction."22
A.29.
In contrast, the Claimants cited the decision of the DC Court of Appeals in Argentina v. BG Group PLC,23 which, so they submitted, showed (at that time) that US courts are more interventionist in regard to international arbitration awards. The Claimants noted that even if this were a solitary example (contrary to their submission), this decision was a binding legal precedent in Washington DC.24 The Claimants contended that while the decision was not similarly binding upon New York courts (including the US Court of Appeals for the Second Circuit), the decision remained potentially persuasive for such New York courts.25
A.30.
The Respondent, on the other hand, submitted that the Claimants’ contention contradicted their own position in two previous NAFTA cases in which Apotex Inc. had voluntarily consented to New York as the legal place of arbitration and, consequently, to US law as the lex loci arbitri26 To that effect, the Respondent stated in its submission that, subsidiarily, it would now agree to New York as the legal place of arbitration.27
A.31.
The Respondent also refuted the idea that US courts provided an unfair advantage to the views of the US Government in US legal proceedings relating to an award. Although the views of the US Government are routinely given great weight, the Respondent submitted that US courts also take into consideration the views of other contracting parties to a treaty (as well as the disputing parties). According to the Respondent, there are also a number of cases in which US courts have disregarded the views of the US Government on treaty interpretation.28
A.32.
The Respondent also submitted that the Claimants misread the BG Group decision. It asserted that the Claimants should not derive from a single decision (for which the BG Group had petitioned, at that time, the US Supreme Court for a writ of certiorari') the sweeping conclusion that US courts are unduly interventionist in regard to arbitration awards.29 The Respondent further submitted that, in any event, the BG Group decision was not a legal precedent in the US Court of Appeals for the Second Circuit, which has appellate jurisdiction over federal courts in New York.30
A.33.
In addition, the Respondent asserted that there was in the USA longstanding support for international arbitration and that US courts have long recognised that the grounds for judicial review of an award are extremely limited.31 The Respondent also cast doubts on the allegedly limited interventionist character of the Canadian courts in the international arbitration process. It submitted that, in the Cargill decision, the Ontario Court of Appeals did not leave to the arbitral tribunal an entire discretion in deciding upon its own jurisdiction, but determined that it was: "up to the court to determine whether it [the tribunal] was [correct in its assumption of jurisdiction]."32 The Respondent also referred to the fact that other NAFTA tribunals have expressed doubts as to the suitability of Canada as the legal place of an arbitration in the light of the standard of review urged by the Canadian Government.33

(6) The Tribunal’s Analysis and Reasons

A.34.
The Tribunal considers that the choice of legal place lies between Toronto and New York. For this arbitration it discounts Washington DC. Washington DC is the Respondent’s capital city; and the two other candidates are only regional centres, albeit significant metropolitan cities in their respective countries. In the Tribunal’s view, it would not be appropriate for the Claimants to be required, effectively, to play away in the Respondent’s national home stadium.
A.35.
The Tribunal also considers that, given the Parties’ limitations imposed upon the Tribunal, considerations of national neutrality are inapplicable to the exercise of the Tribunal’s discretion. New York as a legal place of arbitration is as foreign to the Claimants as Toronto is foreign to the Respondent. Whilst national neutrality would ordinarily be an important factor for a tribunal’s decision, that factor is not available to be taken into account by the Tribunal in this arbitration.
A.36.
The Tribunal further considers unhelpful the Parties’ debate over the relative interventionist (or non-interventionist) tendencies of New York and Toronto courts. In this regard, Toronto and New York represent an invidious choice to make, since both would provide, in the Tribunal’s view, suitable legal places for this arbitration within the meaning of the consideration (i), i.e. the suitability of the law on arbitral procedure of the place of arbitration. Both places have acceptable laws for international arbitration, including the judicial review of investor-state arbitration awards.
A.37.
Moreover, it is of no material concern to this Tribunal to what extent its jurisdictional decisions can be reviewed under the lex loci arbitri, whether to a greater extent in New York or to a lesser extent in Toronto or vice-versa (as the Parties submitted differently). Whilst not here expressing any view on the scope of judicial review, the Tribunal considers that in general such decisions should be reviewable, given that consent to arbitration by the Parties is an essential prerequisite to the Arbitration Agreement from which this Tribunal derives its jurisdiction to decide the Parties’ dispute under NAFTA’s Chapter Eleven. Moreover, with the subsequent decision of the US Supreme Court in BG Groupé34 the Claimants’ concerns as to US law may now seem less well-founded, being based (as they then were) upon the decision of the DC Court of Appeals, since reversed by the US Supreme Court. (The Tribunal returns to the Supreme Court’s decision below.)
A.38.
In the circumstances, the Tribunal considered (as it does still) the decisive consideration as between Toronto and New York to be the legal level-playing field provided to all Parties equally under the lex loci arbitri.
A.39.
Subject to one factor considered below, the Tribunal considered that, by a whisker, New York should be preferred over Toronto as the legal place of arbitration for this arbitration. First, New York is an older and more established place of arbitration, with its courts long familiar with international arbitration (including the United States Court of Appeals for the Second Circuit). New York has a settled legal system regarding arbitration generally, providing for legal certainty and predictability. In contrast, the 1985 UNCITRAL Model Law (upon which the ICAA is based) is of relatively recent creation. Second, New York is a place not unfamiliar to the Parties. Apotex Inc. and the Respondent jointly agreed to New York as the legal place for their recent arbitration leading to the Apotex I & II Award,35 with no undue legal mishap for any Party (albeit that the Tribunal recognises that the amount at issue in that arbitration was much less than the amount of the Claimants’ claims in this arbitration). Third, but only as a minor supporting factor, Toronto is where the two Claimants have their principal places of business; and a choice of Toronto could thus imbalance the Claimants’ interests over those of the Respondent.
A.40.
This one factor concerned the Claimants’ submission that US Courts favour the US Government over other litigants. As understood by the Tribunal, the Claimants objected to New York (over Toronto) because of the canon of interpretation enunciated by the US Supreme Court in cases such as Sumitomo Shoji America, Inc. v. Avagliano,36 and Abbott v. Abbott,37 to the effect that US courts are to give "great weight" to the views of the US Government in interpreting US treaties.
A.41.
As evidence of this canon’s continued vitality, the Claimants cited the Second Circuit decision, Lozano v. Alvarez,38 applying this canon of interpretation to the Hague Convention on Child Abduction. In the Claimants’ submission, "US judges are required by established US law to defer to the US Government on issues of treaty interpretation."39 For the Claimants, this "would create an uneven playing field for post-award proceedings,"40 as issues of treaty interpretation are likely to be at the centre of any post-award legal proceedings in New York.
A.42.
The Respondent disputed the characterisation of US law as requiring US courts to defer to the US Government’s views, submitting that "U.S. courts... are not required by U.S. law to - and do not - provide an ‘unfair advantage in post-award proceedings’ to the U.S. government on treaty interpretation issues."41 As summarised above, the Respondent acknowledged that "U.S. courts routinely give great weight to the views of the U.S. government on treaty matters."42 However, the Respondent also noted that the US Supreme Court also rejects the US Government’s interpretations of treaty provisions, as it did in Hamdan v. Rumsfeld,43 and Gonzales v. O. Centro Espirita Beneficíente Uniao do Vegetal.44
A.43.
For the Respondent, recent cases like Abbott v. Abbott show that the contemporary process of treaty interpretation by US Courts begins with the text of the treaty, assigning only a secondary role to any views by the US Government amongst multiple other extra-textual elements. The Respondent highlighted in this regard writings by Professor David Bederman contending that views of the US Government are only one of several factors the US Supreme Court now weighs in treaty cases, including elements such as other Governments’ views and international tribunals’ interpretations.45 In Professor Bederman’s view, no single factor necessarily holds a privileged place.
A.44.
As a tribunal created by international law under NAFTA’s Chapter Eleven, this Tribunal owes no special deference to the views of the Respondent as a NAFTA Party. This Tribunal’s task is to interpret NAFTA in accordance with the international law rules governing treaty interpretation, as provided by NAFTA Article 1131(1). Canons of interpretation operating only in US domestic law are not relevant to this Tribunal. The Tribunal considers that its mandate under NAFTA Article 1131(1) is absolute: it would be a violation of that mandate for this Tribunal to interpret and apply NAFTA’s Chapter Eleven taking into account any canon of construction under US law unduly favourable to the Respondent and unfavourable to the Claimants. Hence, any award by this Tribunal could not apply the canon so criticised by the Claimants; and accordingly no jurisdictional decision by this Tribunal should be judicially reviewable before any Court by reference to any such canon.
A.45.
The Tribunal nonetheless recognises, as the Parties themselves acknowledged, that the Claimants’ deference argument is novel in the NAFTA context. So far as this Tribunal was informed, no US court has addressed this argument in regard to an arbitration award, still less any investor-state award. Thus, the Tribunal faces different and unresolved legal theories as to how a domestic US canon of construction might operate in any possible future US litigation to set aside an award by this Tribunal under NAFTA’s Chapter Eleven. On one hand, the US Supreme Court does indeed assert that an administration’s treaty interpretation "is entitled to great weight."46 However, the US Supreme Court also maintains that it should "give respectful consideration to the interpretation of an international treaty rendered by an international court with jurisdiction to interpret" it.47
A.46.
This Tribunal is not a US court. It cannot decide how US courts might resolve the tensions in this uncertain and disputed area of domestic US law. However, the possibility that a deference doctrine might be invoked and upheld in future litigation to set aside an award clearly creates an element of legal uncertainty. Is that theoretical uncertainty a bar to New York as a legal place for this arbitration?
A.47.
The Tribunal answers this question in the negative. The Tribunal would regard the invocation of any deference argument by the Respondent in any future litigation between the Parties over an award by this Tribunal as being wholly inconsistent with the Respondent’s commitment to international arbitration under NAFTA Articles 1116 and 1117. In the Tribunal’s view, consent by the Respondent to a process of international arbitration under a treaty, such as NAFTA’s Chapter Eleven, carries with it an obligation in good faith not to seek an escape from an adverse award by invoking a US domestic law doctrine that is not recognised in, and has no authority, in international law, particularly by virtue of NAFTA Article 1131(1). The Tribunal cannot here assume that the Respondent, by its executive or judicial branches, would violate its obligation under international law.
A.48.
As noted above, following this Tribunal’s decision on New York as the legal place of this arbitration on 6 November 2012, the US Supreme Court decided the appeal in BG Group on 5 March 2014, restoring the decision of the arbitration tribunal. For the majority of the Supreme Court, in addressing the issues of admissibility and jurisdiction, Justice Breyer decided that US courts "presume that the parties intend arbitrators, not courts, to decide disputes about the meaning and application of particular procedural conditions for the use of arbitration."48 The Supreme Court found nothing in the United Kingdom-Argentina bilateral investment treaty to overcome this presumption. The Court also rejected the position of the US Solicitor-General that the BIT’s local litigation provision should be treated differently because it was a condition laid down in a treaty between States, and not a private party.49 The Supreme Court saw no reason with a treaty to warrant "abandoning, or increasing the complexity of, our ordinary intent-determining framework" for arbitration agreements.50 In the Tribunal’s view, this majority decision of the US Supreme Court confirms that a US Court (not limited to New York) presented with an application by a party to review an arbitral award must do so under a "highly deferential" standard in favour of the award, which is inconsistent with the deference to the Respondent’s executive branch raised by the Claimants. The Tribunal acknowledges that the Respondent was not a party to the BIT; and it recognises that the Parties have had no opportunity to comment on the US Supreme Court’s decision. Hence, for present purposes, the Tribunal places no reliance on the Supreme Court’s judgment as a reason for its decision on New York as the legal place of this arbitration.
A.49.
Conclusion: Having discounted this remaining factor under consideration (i) potentially weighing against New York and in favour of Toronto, the Tribunal (by a majority) confirms for the reasons stated above that New York should be and is the legal place of this arbitration, as decided pursuant to NAFTA Article 20(1) of the ICSID Arbitration AF Rules. As stated, this is a majority decision: Mr. Rowley’s dissent from these reasons is set out in the following two Paragraphs.
A.50.
Dissent. Mr. Rowley agrees that the possibility that a deference doctrine might be invoked and upheld in future litigation to set aside an award does not result in a bar, as such, to the choice by the Tribunal of New York as the legal place for this arbitration.
A.51.
However, where, as here, the decisive consideration in a choice between New York and Toronto is the comparative levelness of the legal playing fields provided under the competing lex loci arbitri, Mr. Rowley considers that the US Supreme Court’s requirement for New York courts to give "great weight" to the executive branch’s interpretation of a treaty (here, NAFTA) tips the scale in favour of Toronto. With respect to the majority’s view, expressed in Paragraph A.44 above, it is by no means clear to Mr. Rowley that the canon of interpretation enunciated in cases such as Sumitomo Shoji America, Inc. v. Avagliano, and Abbott v. Abbott (cited above) is inapplicable in a judicial review by the New York courts of a jurisdictional decision by the Tribunal.

PART II - THE PARTIES’ DISPUTE

(1) Introduction

2.1.
The Tribunal summarises below the broad scope of the Parties’ jurisdictional and substantive disputes in these arbitration proceedings. These summaries are made solely for later ease of reference and to ensure that what follows may be more readily comprehensible; and none is intended to describe the full scope of the Parties’ respective cases as presented to the Tribunal in thousands of pages, numerous factual and expert witnesses and a lengthy hearing. In particular, the mere fact that a Party’s submission is not expressly recorded below should not be taken as meaning that the Tribunal has overlooked it or, by itself, that the submission has played no part in the Tribunal’s decisions.
2.2.
It is appropriate to begin these summaries with the Claimants’ case and to follow with the Respondent’s case. It is then appropriate to address the written submission made under NAFTA Article 1128 by the United Mexican States.

(2) The Claimants’ Case

2.3.
In summary, the Claimants contend that the Tribunal has jurisdiction under NAFTA to decide the Parties’ dispute and should decide that the Respondent has violated its substantive obligations towards each of the Claimants (for itself and Apotex-US) under NAFTA, requiring the Respondent to pay substantial monetary compensation to the Claimants, with interest and costs.
2.4.
Apotex-Holdings: According to the Claimants, Apotex-Holdings is a Canadian investor in the generic pharmaceutical industry. It has over the past two decades made substantial investments in Apotex-US, a US company that it indirectly owns and controls. Accordingly, within the meaning of NAFTA’s Chapter Eleven, the Claimants submit that Apotex-Holdings is an "investor" with Apotex-US as its "investment."
2.5.
Apotex-US: According to the Claimants, the business of Apotex-US is the sale within the USA of drugs produced by other Apotex companies, notably by Apotex Inc., a Canadian generic drug manufacturer that Apotex-Holdings also indirectly owns and controls. Due to the substantial investment of capital, know-how and expertise by Apotex-Holdings, according to the Claimants, Apotex-US at the beginning of 2009 was one of the most successful generic drug companies in the USA measured by sales volume. As at mid-2009, Apotex-US had the sixth-highest sales of any generic drug company in the USA.
2.6.
Apotex Inc. : Apotex Inc. operates several facilities in Canada. Two of its production facilities are located at: (i) Signet Drive in Toronto, Ontario ("Signet") and (ii) Etobicoke, Ontario ("Etobicoke"). The Signet and Etobicoke facilities produce oral solid-dose medicinal products, such as tablets. Certain of these products were sold by Apotex-US on the US market; and, as at mid-2009, those products accounted for about 80% of sales by Apotex-US in the USA. The Etobicoke facility also performed research and development; and the Signet facility was seeking to produce drug products in injectable form.
2.7.
According to the Claimants, Apotex Inc. is also an "investor" within the meaning of NAFTA’s Chapter Eleven, having as its "investment" Abbreviated New Drug Applications ("ANDAs") approved by the US Food and Drug Administration ("FDA"), also called by the Claimants "marketing authorizations." The Claimants further submit, given that Apotex Inc. is indirectly owned by Apotex-Holdings, that these ANDAs are also an "investment" of Apotex-Holdings. At the time of the FDA’s Import Alert in August 2009 (described below), Apotex Inc. had 153 ANDAs permitting the sale of its drugs in the USA manufactured at its two Canadian facilities (ANDAs being site specific).
2.8.
State Regulators: As a Canadian drug manufacturer, Apotex Inc. was and remains primarily regulated and controlled by Health Canada, an agency of the Canadian State. Apotex Inc.’s facilities have been regularly inspected by Health Canada since the mid-1970s. Because Apotex Inc. also supplies the US drug market, its production sites have also periodically been inspected by the FDA, as an agency of the Respondent.
2.9.
As acknowledged by the Claimants, inspections by Health Canada and the FDA customarily address a multitude of matters associated with modern pharmaceutical production. These include what are known as current good manufacturing practices ("cGMP"), being standards developed through consultations between industry and regulatory agencies and then codified in regulations. These regulatory standards address, among other topics, the proper design, monitoring and control of drug manufacturing processes at facilities, such as Signet and Etobicoke.
2.10.
The Act. Under the US Federal Food, Drug and Cosmetic Act ("the Act"), the FDA assesses conformity with cGMP in part through on-site inspections of pharmaceutical manufacturing facilities, both within the USA and abroad. Because the FDA’s cGMP standards are by their nature general, according to the Claimants, their application to specific processes, equipment and facilities leaves much to the discretion of manufacturers.
2.11.
At the conclusion of a facility’s inspection, FDA inspectors record their written observations on a standard form known as "Form 483." A Form 483 lists inspectional observations; they do not represent the FDA’s final determination regarding a manufacturer’s compliance with cGMP standards. A manufacturer may provide comments on the FDA inspectors’ observations to the FDA; and these observations and comments are reviewed by the FDA.
2.12.
If the FDA decides that the manufacturer has not responded adequately to significant cGMP violations at the facility, the FDA may issue a "warning letter." According to the Claimants, a manufacturer is afforded an opportunity to comment to the FDA in response to a warning letter; and the FDA typically takes that comment into account in determining whether or not to take enforcement actions against the manufacturer and its facility.
2.13.
Such enforcement actions could include the seizure of the manufacturer’s products or a civil action in the US courts seeking injunctive relief against the manufacturer. Such an injunction (issued by a US court) could preclude the continued marketing of affected products until the FDA confirms the manufacturer’s compliance with cGMP.
2.14.
According to the Claimants, the Act also authorises the Respondent to detain, physically examine and refuse admission of a product into the USA if the product is "adulterated" within the meaning of the Act. Under US legislation, a drug is considered "adulterated" if the methods or facilities used to produce it do not conform to cGMP so as to ensure the safety, identity, strength, quality and purity of the drug required by the Act.
2.15.
Based on the Act, according to the Claimants, the FDA has created a measure known as an import alert; i.e. a notice by the FDA to US customs officials added to a general import alert that calls for detention without physical examination of a specified category of products. In practice, the result often is not the actual detention of a product; but a refusal at the US border of admission into the USA of all products within the specified category.
2.16.
FDA Inspections: Before 2008, the FDA had inspected Apotex Inc.’s facilities in Signet and Etobicoke on numerous occasions since 2002. Until 2008, according to the Claimants, the FDA had never recorded any cGMP violation at these two facilities (nor at any other Apotex facilities elsewhere).
2.17.
In April 2002, May 2005 and November 2006, the FDA had inspected the Etobicoke facility; and the FDA had inspected the Signet facility in September 2000, March 2003 and June 2006. During the 2000, 2002 and 2006 inspections, FDA inspectors made certain observations concerning cGMP at these two facilities; but, after receiving Apotex Inc.’s clarifications, the FDA found cGMP compliance at both facilities to be sufficient.
2.18.
The 2008 Etobicoke Inspection: From 10 to 19 December 2008, the FDA inspected Apotex Inc.’s facility at Etobicoke. At the end of this inspection, the FDA inspectors issued three pages of observations on their Form 483, listing 11 alleged deviations from cGMP. According to the Claimants, the FDA inspectors did not suggest that their observations raised any actual concern as to the continued manufacture or distribution in the USA of drugs manufactured at Etobicoke.
2.19.
Later, on 30 January 2009, Apotex Inc. provided an eight-page written response to the FDA inspectors’ observations. As promised in its response, so the Claimants contend, Apotex Inc. enhanced its quality and manufacturing processes and equipment at Etobicoke in the first half of 2009. Apotex Inc. received no further communication from the FDA concerning Etobicoke for several months, until June 2009.
2.20.
The Etobicoke Warning Letter: On 25 June 2009, the FDA issued a warning letter identifying three issues of concern to the FDA (the "Etobicoke warning letter"). The Claimants contend that only two of these issues concerned cGMP. Of these, the first was not identified as an issue by the FDA inspectors on their Form 483 observations; and the second issue was stated as a request for further information, rather than a finding of any violation. The remaining Form 483 observations were either resolved by Apotex Inc.’s response or otherwise not adopted by the FDA.
2.21.
The 2009 Signet Inspection: From 27 July to 14 August 2009, the FDA inspected Apotex Inc.’s facility at Signet. At the close of the inspection, the FDA inspectors issued a list of 17 observations on their Form 483. The FDA inspectors asked Apotex Inc. to schedule a telephone conference call with the FDA to discuss these observations. (This was on Friday, 14 August 2009).
2.22.
On Monday, 17 August 2009 (i.e. one working day later), Apotex Inc. held the required conference call with the FDA. While noting that it was still studying the Form 483 observations, Apotex Inc. undertook voluntarily to recall 675 batches of drug products from the US market as a precautionary measure.
2.23.
By an internal memorandum dated 20 August 2009, the FDA’s director of compliance for drug products requested that the FDA director of import operations amend the existing Import Alert 66-40 to include all products manufactured at the Etobicoke and Signet facilities. The request was made without the benefit of Apotex Inc.’s written response to the Signet Form 483 (which was only due on 4 September 2009); and the FDA had provided no prior notice to Apotex Inc. of its proposed enforcement action.
2.24.
The 2009 Import Alert: On 28 August 2009, the FDA amended Import Alert 66-40 to include all products produced by the Etobicoke and Signet facilities (the "Import Alert"). The Claimants contend that the FDA provided no notice of this measure to Apotex Inc. or any other Apotex company. The measure prevented Apotex-US from receiving for sale in the USA any product manufactured at the Etobicoke and Signet facilities. In addition, the FDA suspended consideration of any new ANDAs for drugs produced or to be produced by Apotex Inc. at these two facilities. It therefore prohibited Apotex-US from bringing to market any of Apotex Inc.’s new solid dose generic drugs, effectively eliminating Apotex-US’s ability to secure the advantage of statutory marketing exclusivity for new products in the USA.
2.25.
The Import Alert remained in place for a period of almost two years. The FDA did not lift in full the Import Alert regarding both Etobicoke and Signet facilities until the end of July 2011, belatedly so according to the Claimants.
2.26.
The Claimants contend that the FDA’s actions taken against Apotex Inc. were exceptional, indeed unique, as the FDA itself recognised in public speeches made by its senior officers at the time. According to the Claimants, the FDA had never before rushed to take action against a major pharmaceutical company in the absence of any actual or imminent health hazard and without providing to such company any real opportunity to address the FDA’s concerns. The Claimants also complain at the FDA’s complete lack of procedural due process: the Import Alert was issued without any notice to the Claimants; no reasons for the notice were made known to the Claimants; no opportunity was granted to the Claimants to dispute the notice or even to present evidence in support of the Claimants’ position; and no access was accorded to any court for judicial review or even any review by an impartial decision-maker. The Claimants allege, in particular, that the purpose of the FDA’s Signet inspection was "was to identify cGMP deviations to support an Import Alert. FDA’s judgment against Apotex had already been made."1 The Claimants also allege that the FDA’s true reason for the Import Alert "was to demonstrate FDA’s new tough enforcement policy and to provide an example which FDA could hold out for the world to see" and in its rush to judgment "to make Apotex an example... even though its treatment of Apotex was completely unjustified."2
2.27.

Jurisdiction: The Claimants contend that no jurisdictional issue can arise in regard to Apotex-Holdings and Apotex-US respectively as a qualified "investor" and a covered "investment" under NAFTA Chapter Eleven. As regards the Import Alert, the Claimants submit that it did "relate to" Apotex-US within the meaning of NAFTA Article 1101(1): Apotex-US was established specifically as the marketing and distribution arm of Apotex Inc. (to which the Import Alert was directed); Apotex Inc. sold its products exclusively through Apotex-US in the USA; Apotex-US was the sole commercial importer and distributor of record for drugs manufactured at the Etobicoke and Signet facilities; following the Import Alert, Apotex-US was a named addressee of the Respondent’s notices of detention; and the Import Alert directly prevented Apotex-US from carrying on its business for almost two years, causing it to suffer severe financial losses. Hence, so the Claimants argue, the Import Alert "related" both to Apotex-US as an "investment" and also to its "investor", Apotex-Holdings.3

2.28.

As regards Apotex Inc., the Claimants contend that its ANDAs are "intangible property" under NAFTA Article 1139(g). The Claimants further submit that ANDAs are "interests" under NAFTA Article 1139(h). Hence, so the Claimants argue, Apotex Inc. is an "investor" with its ANDAs as "investments" and, further, Apotex-Holdings is an "investor" with the same "investments", given its status as the ultimate (indirect) owner of Apotex Inc.4

2.29.

The Claimants contend that, as a matter of jurisdiction, there can be no jurisdictional objection arising from the Apotex I & II Award made by the NAFTA Tribunal in the "Apotex I & II Arbitration"5 (to which the Tribunal returns below), as argued by the Respondent.6

2.30.
Liability. The Claimants contend that the Import Alert violated NAFTA article 1102 (National Treatment), Article 1103 (Most-Favoured-Nation Treatment) and Article 1105 (Minimum Standard of Treatment). The Claimants also contend, by virtue of NAFTA Article 1103 and Annex IV, that the Respondent also violated Article II(2) and II(6) of the Jamaica-USA BIT.
2.31.

Articles 1102 & 1103: During the relevant time period, the Claimants contend that the FDA accorded more favourable treatment to US investors and US owned investments in like circumstances to Apotex-Holdings, Apotex Inc. and Apotex-US in violation of NAFTA article 1102. The Claimants submit that no such investor or investment was subjected to a measure as severe as the Import Alert imposed on the Apotex companies. The Claimants also contend that investors of other countries and investments owned by such investors in like circumstances also received more favourable treatment than the treatment accorded to the Apotex companies in violation of NAFTA Article 1103. The Claimants refer to a number of such comparators, particularly the Teva group of companies ("Teva") and the Sandoz/Novartis companies ("Sandoz").7

2.32.

Article 1105: The Claimants complain at the FDA’s lack of basic procedural due process, amounting to a violation by the Respondent of NAFTA Article 1105 and Article II of the Jamaica-USA BIT.8 Whilst the Claimants do not agree in this proceeding with the FDA’s determination that Apotex Inc.’s two facilities were not compliant with cGMP, the Claimants do not, however, here seek to impugn the FDA’s substantive decisions: i.e. "[w]hether FDA was right or wrong about Apotex’s cGMP compliance... is not a part of the claims presented in this case."9

2.33.
The Jamaica-USA BIT: The Claimants submit that, with the FDA’s deficient procedure regarding the Import Alert, the Respondent violated Article Il(2)(b) & (6) of the Jamaica-USA BIT.10
2.34.
Quantum: Because of the Import Alert, according to the Claimants, Apotex-Holdings, Apotex Inc. and Apotex-US suffered substantial damage. In particular, Apotex-US's business was decimated, with 80% of its supplies cut-off from Canada; Apotex Inc. and Apotex-US lost sales in excess of US$ 500 million; Apotex-US dropped from being a market leader for generic drugs in the USA to the bottom ranks; and Apotex Inc. was prevented from bringing any new drugs to the US market. The Claimants estimate that financial losses to the Claimants resulting from the Respondent’s violations of NAFTA amount to between US$ 1.0 billion to US$ 1.5 billion (as at early 2013) for which the Respondent is liable to pay compensation to the Claimants, subject to upward revision for continuing losses.11
2.35.
Given that all quantum issues have been bifurcated to another phase of these proceedings (if and to the extent relevant), it is unnecessary to describe the Claimants’ case on quantum any further.
2.36.
Relief. Accordingly, the Claimants seek a decision in their favour, as against the Respondent, on both jurisdiction and liability; namely dismissing the Respondent’s jurisdictional objections; holding that the Respondent has breached NAFTA Articles 1102, 1103 and 1105 and the Jamaica-USA BIT; and ordering a further phase of this proceeding on damages in accordance with the formal relief recorded in their written pleadings, as set out in Part I above and confirmed in their closing oral submissions at the Hearing.12

(3) The Respondent’s Case

2.37.
In summary, the Respondent contends that the Tribunal has no jurisdiction to decide the Parties’ dispute under NAFTA; and, if the Tribunal were to exercise jurisdiction over any of the Claimants’ claims, that the Tribunal should decide that the Respondent has not violated any of its substantive obligations under NAFTA or the Jamaica-USA BIT; and that no compensation is payable to the Claimants. According to the Respondent, the Tribunal should deny all the Claimants’ claims concerning the Respondent’s lawful and appropriate exercise of its authority to protect the health of its own people in its own territory. The Tribunal should also recognise, according to the Respondent, that the Claimants’ complaint is in fact directed at a trade measure, addressed only to Apotex Inc.’s two foreign facilities, and that the Claimants are seeking improperly in these proceedings to convert a possible trade-related claim between NAFTA Contracting States (under NAFTA Chapter Twenty) into an investment claim by a foreign entity (under NAFTA Chapter Eleven).
2.38.
The Respondent also contends that, for more than a century, the Respondent has established laws and regulations to prevent the importation of adulterated drugs in order to protect public health in the USA. The FDA’s policy on import alerts has been in effect since at least the 1970s. The Respondent did not relinquish this authority and responsibility when it concluded NAFTA. Nor did the Respondent (with its NAFTA Contracting Parties) establish the form of investment arbitration under NAFTA’s Chapter Eleven to resolve complaints by foreign entities whose adulterated drugs have been turned away at the US border.
2.39.
The Respondent contends that the material facts in this case are largely undisputed between the Parties, as listed below (according to the Respondent).
2.40.
The 2008 Etobicoke Inspection: In December 2008, the FDA inspected Apotex Inc.’s manufacturing facilities at Etobicoke following complaints from US patients, doctors and pharmacists about problems with Apotex drugs. The eight-day inspection by the FDA inspectors uncovered significant violations of US laws and regulations, including numerous deviations from cGMP. The FDA inspectors informed Apotex Inc. of their findings at the close of this inspection.
2.41.
The 2009 Etobicoke Warning Letter: The FDA subsequently issued to Apotex Inc. a "warning letter" dated 25 June 2009, apprising Apotex Inc. that drugs from its Etobicoke facility were adulterated under US law and thus could be denied admission to the USA. The FDA further warned Apotex Inc. that the FDA could withhold approval of new drug applications linked to the Etobicoke facility. Apotex Inc. acknowledged serious problems with its manufacturing practices and promised to implement corrective action.
2.42.
The 2009 Signet Inspection: In August 2009, the FDA’s inspectors inspected Apotex Inc.’s Signet facilities. This inspection was prompted by the serious cGMP deficiencies found at the Etobicoke facilities and by additional complaints that the FDA had received concerning the quality and efficacy of Apotex’s products in the USA.
2.43.
According to the Respondent, this 14-day inspection by the FDA’s inspectors uncovered significant violations of US laws and regulations at the Signet facility, including numerous cGMP deficiencies, several of which mirrored those found at the Etobicoke facility. These violations affected many products and confirmed systemic problems with Apotex Inc.’s entire manufacturing program. The FDA inspectors found that Apotex had distributed products in the US market contaminated with hair, glue, plastic, nylon, metal, rust, acetate fibres, fluorocarbons and PVC-based material. The FDA inspectors also cited Apotex Inc. for improperly produced and misbranded drug products; poor cleaning practices; a failure to investigate or report manufacturing problems properly; inadequate production procedures; poor recordkeeping; and numerous other serious failings.
2.44.
The Import Alert: The FDA placed Apotex Inc.’s Etobicoke and Signet facilities on "Import Alert" in August 2009, signalling that drugs from those facilities were adulterated and could be detained at the US border without physical examination. Apotex Inc. did not dispute FDA’s cGMP findings or protest at having been placed on Import Alert. Nor did Apotex Inc. exercise its right to challenge the FDA’s actions in US administrative proceedings or in US federal court.
2.45.
After being placed on Import Alert in August 2009, Apotex Inc. accepted responsibility for systemic problems with its manufacturing practices; recalled adulterated drug products from the US market; hired third-party consultants to help bring its facilities into compliance with US law; and promised to overhaul its operations, management structure, and quality control systems.
2.46.
Apotex Inc.’s primary regulator, Health Canada, launched its own inspections of the Etobicoke and Signet facilities. Health Canada corroborated the FDA’s findings, recording 37 "major observations" at these two sites. Health Canada discovered, for instance, "a dead insect or insect fragment" in active pharmaceutical ingredients, prompting Apotex Inc. to recall drugs using those ingredients from the Canadian market. Health Canada further faulted Apotex Inc. for using the same material to fabricate cytotoxic and non-cytotoxic materials without taking proper precautions to prevent cross-contamination, being a violation that alone would have warranted stripping Apotex Inc. of its establishment license under Canadian law. Health Canada also discovered that Apotex Inc. had, among other violations, misreported test results; released failed products for sale in Canada; failed to conduct timely investigations of potentially unsafe products; and delayed recalling product until long after learning of health risks to patients. Apotex Inc. also acknowledged problems with its manufacturing practices and pledged to address the "system deficiencies highlighted by them." Health Canada opted not to shut down Apotex Inc.’s facilities (because Apotex is Canada’s largest supplier of generic drugs); but it placed Apotex under close and continuous on-site supervision for more than a year, so as to ensure that Apotex followed through with its promised corrective actions.
2.47.
During 2009 and 2010, the FDA communicated continuously with Apotex on how to achieve sustainable compliance with US law, devoting extraordinary agency resources to that task. Apotex Inc. only notified FDA that its facilities would be ready for re-inspection in October 2010, more than a year after the FDA’s Import Alert.
2.48.
The FDA’s follow-up re-inspections of the Etobicoke and Signet facilities in January and February 2011 revealed significant and on-going cGMP problems; and accordingly the FDA investigators recommended against the lifting of the Import Alert. Nonetheless, after evaluating Apotex’s corrective reactions and its plans for continued improvements, the FDA decided to lift the Import Alert as regards products manufactured at the Etobicoke and Signet facilities. The FDA also resumed its evaluation of whether, from a cGMP perspective, the FDA could approve Apotex’s drug applications from the Etobicoke and Signet facilities.
2.49.
The Respondent contends that the Claimants do not materially dispute any these facts. The Claimants, according to the Respondent, merely belittle and disregard their serious nature. The Respondent contends that the FDA cannot allow a company to market drugs in the USA, in the Claimants’ language, that "almost without exception" are safe and effective; or that fail testing "only" 11 per cent of the time; and that when serious manufacturing and quality control problems are identified by the FDA, mere "good will gestures" by Apotex Inc. should suffice for the FDA. As the meningitis outbreak in the USA tragically demonstrated, pharmaceutical products manufactured in violation of cGMP can be deadly for patients. The Respondent submits that all companies, foreign and domestic, must comply with current good manufacturing practice to market their drugs to patients in the USA.
2.50.
The Respondent submits that the Claimants are wrong to blame the FDA for having prevented Apotex Inc. from exporting adulterated drugs to the USA; and wrong to claim that the Respondent (i.e. the US taxpayer) should compensate Apotex Inc. for the costs of bringing its own manufacturing practices into compliance with US law. The Respondent also submits that the Claimants are wrong in asserting their claims as an investment dispute in order to claim significant damages from the Respondent as a foreign investor under NAFTA’s Chapter Eleven. The Respondent accordingly disputes the Claimants’ case, both as a matter of jurisdiction and on the merits.
2.51.
Jurisdiction: In regard to the Claimants’ claim that Apotex Inc., a Canadian drug manufacturer with facilities only in Canada, is an "investor" that made and sought to make "investments" in the USA, the Respondent submits that the Claimants have failed to establish that Apotex Inc. has made or even sought to make any investments in the USA within the meaning of "investment" and "investor" in NAFTA’s Chapter Eleven. The Respondent submits that Apotex Inc. does not claim to manufacture or even test any drugs in the USA; nor does it assert the existence of any offices or employees in the USA; it pays no taxes in the USA on its supposed investments (including its ANDA-related activities); it does not claim to prepare its drug applications to the FDA in the USA; and it does not own or control Apotex-US.13
2.52.

According to the Respondent, the issue of jurisdiction in regard to Apotex Inc. turns decisively upon the character of its ANDAs. The Respondent submits that ANDAs, whether unapproved, tentatively approved or finally approved (in whole or in part) are incapable of being "investments" under NAFTA Article 1139(g) or Article 1139(h). Even after approval, ANDAs remain revocable by the FDA; and, in the Respondent’s submission, an ANDA is no more than an application by a foreign drug manufacturer for permission to export its drug products to the USA.14

2.53.

Further, the Respondent relies upon the reasoning to this effect, operating as res judicata in this arbitration, contained in the Apotex I & II Award. Although that earlier arbitration decided claims relating to tentatively approved ANDAs (rather, as here, finally approved ANDAs), the Respondent submits that this is a distinction without a difference. The Respondent invites the Tribunal to reject jurisdiction over all claims made by Apotex Inc. and related claims by Apotex-Holdings.15 (The Respondent does not here contend that the Apotex I & II Award has any preclusive effect on Apotex-Holdings’ claim to be an investor by virtue of its investment in Apotex-US, being "a jurisdictional issue obviously not arbitrated or determined in the previous proceeding.")16

2.54.
As regards Apotex-Holdings’ other claims, the Respondent agrees that Apotex-Holdings is an "investor" within the meaning of NAFTA Article 1139(a). The Respondent accepts that Apotex-Holdings committed to establish Apotex-US as a US distributor of generic drugs; hence Apotex-US may be regarded as an investment by Apotex-Holdings; but that is not enough, according to the Respondent, to establish Apotex-Holdings’ investment claim under NAFTA’s Chapter Eleven.17
2.55.

The Respondent submits that NAFTA’s Chapter Eleven also requires that the challenged measure "relate to", or in other words have a "legally significant connection" to the investor or the investor’s investment. The only measure challenged by the Claimants in this case is the Import Alert; but that Import Alert did not "relate to" Apotex-Holdings as an investor, nor to Apotex-US as an investment which continued to market generic drugs in the USA throughout the period of the Import Alert.18

2.56.
The Respondent also contends that an Import Alert operates under US law only as internal agency guidance: it does not now provide for "automatic detention";19 and "[i]t is neither necessary nor sufficient for the detention of drugs."20 The Respondent submits that products shipped by Apotex Inc. were detained at the USA-Canadian border because such products were adulterated. The relevant measure, according to the Respondent, was either: (i) the FDA’s determination that Apotex Inc.’s two facilities were not cGMP compliant and its products therefore adulterated under US law; or (ii) the Respondent’s notices of detention addressed to Apotex Inc.’s consignees in the USA, i.e. Apotex- US (but equally so any other consignee of products made at these two facilities). The Claimants, however, do not complain about either of these two measures in these proceedings.
2.57.
The Respondent acknowledges that Apotex Inc. was effectively prevented from exporting its drugs to any US distributor, including Apotex-US. The Respondent contends that, although the Claimants seek to show that the Import Alert particularly related to Apotex-US because of its relationship with Apotex Inc., the Claimants’ arguments directly contradict formal statements previously made by Apotex companies before several US courts to the effect that Apotex Inc. and Apotex-US are separate and independent companies. According to the Respondent, the Claimants cannot here opportunistically argue one thing to establish jurisdiction before this Tribunal; but the opposite when seeking to avoid jurisdiction before US courts.
2.58.
The Respondent invites the Tribunal to reject jurisdiction over all claims made by Apotex Inc. and Apotex-Holdings.
2.59.
Liability. As to the merits of the Claimants’ claims (assuming jurisdiction), the Respondent contends that the Claimants do not dispute that Apotex Inc.’s drugs were adulterated as a matter of US law; nor do the Claimants challenge the underlying legality of import alerts as a policy exercisable by the FDA, given similar policies by Canada and other States.
2.60.
Articles 1102 & 1103 NAFTA: The Respondent denies any breach of NAFTA Articles 1102 and 1103. It also denies any breach of the Jamaica-USA BIT. In particular, the Respondent contends that the Claimants’ claims that the Respondent accorded better treatment to US and foreign companies, in violation of NAFTA Articles 1102 (national treatment) and 1103 (most-favoured-nation treatment), suffer from three major defects.21
2.61.

First, the Claimants cannot establish a national or most-favoured-nation treatment claim because the Import Alert (which applied to Apotex Inc.’s two Canadian manufacturing facilities) had no legally significant connection to Apotex-Holdings as an "investor" or to Apotex-US as its "investment" under NAFTA Article 1101; and neither Apotex-Holdings nor Apotex-US received any relevant "treatment" under NAFTA Articles 1102 and 1103.22

2.62.
Second, the Claimants cannot establish a national treatment claim under NAFTA Article 1102, because the Claimants have failed to identify any comparators in "like circumstances." In particular, the Claimants cite the FDA’s treatment of drug manufacturing facilities in the USA; but these are obviously not subject to import alerts; and thus they cannot be in "like circumstances" with Apotex Inc., with only foreign facilities in Canada.23
2.63.

Third, the Claimants cannot establish a most-favoured-nation treatment claim under NAFTA Article 1103, because the Claimants have failed to identify any third country-owned comparator that received in like circumstances more favourable treatment than the Claimants. Of the comparators cited by the Claimants, for instance, one drug manufacturer shut down the operations of its non-compliant facilities; and another manufacturer had two facilities placed on import alert for more than three years, forfeited dozens of drug applications and set aside US$ 500 million for potential civil and criminal penalties. The Respondent submits that the Claimants’ allegation that the Respondent discriminated in favour of these foreign manufacturers is factually wrong.24

2.64.

Article 1105 NAFTA: The Respondent submits that the Claimants’ claim under NAFTA Article 1105 claim is baseless on the merits. The Respondent notes that the Claimants contend that the FDA (i.e. the Respondent) should have allowed Apotex Inc. to continue exporting adulterated drugs to the USA until it had been afforded six "procedural safeguards": (i) a hearing; (ii) with advance notice; (iii) before an impartial body; (iv) where the party may present evidence and contest the decision; (v) with a reasoned decision relying on all relevant legal and factual considerations; and (vi) with judicial review of that decision. Failure to provide these, so the Claimants assert, put the Respondent in violation of the customary international law minimum standard of treatment. The Respondent denies that these are customary rules of international law that form part of the minimum standard of treatment under NAFTA Article 1105.25

2.65.
The Respondent submits that the Claimants have not established their supposed new standard as rule of customary international law, nor any general and consistent practice of States followed from a sense of legal obligation requiring these generous "safeguards" before blocking the importation of foreign adulterated drugs. The Respondent submits that the Claimants have merely plucked their proposed new rule from soft law sources, law review articles, working papers, and human rights, trade and European Union decisions that have no bearing on this case. The Respondent submits that international law does not require that a State continue to allow the import of adulterated drugs whilst the foreign manufacturer conducts litigation over that State’s decision to bar such imports made on grounds of public health and for the safety of its own people; and that, if it did, the implications of any such rule would be enormous and potentially dangerous for patients.
2.66.
Currently, the USA imports about 40% of its finished drug products and about 80% of its active pharmaceutical ingredients ("API") from more than 100 countries around the world. The heparin scandal in 2007, caused by a contaminant in the drug’s API manufactured at a facility in China, demonstrates, according to the Respondent, the "difficult and complicated balancing of risk" required of the FDA.26
2.67.
Moreover, so the Respondent submits, even if the Claimants could demonstrate the existence of such a new rule of customary international law, the evidence shows that the Respondent actually offered the Claimants the "procedural safeguards" they now claim were due to them, both as administrative and judicial processes. But the Claimants chose not to invoke them, for good reasons: Apotex Inc. acknowledged as significant its cGMP violations; its third party consultants confirmed the findings of the FDA’s inspectors; and Apotex Inc. took over a year to prepare itself for the FDA’s re-inspections.
2.68.

Jamaica-USA BIT: The Respondent submits that the Jamaica-USA BIT does not assist the Claimants’ case under NAFTA Article 1105 or at all: its terms add nothing to NAFTA Article 1105 (read with the Free Trade Commission’s binding interpretation); and NAFTA Article 1103 cannot expand the substantive scope of NAFTA Article 1105. For all these reasons, the Respondent denies any breach of NAFTA Article 1105 and Article II of the Jamaica-USA BIT.27

2.69.
Quantum: As to the quantum of compensation claimed by the Claimants, the Respondent denies the basis on which these claims are made. The Respondent notes that the quantum of the Claimants’ claim is [REDACTED] times greater than their claimed sales in the USA, [REDACTED] times greater than their annual worldwide sales (in more than 115 countries) and greater than the value of the entire Apotex group of companies.
2.70.
As already indicated, given that quantum is not an issue for present purposes, it is unnecessary here to summarise the Respondent’s case on quantum any further.
2.71.
Relief. Accordingly, the Respondent submits that the Claimants’ claims fall outside the scope and coverage of NAFTA’s Chapter Eleven. As a matter of jurisdiction and/or, alternatively, the merits as to liability, the Respondent requests the Tribunal to dismiss the Claimants’ claims with prejudice and in either case to award to the Respondent, against the Claimants, the full costs of these arbitration proceedings, in accordance with the formal relief recorded in its written pleadings, as set out above and confirmed in its closing oral submissions at the Hearing.28

(4) The Submission of the United Mexican States

2.72.
In summary, with its written submission of 9 February 2013 under NAFTA Article 1128, the United Mexican States ("Mexico") addresses NAFTA Article 1101(1) and Article 1139(h), recording its concurrence with the written submissions made by the Respondent in its Counter-Memorial (at Paragraphs 245-263).29 (This submission did not address NAFTA Article 1139(g) separately).
2.73.
Mexico submits that NAFTA Article 1101(1) is the jurisdictional gateway to the dispute resolution and other provisions in NAFTA’s Chapter Eleven,30 as it establishes and places limits on the scope and coverage of Chapter Eleven.31 As such, Mexico submits that Article 1101(1) is a necessary component of the context required to interpret Article 1139(h).32
2.74.
Mexico contends that it follows from Article 1101(1) that investments, as defined by Article 1139(h), of an investor of a Party can only fall within the scope and coverage of Chapter Eleven if they are located in the territory of another Party.33 Mexico submits that an investor of a Party must make a commitment of capital or other resources in the territory of another Party in order to make an "investment" within the meaning of Article 1139(h).34
2.75.

To the extent that a comparison of NAFTA’s three language versions may reveal a difference of meaning in the text of NAFTA Article 1139(h), Mexico submits, by applying Article 33(4) of the Vienna Convention on the Law of Treaties, that any perceived discrepancy between the English and French texts (on the one hand) and the Spanish text (on the other) is best reconciled by upholding the territoriality requirement in Article 1139(h).35 Mexico bases this submission upon the consistency of the English and French versions of Article 1139(h) with Article 1101(1).36

PART III - THE PRINCIPAL FACTS

(1) Introduction

3.1.
It is necessary at the outset to summarise the principal facts relevant to the Tribunal’s reasons for its several decisions below, many of which are materially fact specific or at least require factual explanations. Whilst there is much common ground between the Parties as regards these principal facts, there remain significant differences, especially in regard to foreign comparators under NAFTA Article 1103. Moreover, the facts are complicated; and their account is necessarily lengthy. Where factual references are made later in this document, these should be read with the fuller account of those facts summarised below, including their respective evidentiary references.
3.2.
The first chronology relates to the Claimants; and the second and third chronologies relate to two principal foreign comparators invoked by the Claimants ("Teva" and "Sandoz", also described as "Sandoz/Novartis"). The first chronology is largely, but not completely, undisputed by the Parties. The second and third chronologies are, for the most part, not agreed by the Parties.
3.3.
The Tribunal emphasises that these factual chronologies are only summaries, as with the Parties’ submissions in Part II above. It would burden this document unduly, even if it were possible, for all potentially relevant factual evidence, documents and testimony to be set out here in the fullest detail. Nonetheless, as earlier indicated with the Parties’ pleadings, it should be assumed that the Tribunal has considered all relevant factual evidence adduced by the Parties in this arbitration and, further, that no relevant evidence has been overlooked by the Tribunal by reason only of its omission from the three summaries below.

(2) The Apotex Chronology

3.4.
The Tribunal has compiled the following factual chronology largely from the documentary exhibits and written testimony cited by the Parties in their written and oral pleadings in this arbitration, save where otherwise indicated.

The Apotex Group of Companies

3.5.
Apotex-Holdings was founded in 1974 as a Canadian company in Toronto by Dr. Barry Sherman. It functions as a vertically integrated holding company, operating as a privately held corporation under the Canada Business Corporations Act. With its subsidiaries, Apotex-Holdings employs over 7,500 people in research, development, manufacturing and distribution facilities worldwide, becoming a leader in the North American generic pharmaceutical market and distributing its drug products in 115 countries. In addition to the two manufacturing facilities at Signet and Etobicoke, the Apotex group operates facilities in other locations in Canada, Mexico, China and India (which are not relevant to this arbitration). The Apotex group of companies operates no manufacturing facilities in the USA.
3.6.
Apotex Inc. is a company incorporated under the laws of Ontario, Canada. It is indirectly owned by Apotex-Holdings. As already described above, Apotex Inc. operates the two manufacturing facilities in Canada at issue in this arbitration: (i) Signet and (ii) Etobicoke. These two facilities produce solid-dose medicinal products, such as tablets. Apotex Inc. is the largest Canadian-owned pharmaceutical company in Canada, producing more than 300 kinds of generic drugs in about 4,000 dosages and formats. As a manufacturer of drugs for export to the USA, Apotex Inc.’s drugs are subject to the Act and eligible for Import Alert 66-40. As a large manufacturer with long experience of exporting its products to the USA, the senior management of Apotex Inc. was familiar with the Act and the FDA’s functions under US law.
3.7.
Apotex-US is a corporation organised under the laws of Delaware, USA and authorised to transact business in Florida, USA. It is indirectly owned by Apotex-Holdings. Its principal business activity in the USA is selling drugs produced by other Apotex companies, including Apotex Inc. In August 2009, sales of Apotex Inc.’s solid dose products accounted for about 80% of Apotex-US’s sales in the USA.1 It maintains a storage facility in Indianapolis, Indiana, for products shipped by Apotex Inc. from Canada.
3.8.
In summary (as further described below), the FDA in 2006 separately inspected the Signet and Etobicoke facilities, with no sanctions imposed by the FDA upon Apotex Inc. (or any other member of the Apotex group of companies). In December 2008, the FDA inspected the Etobicoke facility with adverse observations on the Form 483, resulting in the FDA’s warning letter dated 25 June 2009. In July-August 2009, the FDA inspected the Signet facility with adverse observations on the Form 483. On 28 August 2009, the FDA amended Import Alert 66-40 to include all finished form drug products manufactured by Apotex Inc. at the Signet and Etobicoke facilities. On 29 March 2010, the FDA sent a warning letter to Apotex Inc. regarding the Signet facility. The FDA removed Apotex Inc.’s two facilities from the Import Alert on 15 June 2011 (Etobicoke) and 29 July 2011 (Signet); and on 25 November 2011, the FDA resumed its approval of Apotex Inc.’s pending ANDAs for products produced by its two Canadian facilities.

The 2006 Inspections of Signet and Etobicoke

3.9.
From 26 June to 13 July 2006, the FDA inspected Apotex Inc.’s Signet facility in Toronto, Canada.2 This is a large facility located at 150 Signet Drive, comprising of a head office, dry products facility, commercial laboratory, R&D laboratory, raw material warehouse and a regulatory affairs office extending over 575,000 sq. ft.3 The Form 483 issued by the FDA’s inspectors at the conclusion of this inspection listed one "inspectional observation", namely that there was no program to verify that the current procedures were adequate to prevent contamination and crosscontamination.4 After reviewing Apotex Inc.’s response to the Form 483, the FDA classified the Signet facility as "acceptable."5
3.10.
From 20 to 24 November 2006, the FDA inspected Apotex Inc.’s Etobicoke facility in Ontario, Canada.6 This site has a solid dose facility and employs specific technologies, such as wet granulation, flaking, pelletisation and coating.7 The Form 483 issued by the FDA’s inspectors at the conclusion of this inspection noted several deficiencies, including a failure in a timely manner to file field alert reports ("FARs"). From Apotex Inc.’s responses, the FDA confirmed that Apotex Inc. had satisfactorily addressed the FDA’s questions and concerns.8

The 2007— 2008 Criticism of the FDA’s Foreign Inspection Practices

3.11.
On 1 November 2007, the US General Accounting Office ("GAO"), an independent investigative arm of the US Congress,9 issued a report entitled "Drug Safety: Preliminary Findings Suggest Weaknesses in FDA’s Program for Inspecting Foreign Drug Manufacturers."10 This 2007 GAO report noted the FDA’s poor data regarding the number of foreign facilities subject to inspection and the FDA’s small number of foreign inspections.11 The report also noted the FDA’s difficulties in conducting foreign inspections.12 At that time, and continuing until recent legislative changes, those inspections took place without financial charge to the foreign facility.
3.12.
Beginning in 2007, many patients in the USA and elsewhere suffered from the effects of adulterated heparin (a blood thinner).13 Through its investigations, the FDA identified a contaminant in the drug’s API sourced from China.14 The contamination, to which 81 fatalities in the USA were attributed,15 stimulated concern about the adequacy of the FDA’s inspection of foreign facilities, not limited to China.16
3.13.
In April 2008, the GAO issued a second report entitled "Drug Safety: Preliminary Findings Suggest Recent FDA Initiatives Have Potential, but Do Not Fully Address Weaknesses in Its Foreign Drug Inspection Program."17 A third report was issued by the GAO in September 2008 entitled "Drug Safety: Better Data Management and More Inspections Are Needed to Strengthen FDA’s Foreign Drug Inspection Program."18

The December 2008 Etobicoke Inspection

3.14.
On 4 April 2008, the FDA’s Center for Drug Evaluation and Research, Office of Compliance ("CDER") requested a "priority inspection" of Apotex Inc.’s Etobicoke facility. CDER is a part of the FDA responsible for drug quality, including drugs produced at foreign facilities. This request was made following a number of complaints in the USA and a US Congressional inquiry regarding an alleged lack of efficacy of the Etobicoke-produced drug carbidopa-levodopa (a drug used to treat Parkinson’s disease).19 In FDA terminology, this was a priority inspection which was "directed" or "for cause", given these complaints.20
3.15.
Two FDA investigators, Commander Debra M. Emerson (a pharmacist) and Ms. Rochelle Campbell (a chemist), inspected the Etobicoke facility from 10 to 19 December 2008.21 The investigators were assigned to conduct a cGMP inspection, as well as a pre-approval inspection ("PAT’) of nine pending ANDAs.22
3.16.
During the inspection, the two FDA investigators interviewed Apotex Inc. personnel, reviewed documents, and investigated the Etobicoke facility. At the close of the inspection on 19 December 2008, the investigators provided the senior management of Apotex Inc. with 11 written "inspectional observations" in their Form 483.23 This Form 483’s observations included the following:

a. Apotex Inc. had failed to transfer the methods for testing products between the different Apotex laboratories;

b. Apotex Inc. had failed to submit timeously to the FDA certain FARs (Field Alert Reports) regarding problems observed in the manufacture of approved drugs;24

c. Apotex Inc. had failed to include complete production and process controls in all approved productions records;

d. Apotex Inc. had failed to include a copy of all approved labels and labelling in the master batch records; and

e. Apotex Inc. had changed the expiry date on a certain product without conducting proper stability testing.25

3.17.
Commander Emerson testified that, as a result of this investigation, she recommended "OAF’ [Official Action Indicated] "[b]ecause of the seriousness of the problems we identified.... More specifically, I recommended the recall and an import alert for the combination product: carbidopa-levodopa, due to the lack of stability. I also recommended that FDA withhold approval of several ANDAs [numbers here omitted] because of Apotex’s failure to adequately transfer and verify testing methods. I further recommended that FDA withhold approval of the [REDACTED] because the firm had not investigated or resolved the failed scale-up batches. Finally, I recommended that FDA re-inspect the facility to review Apotex’s scale-up and stability testing for two other ANDAs [numbers here omitted]."26

January — June 2009

3.18.
In January 2009, the FDA received further complaints regarding the size and shape of certain Apotex Inc. drugs. In one complaint, the report related to a round leflunomide pill (a rheumatoid arthritis drug) in a bottle of triangular-shaped pills;27 and, in another complaint, a pharmacy technician reported a tablet of tramadol hydrochloride (a synthetic version of codeine used to treat pain) that was "about twice the thickness" of the other pills in the bottle.28
3.19.
In regard to the tramadol complaint, by an email dated 22 January 2009, an FDA consumer products safety officer (a physician) asked FDA officials to obtain the bottle containing the oversized tramadol tablet and conduct lab tests.29 The officer wrote that "[w]e are concerned that the oversized Tramadol tablet may lead to [REDACTED] "30 The officer also she had found over [REDACTED] complaints regarding Apotex Inc. in the last three years.31
3.20.
In regard to the leflunomide complaint, an email dated 16 January 2009 from Dr. Carmelo Rosa (then Acting Team Leader of CDER’s International Compliance Branch) to the pharmacy which had discovered the reported defect stated: "[w]e are very concerned with this situation.... an FDA representative [will] visit your pharmacy in the next few days and investigate the situation and collect the necessary samples."32 After the FDA informed Apotex Inc. of the complaint, Apotex Inc. described the reported defect as "an extremely isolated incident."33
3.21.
Apotex Inc. responded to the Etobicoke Form 483 observations on 30 January 2009.34 The response addressed each of FDA’s 11 observations and undertook to implement certain corrective actions.35
3.22.
On 20 February 2009, Apotex Inc. submitted an FAR to the FDA regarding a pharmacist’s complaint that a [REDACTED] tablet had been found in a bottle of [REDACTED]36
3.23.
In an internal FDA email dated 20 March 2009, Ms. Hidee Molina, a compliance officer at CDER, criticised the FDA’s inspection in December 2008 of the Etobicoke facility. The email stated: "[w]e have received approximately [REDACTED] consumer complaints and [REDACTED] total Adverse Event Reports [REDACTED] of which have been coded specifically under ‘Pharmaceutical product complaint’) since December 2006. Many of which have been for [REDACTED] or [REDACTED] for different products."37
3.24.
In April 2009, Dr. Rosa became Team Leader of the FDA’s Office of Manufacturing and Product International Compliance Branch.38 From February 2011 to June 2011 he was the Branch Chief of International Compliance in this Office, reviewing Team Leaders’ recommendations for regulatory actions, later becoming the Division Director of the CDER component responsible for international drug quality.39 Dr. Rosa was a senior figure within the FDA; but he was not in any sense a political appointment. He testified: "I come from Puerto Rico, and I have no involvement in policies or political interests of commissioners... I was brought to the Center for Drugs to do a job, and I’ve done it no differently there than what I was doing it for my entire career...,"40
3.25.
By an internal FDA email dated 22 May 2009, Mr. Edwin Rivera-Martinez (Dr. Rosa’s superior) provided Ms. Hidee Molina with an example of an import alert "that you can use as a model for drafting the Apotex IA [Import Alert],"41 as had earlier been discussed between them. This message was copied to Dr. Rosa.
3.26.
On 1 June 2009, Dr. Rosa sent an internal FDA email attaching a list of products for shortage assessment on Apotex Inc. drugs in the US market. The subsequent email in the chain from Mr. Michael Smedley to Captain Valerie Jensen and Mr. Jouhayna Saliba (all FDA), also dated 1 June 2009, noted that: "[c]ompliance is considering regulatory action."42 This was a reference to a possible import alert. (Captain Jensen was an officer in CDER’s Drug Shortage Program.)

Dr. Hamburg and the FDA’s Policies

3.27.
During this period in early June 2009, a new FDA Commissioner appointed by President Obama’s administration, Dr. Margaret Hamburg, took office.43 In an early public speech as Commissioner, delivered on 6 August 2009, Dr. Hamburg described the FDA’s new regulatory policy with an emphasis on its strategic, rapid and visible aspects.
3.28.
Dr Hamburg’s speech included the following passage:44

"...the pathways for enforcement action can be too long and arduous when the public’s health is in jeopardy. We are fixing these pathways to improve the effectiveness of our enforcement system. Today, the FDA is taking several initial steps in this direction.

First, the FDA will set post-inspection deadlines. When the FDA finds that a firm is significantly out of compliance, we expect a prompt response to our findings. Once the FDA provides inspection findings identifying a serious problem, the firm will generally have no more than fifteen working days in which to respond before the FDA moves ahead with a warning letter or enforcement action. This will help FDA issue warning letters on a timely basis and facilitate prompt corrective action.

Second, the FDA will take responsible steps to speed the issuance of warning letters. I have approved a new policy brought forward by the FDA’s Chief Counsel to limit warning letter review to significant legal issues. As a result, most enforcement letters will be able to move forward through a more streamlined process. This approach is consistent with the FDA’s longstanding historical practice.

Third, the FDA will seek to work more closely with our regulatory partners to develop effective risk control and enforcement strategies. In many food safety cases, for example, local, state, and international officials have more authority to take action quickly than the FDA. When the public health is at risk, the FDA will reach out to our partners to take rapid action while we alert the public and prepare longer-term responses.

Fourth, the FDA will prioritize enforcement follow-up. After a warning letter is issued or a major product recall occurs, we will make it a priority to follow up promptly with appropriate action, such as an inspection or investigation to assess whether or not a company has made required changes in its practices.

Fifth, the FDA will be prepared to act swiftly and aggressively to protect the public. The FDA will no longer issue multiple warning letters to noncompliant firms before taking enforcement action. If we find that we must move quickly to address significant health concerns or egregious violations, we will consider immediate action - even before we have issued a formal warning letter.

These five procedural changes will help to ensure that violations are taken seriously, that warning letters and enforcement actions occur in a timely manner, and that steps are taken to protect consumers in cases where immediate enforcement action is not possible..."

3.29.
There is an issue which the Tribunal addresses later, as to whether Dr. Hamburg introduced a "new" enforcement policy which was being used at that time to target Apotex Inc. "pour encourager les autres" (as the Claimants contend) or only returned the FDA to its "historical practice" without any attempt to make Apotex Inc. a public example (as the Respondent contends).45 There were undoubtedly material changes to the FDA’s policies and practices from mid-2009 onwards. The issue, however, is whether any of these changes were material to the Claimants’ several claims in this arbitration; and that mixed issue of fact and law is considered separately later below.
3.30.
The relevant statistics for the period from 2003 (before Dr. Hamburg’s appointment) to 2012 (three years after her appointment) show the following as regards Import Alerts 66-40 "GMP Issues for Human Drugs", affecting foreign facilities (including Apotex’s Import Alert in 2009):46

Year Additions Removals

2003 0 0

2004 1 6

2005 1 0

2006 0 0

2007 2 1

2008 3 0

2009* 10 0

2010 12 0

2011 19 3

2012 20 7

(* The Tribunal accepts the explanation for part of this increase from 2009 onwards, as involving foreign facilities in China manufacturing crude heparin during the heparin crisis, as Dr. Rosa testified.)47

3.31.
In addition, the FDA increased its inspections of foreign facilities. During the period from 2000 to 2007, the FDA conducted an average of 282 foreign inspections annually. The figures thereafter were much higher: 2008 - 372; 2009 - 491; 2010 -525; 2011 -631; and 2012-672.48
3.32.
As regards warning letters, for the period 2002 to 2008, the FDA averaged three letters annually to foreign facilities for cGMP violations. Thereafter, the figures were much higher: 2009 - 13; 2010 - 18; and 2011 - 20. (In total, not limited to foreign facilities, the FDA regularly issued a much greater number of warning letters; for example, it issued 1,720 warning letters in 2011).49

The June 2009 Etobicoke Warning Letter

3.33.
On 7 June 2009, Ms. Deborah Autor (Director of CDER’s Office of Compliance) sent a draft warning letter regarding Apotex Inc.’s Etobicoke facility to (among other FDA officers) Dr. Janet Woodcock (Director of CDER).50 In her reply email of 8 June 2009, Dr. Woodcock wrote: "Obviously this firm [Apotex Inc.] should not be shipping drug [sic] to the US! What are we going to do about it besides WL [warning letter]?... Their QC [Quality Control] unit has no idea what is going on..."51
3.34.
Shortly afterwards, Ms. Autor circulated Dr. Woodcock’s email message to other FDA officers and asked: "[c]an we do an import alert sooner rather than later?"52 In response, Mr. Joseph Famulare (a senior FDA officer) wrote that "[t]he shortage determination will need to be completed."53 This was a reference to the pending evaluation within the CDER component responsible for drug shortage issues as to the effect, in the USA, of an import alert on possible shortages of medically necessary drugs produced by Apotex Inc.’s facilities at Signet and Etobicoke.
3.35.
On 18 and 19 June 2009, FDA officers exchanged emails regarding the possibility of an Apotex Inc. import alert and the attendant possibility of short supply issues.54 Following an email from Captain Jensen which identified certain products of Apotex Inc. with shortage issues, Dr. Rosa wrote on 19 June 2009: "From what I see below, other companies can ramp up. However, the amount of Apotex product in the market is significant. Meaning that this decision needs to be carefully evaluated."55
3.36.
Later that same day, Mr. Rivera-Martinez replied to Dr. Rosa’s email: "Based on this information, we may want to hold off on the IA [Import Alert] until after our regulatory meeting with Apotex’s management."56
3.37.
On 25 June 2009, the FDA sent to Apotex Inc. a seven-page warning letter stating that the FDA’s inspection of the Etobicoke facility in December 2008 had revealed "significant deviations" from cGMP regulations (the "Etobicoke warning letter").57 Whilst acknowledging that Apotex Inc. appeared to have completed certain corrections, the warning letter stated that Apotex Inc.’s response of 30 January 2009 to the Etobicoke Form 483 observations "fails to adequately address multiple, serious deficiencies."58 The warning letter provided that the cGMP violations included, but were not limited to, the following:

a. "Failure to thoroughly investigate the failure of a batch or any of its components to meet any of its specifications whether or not the batch has already been distributed";

b. "Failure to submit NDA59/ANDA field alert reports (FARs) in the required timeframe, within 3 working days of becoming aware of information concerning any significant chemical, physical, or other change or deterioration in the distributed drug product"; and

c. "Failure to include a specimen or copy of each approved label and all other labeling in the master production and control record."60

3.38.
The Etobicoke warning letter provided that, until all corrections to cGMP deviations had been completed by Apotex Inc. and confirmed by the FDA, CDER might recommend withholding approval of any new applications or supplements listing Apotex Inc. as a drug product manufacturer.61 It also provided that a failure to correct these violations might result in the FDA denying entry of products manufactured by Apotex Inc. at the Etobicoke facility.62 (This was an implicit reference to an import alert.) It further warned that the deficiencies identified in the warning letter and the earlier Form 483 were not all-inclusive; and that it was Apotex Inc.’s responsibility to ensure cGMP compliance.63
3.39.
By letter dated 17 July 2009, Apotex Inc. provided a 24-page response to the Etobicoke warning letter and the cGMP deficiencies there set out.64 On 12 August 2009, Apotex Inc. requested a meeting with the FDA to address its response to the Etobicoke warning letter.65

The July —August 2009 Signet Inspection

3.40.
From 27 July to 14 August 2009, four FDA investigators (Mr. Lloyd Payne, Ms. Kristy Zielny, Mr. Brian Belz and Mr. Brian Lee, a chemist) conducted a 14-day inspection at Apotex Inc.’s Signet facility.66 Although the inspection was originally scheduled to include both a cGMP inspection and PAI inspections for [REDACTED] pending ANDAs and one new drug application, the PAIs were not concluded.67
3.41.
About a week before the inspection, the four FDA inspectors had taken part in a telephone conference-call with a large number of participants from the FDA (about 30 persons), including Mr. Rivera-Martinez. It was a form of general brainstorming with no mention of an import alert, as Mr. Payne testified at the Hearing.68 During the inspection, there was at least one telephone conference-call between certain of the inspectors and Mr. Rivera-Martinez, during which the possibility of an import alert was mentioned, as Mr. Payne also testified.69
3.42.
On 6 August 2009, while the Signet inspection was taking place, the FDA’s Commissioner, Dr. Hamburg, made the public speech already described above. Apart from what might be inferred from its text, there is no evidence in this arbitration to suggest that Dr. Hamburg was directing her speech with Apotex Inc. specifically in mind.
3.43.
In an internal summary, an Associate Director of Apotex Inc. (Ms. Carol Austin) described the FDA’s inspection of the Signet facility as "very intense."70 There is also evidence that personal relations between certain of the FDA’s inspectors became difficult during the inspection, with Mr. Payne testifying at the Hearing that it still left him in a "sizzle."71 This difficulty became evident at the time to Apotex Inc.’s senior management, including Dr. Clark, Dr. Desai and Ms. Tao.72
3.44.
On the final day of the Signet inspection, but before the closeout meeting, Mr. Lance Lovelock (then Vice President of Quality at Apotex Inc.) submitted two affidavits to the FDA inspectors, at their request, regarding the use of drugs in the production of finished products sourced from Mexico and India and [REDACTED] respectively).73 Apotex’s senior officers viewed the FDA’s inspectors’ insistence upon such affidavits as an unusual procedure, prompted by the inspectors’ apparent concern that Apotex Inc. was seeking to mislead the FDA (a suggestion refuted by Apotex Inc. at the time).74 Dr. Desai testified that that there was an issue with data integrity regarding a specific product [REDACTED] raised by one of the FDA investigators, Ms. Zielny, which Apotex Inc. treated very seriously (albeit, as he testified, without seeking any legal advice at that time).75 Dr. Clark testified that Ms. Zielny was "effectively accusing Apotex of misleading the Agency with respect to the manufacturing processes of this generic drug. We emphasized that while documentation may have been incomplete with respect to changes in the manufacturing process, what was provided was accurate. We categorically rejected any suggestion of any intent to mislead..."76 On the other hand, Mr. Payne testified that these affidavits were not an exceptional procedure, being a ‘best practice’ when collecting a documentary sample of a product.77 Whatever the FDA’s motivation, it made for an unpleasant situation between Apotex’s senior officers and the FDA’s inspectors prior to and during the subsequent closeout meeting.
3.45.
At the closeout meeting, taking place after the end of the Signet facility inspection on 14 August 2009 (it was a Friday), the FDA investigators provided Apotex Inc.’s management with 17 written observations in their Form 483.78 There were also other concerns raised by the FDA inspectors, each of whom presented observations which he or she had found. Mr. Payne testified that: "Ms. Zielny presented the most observations, because she had reviewed the Quality systems, where most of the cGMP violations were found. As the team leader, I reviewed and approved every observation and concern presented." Mr. Payne also testified: "On several occasions during the presentation, Apotex Inc. management acknowledged the deficiencies. For example, Apotex Inc.’s President and Chief Operating Officer, Jack Kay, acknowledged the ‘unacceptable sloppiness’ in the firm’s written procedures for assuring correct labeling and packaging materials for drug products. Regarding Apotex Inc.’s failures to follow written procedures for cleaning and maintaining equipment, the firm’s Vice-President for Quality, Lance Lovelock, acknowledged ‘that there needs to be some self-policing in issuing deviations and that this is an opportunity to look at the procedures and processes in place’. In relation to the observed failure to investigate unexplained discrepancies or batch failures, Mr. Lovelock stated that ‘in-process investigations need to be looked at and closed in a timelier manner.’ Our EIR [Establishment Inspection Report] recorded many such acknowledgments and promises of remedial action."79
3.46.
The FDA Inspectors’ concerns reflected in their Form 483 observations included the following (here much summarised by the Tribunal):

a. Apotex Inc. had distributed drugs to the US which were produced from contaminated drug batches;

b. Apotex Inc. had failed to submit timeously FARs to the FDA regarding problems observed in the manufacture of approved drugs;

c. Apotex Inc. had failed to follow its written procedures for cleaning and maintaining equipment used in the manufacturing, processing, packing, or holding of drug products; and

d. Apotex Inc. had failed sufficiently to investigate and document defective batches.80

3.47.
The FDA investigators directed Apotex Inc. to contact CDER the next business day, i.e. the following Monday, 17 August 2009.81

The Telephone Conference-Call of 17 August 2009

3.48.
A telephone conference-call between senior representatives of Apotex Inc. and the FDA took place on Monday, 17 August 2009.82 During this conference, Apotex Inc. undertook voluntarily to recall 675 batches of drug products manufactured at the Etobicoke and Signet facilities and distributed in the US market. Apotex Inc. prepared its own internal notes of the meeting.83 Apotex Inc. there acknowledged that: "there are significant deficiencies."84 In answer to the specific question from Mr. Rivera-Martinez (FDA) "whether Apotex intends to continue distributing products", these notes record Dr. Desai’s answer: "Apotex does intend to continue distributing. We believe we can deliver safe and efficacious product." This telephone conference-call was also important for what was not said by its participants.
3.49.
As regards Apotex Inc., Dr. Desai testified: "... In order to prove to FDA our commitment to placing only the highest quality products in the US market, Mr. Lovelock and I decided to voluntary [sic] recall the batches associated with these black particles [this is a reference to black particles of [REDACTED] We thought that if we completely eliminated what appeared to be FDA’s source of concern, the problem would be solved. We also thought that this kind of action would demonstrate to FDA that we were taking their observations seriously and that we were doing our best to cooperate with them. Thus, we told FDA in the call that we would do a recall. Mr. Friedman [FDA Director, Division of Manufacturing and Product Quality] asked whether this would be enough and whether Apotex felt that it should cease distribution in the US. I explained that we believed the recall was more than sufficient and that we did not need to stop distribution in the US. Mr. Friedman did not disagree or otherwise indicate a different view."85 Significantly, Apotex Inc. did not undertake to suspend production at its Signet or Etobicoke facilities; nor would it temporarily cease shipments to the USA.
3.50.
At this time, the senior management of Apotex Inc., whilst acknowledging regulatory deficiencies found by the FDA, did not consider that there was any problem with the quality and safety of their products; they firmly believed that Apotex products did not pose any imminent risks to public health; that none were in fact adulterated; and that "Apotex drugs were only ‘deemed adulterated’ under the Act", as Dr. Desai testified.86 Mr. Clark testified that, apart from regulatory requirements: "... there was absolutely no safety concern with our products and no question as to their quality."87
3.51.
As regards the FDA, Dr. Rosa testified: "... We expressed concern with Apotex’s decision to continue distributing any drugs in the U.S. market from Etobicoke and Signet, given the firm’s acknowledgment of the serious cGMP deficiencies at those facilities. Apotex told us that it planned to retain a third-party expert to assist its remediation efforts. But that was no substitute for actually fixing the serious cGMP violations before shipping additional drugs to the United States. When faced with this level of FDA concern, many other companies have halted distribution, temporarily suspended manufacturing, or slowed production of drug products. Apotex proposed nothing of the sort... It became clear during the call that Apotex failed to grasp the seriousness of the situation."88
3.52.
Dr. Rosa was also cross-examined at the Hearing on his account of this important telephone conference-call and, in particular, his conclusion that Apotex Inc. was not in control of its two facilities. He testified that: "FDA had evidence that the firm was not operating in a state of control";89 and "It’s about, ‘Do you have the system under control? Can you identify and find the problems that you have in your facility?’; We are focused on the evidence... to operate in a sustainable state of compliance,... it’s about the controls and the systems that you have to show that you’re sustainable";90 "... when you look at the Signet Drive inspection, you can see that [it was] a facility [that] is not in control";91 and "Apotex did initiate a recall, and it was a voluntary recall of batches that were in the market. Again, as I mentioned, when you look at the recall of Apotex, you look at the inspections at Apotex, that was certainly out of control in terms of quality."92
3.53.
In re-examination at the Hearing, Dr. Rosa testified: "When we look and talk about a firm - company being in or not in control, a firm that is capable of identifying the issues, a firm that is capable of predicting the issues, a firm that is capable of implementing Corrective Action Plans that can lead them and can lead them to the point where they can show that they can operate in a sustainable state of control.... When we have a firm that identifies problems, corrects them, and is operating at a level where their investigations are appropriate, when they make - when they decide to reject a batch, it’s not rejecting a batch because of trial and error. Let me - if it passes, I release it; if I reject it - if it fails, I’ll reject it. That is not operating in a state of control. That is guessing and crossing your fingers that you can have a good test result."93 Later, Dr. Rosa testified: "Apotex, in the meeting of August 17, we asked them the question, ‘What do you intend to do?’ And one of the statements in that discussion was, ‘We plan to continue manufacturing and distributing products.’ That was something that was very concerning to the Agency because it gave a clear indication that Apotex wanted to satisfy FDA’s application, but not operate in sustainable compliance with GMPs. Because they continued manufacturing product for the rest of the world. They continued releasing products...,"94
3.54.
Dr. Rosa testified at the Hearing that the FDA representatives did not mention to Apotex Inc. in the conference call on 17 August 2009 that the FDA was actively considering an import alert in respect of both the Etobicoke and Signet facilities. Thus, the Import Alert was imposed on 28 August 2009 (11 days later) without the FDA issuing any prior warning letter to Apotex Inc. relating to the Signet facility and without giving Apotex Inc. any opportunity to make a considered response to the FDA’s concerns relating to the Signet facility (in contrast to the earlier opportunity given to Apotex Inc. in regard to its Etobicoke facility).95
3.55.
Mr. Vodra (the expert witness called by the Respondent) testified that, in his opinion, this telephone conference-call on 17 August 2009 appears to have been a "turning point" for the FDA: "...The agency had considered adding Apotex to the Import Alert [Import Alert 66-40] as early as April 2009, but not implemented it. The Signet inspection had revealed numerous - and as Apotex conceded ‘significant’ - deficiencies in cGMP compliance across all six systems, some of which were repeat observations and paralleled those made at the Etobicoke site. Apotex volunteered to recall many products made at both facilities, but failed to persuade FDA that it had a rational basis for distinguishing between those to recall and those to leave alone. Moreover, the company told FDA it intended to continue to distribute products into the U.S. market relying on its current quality system - the system that the company and FDA agreed was deficient and needed remediation. In my experience, FDA would have interpreted Apotex’s responses as lacking a real commitment to drug quality... In my opinion, had Apotex... told FDA on August 17, 2009, that it would not export any non-medically necessary products to the U.S. pending remediation, it is probable that no Import Alert would have been issued [footnotes omitted]."96
3.56.
In his oral testimony at the Hearing, Mr. Vodra testified that there was "a complete disconnect" between Apotex Inc. and the FDA: "This is something I’ve seen before. It is not unusual. Companies frequently do not hear FDA clearly until FDA basically hits them alongside the head with a 2 by 4."97 He also testified that the FDA’s regulatory action affecting both the Signet and Etobicoke facilities was justified because the quality control system was under the same management.98

The 28 August 2009 Import Alert

3.57.
On 19 August 2009, Captain Jensen (of the CDER Drug Shortage Program) confirmed in an internal FDA email that the placement of an Import Alert on the drugs produced at the Etobicoke and Signet facilities would not create significant, prolonged shortages in the USA.99 The email stated: "[b]ased on responses from the alternate firms at this time, there are not any significant, prolonged shortages anticipated as a result of Apotex products on the lists we were provided being unavailable."100
3.58.
Three days after the telephone conference-call with Apotex Inc., an internal FDA memorandum dated 20 August 2009 from CDER to the Division of Import Operations and Policy ("DIOP") commented: "[Apotex Inc.] have not committed to cease US distribution of all drug products manufactured at [the Etobicoke and Signet sites]. Our office is concerned about the firm’s rationale and decision to only recall 675 batches and not address all products on the US market."101 The FDA memorandum recorded that the significant cGMP violations discovered at the Etobicoke and Signet sites "demonstrate a lack of adequate process controls and raises serious concerns regarding the firm’s quality and production systems."102 The memorandum recommended that, as the methods and controls used in manufacture did not appear to conform to cGMP, all finished pharmaceutical products manufactured by Apotex Inc. at the Etobicoke and Signet facilities should be refused admission to the US.103 It recommended that Import Alert 66-40 be amended to include these products.104
3.59.
This recommendation was accepted by the FDA’s DIOP; and, on 28 August 2009, the FDA amended the existing Import Alert 66-40 to include all finished form drug products produced by Apotex Inc. at its Etobicoke and Signet facilities.105 This Import Alert addressed "detention without physical examination of drugs ["DWPE"] from firms which have not met drug GMPs."106 The FDA did not immediately inform Apotex Inc. of its decision to place its products on Import Alert, although the information was published on the FDA’s website. Apotex Inc. only learnt of the Import Alert accidently on 2 September 2009.107 There was no legal obligation under the Act requiring the FDA to notify Apotex Inc. of the Import Alert (whether in advance or contemporaneously); but its failure to do either in the circumstances of this case, requires explanation.
3.60.
As a matter of policy, as Dr. Rosa testified, the FDA does not provide advance notice of an import alert so as to ensure that companies do not flood the US market with adulterated drugs before the FDA can alert its district offices; and firms "typically learn of Import Alerts when they receive notice that a shipment has been detained without physical examination" at the US border.108 In the present case, given the Signet facility’s recent inspection and their subsequent telephone conference-call only three days old, it remains surprising that the FDA did not notify Apotex Inc.’s senior management immediately after issuing the Import Alert, at least informally. Given the FDA’s practices hitherto, there was no reason for Apotex Inc. to suspect that any import alert was imminent.
3.61.
In a public speech delivered later at a conference in March 2010, Mr. Rivera-Martinez referred to Apotex Inc. and the Import Alert: "... That import alert was implemented 10 days after the completion of an inspection. We’ve never done that before. Generally, we place companies on an import alert after a warning letter. This inspection was completed on Friday. On Monday the FDA Office of Compliance International Alert Branch was on the phone with the executive officer and asked them what they intended to do with respect to the violations. They didn’t take us too seriously.... Things are changing folks, and you need to react a lot faster because FDA is moving a lot faster."109
3.62.
It is important to record that, whilst Apotex’s drug products were considered "adulterated" within the legislative meaning of the Act under US law for the purpose of the Import Alert, the Tribunal received no firm evidence that any such drug caused any actual harm to any patient in the USA or that the FDA ever expressed to Apotex Inc. that its products constituted an actual health hazard to patients in the USA.
3.63.
For Apotex Inc., Mr. Carey testified that, apart from the Import Alert, the FDA did not take any contemporaneous action that would show that the FDA had concerns over the safety of Apotex’s products; and, to the contrary, that the FDA classified Apotex’s recall of the 675 batches as a "Class II" recall only (thereby acknowledging that the probability of serious adverse consequences was "remote"); that the FDA did not request Apotex Inc. to recall all of its products from the US market; and that the FDA did not issue any public advisories concerning alleged safety issues regarding Apotex Inc.’s products.110 For the Respondent, Dr. Rosa testified at the Hearing: "... I cannot say that Apotex’s products were not safe and were not effective or were safe or effective. I’m focusing on Apotex’s GMP violations that made the drug adulterated."111 The Tribunal understands that Dr. Rosa’s use of the term "adulterated" here referred (as elsewhere) to its legal definition under the Act and not to its more colloquial meaning.
3.64.
On the same day, by letter dated 28 August 2009, Apotex Inc. informed CDER of its intention to develop a "continuous improvement action plan" to address the FDA’s concerns regarding cGMP compliance at the Etobicoke and Signet facilities.112 The letter reiterated Apotex Inc.’s earlier commitment voluntarily to recall certain drug batches from US distribution and confirmed its engagement of a third party cGMP consultant to evaluate Apotex Inc.’s quality systems and ensure its cGMP compliance.113 This letter also notified the FDA that Apotex Inc. had retained an outside consultant (Jeff Yuen & Associates) "to augment existing quality systems" at its two facilities.
3.65.
On 30 August 2009, two days after the Import Alert was issued (albeit still unknown to Apotex Inc.), two shipments of products originating from the Etobicoke and Signet facilities arrived at the Canada-USA border. Both shipments were held by the US border authorities pending the FDA’s review and then detained without physical examination.114 Further shipments were put on hold at the border; and by 1 September 2009, seven shipments from the Etobicoke and Signet facilities had been put on hold,115 with several notifications sent to Apotex Inc. (as the importer of record), Apotex US (as the consignee), and Apotex Inc.’s customs broker.116
3.66.
Following up on its earlier commitment, on 2 September 2009 Apotex Inc. issued a "Voluntary Drug Recall" of 659 drug batches from the US market.117 On 3 September 2009, Apotex Inc. provided a 42-page response to the Form 483 observations regarding the FDA’s Signet inspection, after the Import Alert.118

The Telephone Conference-Call of 3 September 2009

3.67.
On 3 September 2009, Apotex Inc. and FDA representatives held a telephone conference-call to discuss the Import Alert and the corrective action required of Apotex Inc.119 Apotex Inc. contemporaneously prepared internal notes of this telephone call: these record that the FDA "explained that the FDA would like details regarding Apotex’s global corrective actions to ensure GMP compliance at all of its locations and that the current voluntary recall plan by Apotex does not meet with the FDA’s expectations given the significance of the documented GMP violations."120
3.68.
Dr. Desai testified that the FDA informed him during this conference-call that Apotex Inc. had "an opportunity for a hearing on [the] detention and that reinspection of our facilities had to take place before the Import Alert could be lifted. FDA also stated that they wanted to see a global corrective action plan for all Apotex sites, as opposed to site-specific changes. I requested a meeting and it was decided that Apotex should present its corrective action plan at the September 11, 2009 meeting - that had already been scheduled before the Import Alert was adopted."121 (Apotex Inc. did not initiate, then or later, an application for a hearing on the detention of its drug shipments at the US-Canadian border.)

New Zealand, Australia and the European Union

3.69.
In early September 2009, the New Zealand drugs regulator, Medsafe, indicated that it was "leaning toward" banning imports into New Zealand of drugs produced at the Etobicoke and Signet facilities.122 Apotex NZ Limited subsequently signed a voluntary (and temporary) import restriction to the effect that it would not import into New Zealand drugs manufactured at the two facilities.123 Import suspensions or bans were also requested or imposed by health regulators in Australia and the European Union, pending Health Canada’s inspection of the Signet and Etobicoke facilities.124

The September 2009 Meetings

3.70.
On 11 September 2009, the planned meeting between Apotex Inc. and FDA representatives took place at the FDA’s headquarters in Washington DC, USA.125 The meeting was attended by Apotex Inc.’s senior management with its consultants and legal advisers, including Mr. Kay, Dr. Desai, Mr. Lovelock and Dr. Clark; and the FDA’s representatives included Mr. Friedman, Mr. Rivera-Martinez, Dr. Rosa and two of the recent Signet inspectors on the telephone (Mr. Belz and Ms. Zielny). Both Apotex Inc. and the FDA gave slide presentations at this meeting.
3.71.
The FDA’s presentation noted that "[s]imilar significant CGMP deficiencies" had been found at both the Signet and Etobicoke facilities, stating the following under the heading "FDA’s Current Concerns":

a. "Deficiencies found at both Etobicoke and Signet Campus facilities include...[c]orporate culture of reprocessing and retesting products into specification...[p]oor, inadequate, or incomplete OOS [out-of-specification] and process deviations investigad ons.,.[n] on-timely submission of Field Alert Reports (FARS)"; and

b. "Failure to have an appropriate global quality culture and system...[d]eficiencies were found in all six systems for the manufacture of drugs/drug products... [l]ack of root cause determinations and effective corrective actions to ensure reliable and reproducible manufacturing processes are in place."126

3.72.
Apotex Inc.’s presentation set out the immediate actions which had been taken at the Etobicoke and Signet facilities. The presentation also outlined Apotex Inc.’s several improvement plans and commitments, including an undertaking that independent consultants would conduct a product quality assessment ("PQA") on all its products currently on the US market, or in the Etobicoke and Signet warehouses, in order to verify that Apotex Inc. products met appropriate standards and specifications at release until expiry.127 Apotex Inc. also voluntarily agreed to suspend distribution of Etobicoke and Signet products from Apotex-US’s warehouse in Indianapolis, USA, until the completion of the PQA.128
3.73.
Apotex Inc. requested that, based on a satisfactory completion of the product quality assessments and verification audits, FDA should promptly lift the Import Alert for the Etobicoke and Signet facilities following FDA re-inspection or sign-off by independent consultants.129 Apotex Inc. further requested prompt PAIs for its pending ANDAs.130
3.74.
The FDA informed Apotex Inc. that it would only recommend lifting the Import Alert after its own re-inspection of the two facilities;131 and the FDA’s readiness for re-inspection would be contingent on assurances of sustainable cGMP conformance and the evaluation and resolution of deficiencies throughout all quality systems.132 Mr. Rivera-Martinez closed the meeting by saying that "the ball is now in Apotex’s court."133
3.75.
On 17 September 2009, Apotex Inc. and the FDA held a telephone conference-call regarding the supply to the US market of two drugs (deferiprone and [REDACTED] for emergency or IND (investigational new drugs) treatment, so as to avoid a shortage of these drugs.134 During the telephone call, Apotex Inc. agreed to FDA’s conditions that each batch shipped to the US would be subject to PQA (Product Quality Assessment) by an independent third party, and that each batch would be subject to retesting.135 On 24 September 2009, subject to Apotex Inc.’s agreement to these conditions, the FDA allowed Apotex Inc. to ship a small quantity of deferiprone to the US to treat 47 gravely ill patients under the "Compassionate Use Program."136
3.76.
Following the Import Alert, as indicated to the FDA, Apotex Inc. retained an independent cGMP expert (Lachman Consultant Services, Inc.) to conduct the PQA.137 On 24 September 2009, Lachman Consultant Services, Inc. submitted a PQA protocol for products in Apotex US’s Indianapolis warehouse.138 Apotex Inc. also pursued a corrective action plan and a global quality systems enhancement program.139 The Q6 Program, otherwise entitled "Apotex Global Quality Systems Revitalization Corrective Action Plan,"140 was initiated by Apotex Inc. in November-December 2009.141

Health Canada’s Inspections October — November 2009

3.77.
Following a multi-week inspection of Apotex Inc.’s Etobicoke and Signet facilities, Health Canada issued "Inspection Exit Notices" for Signet on 14 October 2009 and for Etobicoke on 4 November 2009.142 Although these notices gave the two facilities a "C" rating (i.e. "recommended for the continuation or issuance of the Establishment Licence"143), the Signet notice listed 26 observations, including 18 "Risk 2" observations (i.e. "major" observations144) and eight "Risk 3" observations (i.e. "other" observations145); and the Etobicoke notice listed 26 observations, including 19 "Risk 2" observations and seven "Risk 3" observations. Both notices provided that, in respect of four Signet observations and three Etobicoke observations, similar observations and issues had been made and reported during past inspections of Apotex Inc. by Health Canada.146
3.78.
Health Canada subsequently carried out numerous follow-up inspections of the two facilities.147

January — March 2010

3.79.
On 27 January 2010, Apotex Inc. and the FDA held a telephone conference which addressed issues with several of the firm’s recent FARs. During the meeting, FDA noted that "[i]t appears that serious issues have not been resolved yet (FARs issued in December 2008, July and August 2009) as new concerns are still ongoing (recently filed FARs)."148
3.80.
On 17 March 2010, the various independent experts retained by Apotex Inc. submitted their respective reports, including Lachman Consultant Services, Inc.’s PQA, and the independent review of Apotex Inc.’s quality structures and processes by Jeff Yuen & Associates (a GMP compliance consultancy firm).149 The latter report’s executive summary stated: "Recent quality systems assessments confirmed that system level improvements were needed for all six systems. The [Jeff Yuen & Associates] quality system assessment was consistent with recent FDA inspectional observations and the recent warning letter citations with respect to three systems in particular: Quality Systems, Laboratory Systems, and Production/Packaging & Labeling Control Systems..."150
3.81.
Apotex Inc.’s "Q6" action plan was also launched also on 17 March 2010, along with the "Quality Systems Revitalization Program & Project Management Manual."151 These programs were produced with the assistance of Paul Vogel Consulting Services LLC.152

The March 2010 Signet Warning Letter

3.82.
On 29 March 2010, the FDA sent to Apotex Inc. a warning letter with respect to the Signet facility (the "Signet warning letter").153 The Signet warning letter provided that FDA investigators had identified "significant violations" of cGMP regulations during their inspection of the Signet facility in July-August 2009.154 The letter stated that it was being issued because of "serious and repeat violations from the 2008 and 2009 inspections" of the Etobicoke and Signet facilities, and because Apotex Inc.’s response to the Signet Form 483 (of 3 September 2009) was "inadequate and lacks sufficient corrective actions."155 The letter highlighted several cGMP violations observed during the 2009 inspection at Signet, including contamination, a failure thoroughly to investigate batch failures or unexplained batch discrepancies, and a failure to implement adequate equipment cleaning and maintenance procedures/programs to prevent contamination.156 The letter also cited Apotex Inc. for its violations of the requirements for FARs.157
3.83.
The Signet warning letter provided that, until all corrections had been completed by Apotex Inc. and confirmed by the FDA, the FDA would continue to deny entry of products manufactured at the Signet facility and that CDER would recommend withholding approval of any new applications or supplements listing Apotex Inc. as a drug product manufacturer.158
3.84.
On 31 March 2010, senior representatives of Apotex Inc. and the FDA met to discuss the Etobicoke and Signet facilities.159 This meeting had been requested by Apotex Inc. in February 2010.160
3.85.
At this meeting, both Apotex Inc. and the FDA made presentations. In opening the Apotex Inc. presentation, Mr. Kay (then Apotex Inc.’s President and Chief Operating Officer) stated that Apotex Inc. "gets" the FDA’s concerns.161 Dr. Desai (then Executive Vice President Global Research and Development and Quality of Apotex Inc.) acknowledged that "Apotex needs to look at their Quality System. Apotex has hired 250 FTEs [full time equivalents] to address their quality issues..."162 Apotex Inc.’s presentation included preliminary comments on the Signet warning letter, adding that Apotex would respond formally within 15 days.163 Apotex Inc. then reported on its corrective actions and its product quality assessment.164
3.86.
The FDA observed that "[w]e are not confident that all sites have a clear understanding of FDA requirements, including CGMPs."165 The FDA’s presentation noted that readiness for re-inspection and the removal of the Import Alert would be contingent on both the assurance of sustainable cGMP conformance and the evaluation and resolution of potential data integrity issues.166 The FDA noted that "[t]hese pervasive issues can only be remedied through systemic and transformational changes at your firm."167
3.87.
At the end of the meeting, Apotex Inc. stated that it was confident that "Apotex is on the right track, even though the touchdown hasn’t been scored yet."168 There is no record that the FDA’s representatives agreed with this statement.
3.88.
Apotex Inc. submitted its full written response to the Signet warning letter on 17 April 2010.169 It had earlier suggested a follow-up by telephone conference-call with "Carmelo [Rosa] and his team" by email message dated 1 April 2010.170
3.89.
On 14 June 2010, Apotex Inc. and FDA representatives (including Dr. Rosa) held a telephone conference-call which addressed multiple recent FARs received from Apotex Inc. regarding product contamination at its third facility in Richmond Hill, Ontario. The FDA’s minutes of this meeting recorded the following under the heading "Background": "[t]he FARs are still under evaluation by Apotex, but the firm continues to release these products without initiating a product recall, which is concerning to [FDA Division of Manufacturing and Product Quality’s] International Compliance Branch."171
3.90.
On 14 June 2010, Dr. Rosa sent an internal FDA email summarising the FDA’s history of inspections of Apotex Inc. with an update regarding its Richmond Hill facility.172 Dr. Rosa wrote that: "Apotex’s response of July 17, 2009, to the Etobicoke WL [warning letter], along with the additional corrective actions implemented throughout 2009 and 2010... appear to adequately address our concerns and will be verified during the next FDA GMP inspection... The firm’s response of April 17, 2010 [to the Signet warning letter], including the decision to recall affected products, appears to adequately address our concerns...[a] follow up inspection is needed to verify the corrective and preventative actions."173
3.91.
On 25 June 2010, Apotex Inc. sought the FDA’s approval to export certain "shortage" drug products from the Etobicoke facility to the USA prior to the FDA’s re-inspection of that facility.174 According to this request, the shipping (if approved) would occur under the supervision of a third party consultant who would certify the facility’s compliance with cGMP, pending re-inspection by the FDA.175 The FDA rejected this request, except for deferiprone which the FDA had previously authorised Apotex Inc. to export under direct oversight of a third party consultant.176

Apotex Inc. Requests Re-Inspections: August — December 2010

3.92.
On 27 August 2010, Apotex Inc. requested the FDA to re-inspect its Etobicoke facility in early October 2010.177 The request noted, among other matters, that Jeff Yuen & Associates, Inc. had informed Apotex Inc. in June 2010 that it was prepared to certify that the Etobicoke facility and the methods and controls used to manufacture, process, package, label, hold, and distribute drugs were in compliance with cGMP.178
3.93.
Within the FDA, Dr. Rosa requested a "priority inspection" of the Etobicoke facility on 22 September 2010, identifying the priority as "High."179
3.94.
On 29 September 2010, Apotex Inc. requested the FDA to re-inspect its Signet facility.180 As with the Etobicoke facility, within the FDA, Dr. Rosa requested a "priority inspection" of that facility on 14 October 2010, again identifying the priority as "High."181
3.95.
On 21 October 2010, the FDA notified Apotex Inc. that the FDA was planning to conduct GMP inspections at the Etobicoke and Signet sites "sometimes between November 29 - December 17, 2010."182 However, on 22 November 2010, the FDA postponed the re-inspections until 24 January - 24 February 2011.183 The notice from the FDA to Apotex Inc. stated: "This inspection will be postponed until 1/24 -2/24/11 to be able to get an inspectional team of investigators and chemist together, review the [REDACTED] plus pending applications as well as evaluate corrections made by the firm to correct both Warning Letters."184 Apotex Inc. understood that the inspections were delayed by the FDA because a larger team was necessary to complete both a GMP inspection and a PAI inspection.185
3.96.
Apotex Inc. requested the FDA to expedite the re-inspections on numerous occasions, but without success until January 2011.186

FDA Re-inspections: January — February 2011

3.97.
The FDA re-inspected the Signet facility between 24 January and 11 February 2011 and the Etobicoke facility between 3 and 11 February 2011.187 The same team of four FDA investigators conducted the re-inspection at both sites: Mr. Michael Goga, Mr. Francis Guidry, Mr. Steven Weinman and Ms. Sarah McMullen.188
3.98.
Mr. Goga testified, as regards the GMP re-inspections, that: "Apotex had not remedied several of the cGMP violations that led to the firm’s addition to the import alert list", in addition to new violations at both sites.189 As regards the PAI inspections, Mr. Goga also testified that: "Due to the vast number of cGMP issues that were observed and the time it took to investigate them, we were not able to complete all of the PAIs..."190
3.99.
At the conclusion of the re-inspections, at the closeout meeting, the FDA’s inspectors provided Apotex Inc. with their Form 483 for the Signet facility and their Form 483 for the Etobicoke facility.191 The Etobicoke Form 483 listed five inspectional observations regarding cGMP compliance; and the Signet Form 483 listed 22 such observations.192 At this meeting, as Mr. Goga testified, Dr. Desai acknowledged that Apotex Inc. was not satisfying the FDA’s expectations, adding: "Dr. Desai did tell us that he thought the inspection was fair and balanced. The Health Canada compliance officers who were present for the inspections told us that they agreed with our assessment that Apotex was not ready for re-inspection."193
3.100.
The FDA’s Establishment Inspection Reports ("EIRs") for both re-inspections recommended the continuation of the Import Alert and the non-approval of pending applications for continuing GMP deviations.194 The Etobicoke EIR provided that: "[the] [c]urrent inspection uncovered significant systematic and on-going objectionable conditions. Corrective action has not been fully implemented to every objectionable condition cited during the December 2008 inspection."195 With respect to the Signet re-inspection, the EIR provided that: "[t]he inspection identified twenty-two new or on-going deficiencies that were cited on an FDA 483..,"196 The Signet EIR also recorded that Dr. Desai (of Apotex Inc.) had commented that "the inspection was fair and balanced."197
3.101.

Following these two re-inspections, Apotex Inc. prepared a "US Re-Entry Product Assessment Protocol" on 24 February 2011.198 The protocol was designed to assess all commercial ANDA products in order to assure product robustness, quality and regulatory compliance.199 Each product was to be reintroduced into the US market only after meeting the protocol’s requirements.200

3.102.

On 1 March 2011, Apotex Inc. submitted to the FDA its written response to the two Forms 483.201 Apotex Inc. there outlined the overhaul of its quality systems and noted its intention to begin manufacturing for the US market as soon as possible.202 Apotex Inc. also requested approval from the FDA to release new products from Etobicoke and Signet upon regulatory approval (with third party oversight for the Signet facility).203

Lifting of the Import Alert: May — July 2011

3.103.
After reviewing the FDA’s EIR for the Etobicoke inspection and Apotex Inc.’s responses to the Forms 483, the FDA informed Apotex Inc. on 6 May 2011 that it would classify the Etobicoke facility as "acceptable."204
3.104.
An internal FDA memorandum dated 9 May 2011 from CDER to DIOP recommended that the Etobicoke facility be removed from Import Alert 66-40.205 The memorandum provided: "The firm appears to be manufacturing in compliance with cGMPs and therefore, should be allowed to import their products into the United States or any of its territories."206 The recommendation was accepted within the FDA; and the Import Alert lifted with respect to the Etobicoke facility on 15 June 2011.207 The Import Alert remained as regards the Signet facility.
3.105.
From 16 May to 11 June 2011, Health Canada conducted GMP re-inspections of the Etobicoke and Signet facilities.208 An internal Health Canada memorandum provided that the inspection findings would result in a "Compliant" rating under Canadian standards.209 It also observed that: "[i]n general, the inspection team felt that Apotex has demonstrated significant improvement in its quality systems when compared with 2009/2010."210
3.106.
The FDA requested additional information from Apotex Inc. on 20 May 2011 concerning four of the 22 observations in the Signet Form 483 issued on 11 February 2011.211 Apotex Inc. responded to the FDA’s request on 10 June 2011.212
3.107.
After reviewing the Signet EIR and Apotex Inc.’s responses dated 1 March and 10 June 2011, the FDA informed Apotex Inc. on 1 July 2011 that it was classifying Apotex Inc.’s Signet facility as "acceptable."213 In addition to the Signet EIR and Apotex Inc.’s responses, the FDA had also reviewed the findings made by Health Canada in its cGMP inspection of the Signet facility conducted in May and June 2011.214
3.108.
On the same day, CDER recommended to DIOP that the Signet facility be removed from the Import Alert.215 The recommendation was subsequently accepted by DIOP; and the Signet facility was removed from the Import Alert on 29 July 2011.216

Etobicoke PAI: May — November 2011

3.109.
On 9 May 2011 (three days after FDA informed Apotex Inc. of Etobicoke’s "acceptable" classification), Apotex Inc. requested approval of its seven pending applications for new drugs produced at Etobicoke.217 The FDA, however, informed Apotex Inc. on 29 June 2011 that "the limited pre-approval coverage [during the 2011 re-inspection] will not allow us to recommend approval of the pending applications for the Etobicoke site."218 The FDA told Apotex Inc. that a PAI would still be required in respect of the Etobicoke facility, and that "an effort will be made to prioritized [sic] a PAI inspection" for Etobicoke.219
3.110.
On 23 August 2011, the FDA issued a notice stating that FDA would conduct a preapproval inspection of Apotex Inc.’s ANDAs at the Etobicoke facility on 18 to 30 September 2011.220
3.111.
FDA conducted the pre-approval inspection at Etobicoke from 19 to 28 September 2011.221 At the conclusion of the inspection, the FDA provided Apotex Inc. with a two-item Form 483.222
3.112.
By letter dated 12 October 2011, Apotex responded to the FDA inspectors’ observations in their Form 483.223 The letter (signed by Apotex Inc.’s Chief Operating Officer) began: "Firstly, I would like to recognize the efforts of the FDA Inspection Team and thank them. The inspection was thorough and was well led, by CSO Marie Fadden, CSO Kevin Foley and Chemist Sneha Patel. Throughout the course of the inspection, the investigators were found to be cordial, competent and professional. The Inspection Team made every effort to ensure that we were informed as to their requirements and they made all reasonable efforts to engage Apotex staff during the inspection. I very much appreciated the effort expended and the forthright approach that the investigators took in dealing with observations that they made. Our goal is to always meet, or exceed where possible, the requirements of all laws and regulations administered by the FDA as well as those of all other regulatory bodies that oversee the international markets we serve. We do not believe that there is anything trivial in the observations provided and we accept them as part of our ongoing journey of continuous improvement..,"224
3.113.
On 30 October 2011, the FDA informed Apotex Inc. that "[w]e will be entering an approval recommendation for the applications specifically covered during the inspection, by NLT [not later than] Monday (if not done already)."225
3.114.
On 25 November 2011, the FDA approved the first pending ANDA at Etobicoke, followed by further approvals on 7 and 30 December 2011 and 3 February 2012.226 (Two Etobicoke ANDAs were not yet approved by the FDA).227

Conclusion

3.115.
In conclusion, the period from the FDA’s warning letter regarding the Etobicoke facility in June 2009 to the lifting of the Import Alert in June-July 2011 for both the Etobicoke and Signet facilities was 24/25 months, with 23 of these months spent under the Import Alert. The FDA took a "global" or "corporate" approach to Apotex Inc. and its Etobicoke and Signet Facilities.
3.116.
For the Claimants, Apotex Inc. did not materially challenge the FDA decisions to treat deficiencies found at its two facilities as violations of cGMP, rendering their products "adulterated’ under the Act, neither during the telephone conference-call of 17 August 2009 nor thereafter. In this arbitration, Apotex Inc. claims only in regard to the FDA’s Import Alert and not the Form 483s or the warning letters. For present purposes, the losses sustained by Apotex Inc. resulting from the Import Alert can be assumed to be very considerable, as also its remedial expenses incurred at both facilities. (These losses are the subject of the claims advanced by Apotex Inc. against the Respondent in this arbitration, with quantum much in issue and, as already indicated, bifurcated.)
3.117.
For the Respondent, Dr. Rosa testified at the Hearing that during this period the FDA’s resources spent on Apotex Inc. were "countless", adding: "This is one of the cases where we spent most of - most time reviewing, and I’ve been involved in injunctions, consent decrees, and prosecutions. This one certainly is one of the top ones in terms of resources consumed for evaluating."228 Dr. Rosa also testified: "... The extraordinary time and effort devoted to Apotex Inc. during this time represented a tremendous drain on Agency resources, and far exceeded the time we spent on nearly every other drug manufacturing facility during that period. Hundreds of inspections of other firms were still pending, yet Apotex Inc. continued to demand that FDA inspect and re-inspect its facilities until it came into compliance. In fact, Apotex was reinspected sooner than other firms with cGMP violations, and, as we learned during those reinspections, the firm was not ready for the reinspections."229 As already noted, the FDA’s resources were expended without financial charge to Apotex Inc. and do not form the basis of any claim by the Respondent against Apotex Inc. in this arbitration.

(3) The Teva Chronology

3.118.
The Tribunal has compiled the following factual chronology principally from: (i) the list of evidentiary references to contemporary documentation which was supplied by the Parties to the Tribunal in regard to Teva (including those in response to Question B2 in the Tribunal’s email message of 23 November 2013); and (ii) other documentary exhibits and testimony cited by the Parties in their written and oral pleadings in this arbitration. The Tribunal heard no witness from Teva in this arbitration; and, accordingly it is necessary to cite at some length contemporary materials relating to Teva that is relevant to this chronology.
3.119.
The Teva group of companies are engaged in the development, production, and marketing of generic pharmaceuticals (as well as proprietary branded pharmaceuticals and active pharmaceutical ingredients) and operate 56 manufacturing facilities around the world, with a total revenue in 2010 of US $16.21 billion.230 Teva is the world’s leading generic pharmaceutical company and the leading provider of generics to the US market. For the USA, Teva has over 600 ANDAs.231 (For ease of reference below, the Tribunal does not distinguish between these different legal entities, referring to them all as "Teva".)
3.120.
Teva operated a facility at Irvine, California and also a facility in Jerusalem, Israel. As regards the Irvine facility, the FDA conducted an inspection in 2009, finding numerous cGMP violations. As regards the Jerusalem facility, the FDA conducted three inspections in 2006, 2008 and 2010 "with 483s issued."232 These inspections and their consequences are described below.
3.121.
Although Teva has a facility within the USA making it subject to other sanctions, Teva’s manufacture in Jerusalem of drugs for export to the US market makes those drugs subject to the Act and eligible for Import Alert 66-40.

2009

3.122.
11 December 2009: The FDA issued a warning letter to Teva Parenteral Medicines, Inc.233 This letter referred to FDA’s inspection on 13-24 July 2009 of Teva’s Irvine, California facility.
3.123.
The Irvine warning letter stated: "The inspection identified significant violations of the Current Good Manufacturing Practice (CGMP) Regulations for Finished Pharmaceuticals... These violations cause your drug products to be adulterated within the meaning of Section of 501(a)(2)(B) of the Federal Food, Drug, and Cosmetic Act (the Act) [21 U.S.C. 351(a)(2)(B)] in that the methods used in, or the facility or controls used for, their manufacturing, processing, packing, or holding do not conform to or are operated or administered in conformity with, CGMP. We have received your firm’s responses of August 10, September 4 and 8, October 27 and 29, and November 13, 2009, and note these Responses lack sufficient corrective actions. Specific violations observed during the inspection include, but are not limited to: [here follow 13 numbered violations]."234
3.124.
Following the formal warning, the Irvine warning letter concluded: "Within fifteen working days of receipt of this letter, please notify this office in writing of the specific steps that you have taken to correct violations. Include an explanation of each step taken to prevent the recurrence of violations and copies of supporting documentation. If you cannot complete corrective action within fifteen working days, state the reason for the delay and the date by which you will have completed the correction. Additionally, your response should state if you no longer

manufacture Propofol Sterile Emulsion for Injection, and provide the date(s) and reason(s) you ceased production."235

2 010

3.125.
22 February 2010: Teva Pharmaceutical Industries Limited filed its Annual Report (SEC Form 20-F) with the US Securities and Exchange Commission.236
3.126.
Under "Risk Factors", the following risk was described: "Recently there has been increasing regulatory scrutiny of pharmaceutical manufacturers. We must register our facilities, whether located in the U.S. or elsewhere, with the FDA and similar regulators and our products must be made in a manner consistent with current good manufacturing practices ("cGMP"), or similar standards in each territory in which we manufacture. In addition, the FDA and other agencies periodically inspect our manufacturing facilities. Following an inspection, an agency may issue a notice listing conditions that are believed to violate cGMP or other regulations, or a warning letter for violations of ‘regulatory significance’ that may result in enforcement action if not promptly and adequately corrected. Compliance with production and quality control regulations requires substantial expenditure of resources. If any regulatory body were to require one of our manufacturing facilities to cease or limit production, our business could be adversely affected. In addition, because regulatory approval to manufacture a drug is site-specific, the delay and cost of obtaining approval to manufacture at a different facility also could have a material adverse effect on our business, financial position and results of operations.237
3.127.
16 April 2010: Teva voluntarily suspended manufacturing operations at the Irvine facility.238 Teva also recalled a number of drugs due to impurities.239
3.128.
28 October 2010: FDA officials met with Teva executives regarding the Irvine facility. According to the FDA’s minutes of that meeting:240 "Mr. Gall [Teva Vice-President of Operations at the Irvine facility] provided an example of the new maintenance plan on water systems. Ms. Sakers [Teva Executive Vice-President, Corporate Quality] informed FDA of changes in the QA reporting structure as well as QA’s new involvement in all levels of the drug manufacturing including on the floor. She assured FDA that QA will be involved in all deviation investigations and QA will review and document any changes to the system. Mr. Friedman [FDA Director, Division of Manufacturing and Product Quality], once again, stressed the importance of thinking globally and applying corrective actions to all facilities and not just to the Irvine site."
3.129.
Later in the meeting: "Mr. Cruse [FDA Los Angeles District Director] recognized Teva’s summary of their corrective actions and applaud[ed] Teva’s attempt to put the right systems in place to ensure compliance. He cautioned that no matter how big the system is or how great the innovation is, implementation, training, and accountability will produce success. He also cautioned Teva for putting too much onus on the consultant and stressed the importance of Teva’s leadership to sustain the momentum of compliance when the consultant is no longer there. Mr. Cruse mentioned that although the findings from the Irvine facility ultimately resulted in this meeting, the correction actions provided during this meeting should be global and Teva should take a proactive approach in ensuring all facilities are in compliance. Mr. Cruse acknowledged that the shut down of the Irvine facility is the type of corporate reaction FDA is looking for when the firm is not in substantial compliance and asked if Teva plans to take the same strategy for other facilities when they are found to be non-compliant."
3.130.
The Tribunal notes that, at this meeting of 28 October 2010, the FDA welcomed Teva’s voluntary ‘shut-down’ of the Irvine facility in response to the FDA’s warning letter and called for Teva to take a "global" and "proactive" approach. This meeting was attended by (inter alios) Dr. Rosa.
3.131.
At this same meeting on 28 October 2010, Teva presented a slide presentation to the FDA listing as a voluntary action (inter alia) Teva’s "moratorium" on production and release at the Irvine facility.241 The FDA likewise presented a slide presentation to Teva. The shut-down of the Irvine facility effected in April 2010 was to continue until April 2011, a period of 12 months.
3.132.
24 November 2010: An FDA Enforcement Report described Teva’s nationwide "ongoing" recall (by letter dated 22 September 2010) of tamoxifen citrate tablets.242

2011

3.133.
31 January 2011: The FDA issued a warning letter to Teva Pharmaceutical Industries Ltd regarding cGMP non-compliance at its facility in Jerusalem.243
3.134.
This Jerusalem warning letter stated: "During our September 12-16, 2010 inspection of your pharmaceutical manufacturing facility, Teva Pharmaceutical Industries, Ltd., located at 24 Professor Hartum Street, Har Hozvim, Jerusalem, Israel, investigators from the Food and Drug Administration (FDA) identified significant violations of Current Good Manufacturing Practice (CGMP) regulations for Finished Pharmaceuticals.... These violations cause your drug products to be adulterated within the meaning of section 501(a)(2)(B) of the Federal Food, Drug, and Cosmetic Act.... in that the methods used in, or the facilities or controls used for, their manufacture, processing, packing, or holding do not conform to, or are not operated or administered in conformity with, CGMP. We have reviewed your firm’s response of October 7, 2010, and note that it lacks sufficient corrective actions. Specific violations observed during the inspection include, but are not limited, to the following: [here follows two numbered violations]." After the formal warning, the letter concluded: "Within fifteen working days of receipt of this letter, please notify this office in writing of the specific steps that you have taken to correct violations. Include an explanation of each step being taken to prevent the recurrence of violations and copies of supporting documentation. If you cannot complete corrective action within fifteen working days, state the reason for the delay and the date by which you will have completed the correction..."
3.135.
Dr. Rosa testified that, in response to the Jerusalem warning letter, Teva volunteered to cease production until its resolution of the cGMP violations and that it committed to correct them swiftly. He also described later actions by Teva and the FDA: "Because the [Jerusalem] facility makes numerous medically necessary drugs, FDA requested that Teva Pharmaceuticals continue producing those drugs, while simultaneously implementing proposed corrective actions. FDA determined that the medical necessity of Teva Pharmaceutical’s drugs and the quality of Teva Pharmaceutical’s retrospective evaluation and ongoing corrective action weighed against adding the firm to the Import Alert."244
3.136.
23 February 2011: Teva announced a recall of several products manufactured at its Jerusalem facility on or about 23 February 2011.245
3.137.
On 23 February 2011, an FDA internal email chain addressed an internal request to assess the possibility of drug shortages following a possible suspension of production at Teva’s Jerusalem facility.246 It revealed serious concerns within the FDA about shortages and impacts on patients in the USA resulting from such a suspension; and it foreshadowed an urgent telephone conference-call between the FDA and Teva.
3.138.
At the Hearing, Dr. Rosa testified about his telephone conversation with Teva’s corporate quality officer (Ms. Fran Zipp) in which Ms. Zipp indicated to him that "... their intentions were to stop production, to stop distribution of drugs. That’s why you will see a chain of e-mails going back and forth because the Agency was extremely concerned with that possibility."247 He added later: "... she was definitely very concerned with the inspectional findings and was speaking about that Teva [sic] will be taking all and any necessary action to remove product from the market that could be affected, and they were ready to cease and stop. She actually ordered -her statement was she ordered that that [Jerusalem] facility stop producing, stop the distribution... And that certainly was a concern because of the medical [sic] necessary drugs that they manufactured or drugs that... are in shortage and produced at that facility."248 The precise date of this conversation is not known: it was clearly after the Jerusalem warning letter; and Dr. Rosa thought it was close to the issuance of that warning letter, but probably before the email messages summarised below.249
3.139.
24 February 2011: In an FDA internal email,250 Captain Jensen, a senior FDA official dealing with drug shortage issues, stated: "Firm [Teva] has made the decision to recall 30 lots involving 21 different drug products made at the Jerusalem facility. There is a real concern about patient impact - these are chronic medications that patients won’t have when they go to get their medications from the pharmacy (including common blood pressure drugs, cholesterol lowering drugs, diabetes drugs, arthritis drugs, antidepressants and other widely used medications). We see the need for a teleconference with Teva as soon as possible to let them know the medical need for these and to work with them to keep manufacturing medically necessary drugs at the supply levels needed to meet patient needs while fixing their problems (as long as benefit outweighs any potential risks). We don’t see any products on the list that would not be impacting patients and we are worried about the impact of any supply disruption at the Jerusalem facility. Teva has a very large market share for these products and acquired additional market share when CGMP issues occurred in recent years at other manufacturers making these drugs (Caraco, Ranbaxy, Apotex, Actavis, and KV) "
3.140.
16 March 2011. An FDA internal email chain recorded concerns within the FDA at a hold put on imports of Teva’s products by US officials at the port of entry into the USA.251 Captain Jensen’s email message of 21 March 2011 advised her FDA colleagues: "... Teva is still reporting multiple entries of lots made at the Teva Jerusalem facility are on hold and are reporting shortages will occur (again these are common prescription medications and patients will have difficulty filling their everyday prescriptions at the pharmacy without these - the Jerusalem facility supplies large portion of the US market for medications needed for blood pressure, seizures, Parkinson’s, diabetes and other chronic diseases."
3.141.
26April 2011: The Wall Street Journal reported:252 "Teva Pharmaceutical Industries Ltd.... resumed production at an Irvine, Calif., facility that was on voluntary hold for a year following quality control issues and regulatory intervention. The site, which makes injectable products for the Israel generic drug company, received a Food and Drug Administration warning letter in December 2009 that detailed ‘significant’ manufacturing violations and fixing the problems took longer than the company initially expected. The company had said in February [2011] that manufacturing problems at the site had cut sales by $230 million in 2010. Teva reported full-year sales of $16.1 billion. At the time, Teva said ramping up production at the plant would be a slow process that would take most of the year. On Tuesday, Teva said restarting the operation - after an April 2010 manufacturing and distribution hold - was a ‘significant step for improving its product availability for the U.S. injectable market.’ The anesthetic propofol was manufactured at the site and some product was recalled in 2009 after elevated levels of toxins were discovered at the Irvine site. Teva has since stopped making the drug. In a regulatory filing Tuesday, Teva said it also submitted a response to a January [2011] warning letter relating to a Jerusalem pill-making facility, noting that it had implemented ‘corrective actions.’ The FDA had cited deficiencies related to laboratory reporting and quality control systems, and deemed a response to an earlier inspection as insufficient..."
3.142.
29 April 2011: FDA officials drafted a briefing note in preparation for a telephone conference between Dr. Janet Woodcock, Director of CDER, and Teva’s CEO:253 "This briefing is to prepare Dr. Woodcock for telephone conference with Teva’s CEO. The purpose of the call is to express FDA’s continuing concern regarding the CGMP problems that the firm has had at several facilities, reinforce FDA’s concern about the detrimental impact that Teva’s problems have had on market supply of medically necessary drugs and seek commitment from the firm to notify FDA before they take any action such as recall, plant/line shutdown, suspension of distribution, and any other action that may result in shortage of medically necessary drug."
3.143.
As regards the first item on the proposed agenda ("The Medical Needs for Teva’s Products"), the FDA briefing note states: "Teva manufactures a significant number of medically necessary drugs that can result in market shortage when they discontinue or cut back production of these products. In 2010, the firm decided to simply shut down production at the Teva Parenteral Medicines facility in Irvine, CA, causing massive shortages and market supply disruptions of products that are medically necessary for patients. Recently, the firm has recalled 30 lots involving 21 different drug products made at the Jerusalem facility. There is a real concern about patient impact - these are medications that patients rely on for chronic diseases. The products involved are blood pressure drugs, cholesterol lowering drugs, diabetes drugs, arthritis drugs, antidepressants and other widely used medications. We are worried about the impact of any supply disruption that might occur at the Jerusalem facility. Teva has a very large market share for these products described above and acquired additional market share when CGMP issues occurred in recent years at other manufacturers making these drugs (Caraco, Ranbaxy Apotex, Actavis and KV)." The agenda’s second item described Teva’s efforts to address the cGMP issues at its facilities at Irvine and Jerusalem.
3.144.
26 May 201T. In an FDA internal memorandum, Dr. Rosa requested a "priority inspection" to be conducted by the FDA at Teva’s facility in Jerusalem.254 This inspection was completed on 19 June 2011 "with an NAI" [No Action Indicated].255
3.145.
24 August 201T. An FDA internal email chain recorded concerns at the unanticipated holding at a US port of entry of Teva’s products regarded by the FDA as medically necessary drugs:256 Dr. Rosa’s concluding message stated: "... A T-CON with Teva has been scheduled for tomorrow at 4 pm. We do not know why the product is being held up at the port, unless its [sic] due to routine import verification as part of the import entry process. All the profiles are acceptable and an approval recommendation has been enter[ed] for their pending applications, pertaining to the Jerusalem facility. CDER OC is not the cause of the import hold up. We are aware that the administrative/review record must be closed sooner than later. However they needed to provide information about the[ir] global corrective action plan and their FARs investigation into glass found in the API produced at their Jerusalem site. We now have the information, and hope to resolved [sic] all outstanding issues tomorrow..."
3.146.
9 September 2011: The FDA issued a close out letter regarding Teva’s Jerusalem facility,257 stating: "The Food and Drug Administration has completed an evaluation of your firm’s corrective actions in response to our warning letter 320-11-08 dated January 31, 2011. Based on our evaluation, it appears that you have addressed the violation(s) contained in this Warning Letter. Future FDA inspections and regulatory activities will further assess the adequacy and sustainability of these corrections. This letter does not relieve you or your firm from the responsibility of taking all necessary steps to assure sustained compliance with the Federal Food, Drug, and Cosmetic Act and its implementing regulations or with other relevant legal authority. The Agency expects you and your firm to maintain compliance and will continue to monitor your state of compliance. This letter will not preclude any future regulatory action should violations be observed during a subsequent inspection or through other means."
3.147.
Prior to this close out letter, the FDA had approved ANDAs by Teva: ANDA #090289 on 3 June 2011, ANDA #076361 on 20 June 2011 and ANDA #090199 on 22 August 2011.258

2012

3.148.
23 July 2012: The FDA’s Assistant Commissioner for Legislation sent to The Honorable Elijah E. Cummings, Ranking Member of the Committee on Oversight and Government Reform of the US House of Representatives, a long and detailed letter addressing the Committee’s staff report on drug shortages in the USA.259
3.149.
It suffices here to cite only the opening paragraphs: "Thank you for your letter of July 9, 2012, regarding the report entitled ‘FDA’s Contribution to the Drug Shortage Crisis’ (the Report). We appreciate the opportunity to provide clarification about the issues raised in the Report. Preventing drug shortages is a top priority for the Food and Drug Administration (FDA or the Agency). The number of drug shortages has risen steadily since 2005 to hit an all-time high of 251 drug shortages in 2011. This is a very troubling situation that FDA takes very seriously. The root causes of drug shortages, however, lie largely outside of FDA’s purview. Contrary to the conclusion reached in the Report, FDA is not the root cause of this serious public health problem. In recent years, more than half of all drug shortages were related to manufacturing production problems, including quality-related issues and delays. The remainder of the shortages was caused by business decisions to discontinue certain products, difficulty obtaining raw materials, loss of manufacturing sites, increased demand, and component problems. Patients expect and deserve high-quality drugs. It is the manufacturer’s responsibility to ensure that its products are safe, effective, and of high quality. FDA is committed to working with industry to resolve quality or manufacturing problems that arise, to ensure continued patient access to vital safe and effective medicines. In fact, in appropriate cases, FDA may exercise regulatory flexibility to prevent or mitigate a drug shortage, such as by expediting inspections or review of manufacturing supplements to facilitate production changes..." [footnotes omitted]. The letter also addressed the closure of Teva’s facility at Irvine.
3.150.
18 October 2012. A Knight Ridder/Tribune Brief reported:260 ‘"The Orange County Business Journal’ reports that Teva Pharmaceutical Industries Ltd.....is firing 65 employees at its plant in Irvine, California, according to a state filing. The newspaper added that cuts will take effect on October 29 and scientists, chemists, and inspectors [sic], Teva had an estimated 500 workers in Irvine before the filing. It cut 156 workers in Irvine last year as a result of an earlier year-long halt to production after it stopped making propofol, a sedative that gained notoriety in the death of Michael Jackson. Teva acquired the Irvine plant in 2003 through the acquisition of generic drug maker Sicor Inc. ‘The New York Times’ reported today that, in 2009, the US Food and Drug Administration (FDA) cited Teva for several violations at its injectable drug plant in Irvine, including for the failure to catch bacterial contamination of propofol, before it left the factory. The citation was part of a crackdown after Margaret Hamburg became FDA commissioner. Teva said it spent $375 million for improvements and reopened its factory in Irvine, but it that [sic] has not yet resumed full production."
3.151.
2008-2012: A ranking of major participants in the US generics drug market placed Teva as the first in total sales on US Annual IMS Data. (Apotex is not listed).261

2013

3.152.
4 June 2013: In-Pharma Technologist reported:262 "... Last July [2012], the Food and Drug Administration Safety and Innovation Act (FDASIA) - aimed to tighten the grip on the global supply chain - was signed into law and included the requirement for pharmaceutical companies to notify the US Food and Drug Administration (FDA) of any anticipated shortages. FDA spokesperson Lisa Kubaska told this publication that ‘since FDASIA was enacted, the FDA has been receiving daily calls and emails from manufacturers about potential problems.’ Though the legislation has led to closer cooperation between manufacturers and the FDA, Kubaska told us shortages are still an issue and ‘about 75 per cent of drug shortages are caused by manufacturing issues’ and breakdowns in quality. ‘Such breakdowns have occurred most often with manufacturers of sterile injectable drugs, including oncology drugs. These quality issues have included compromised sterility and the presence of glass, metal and other material inside drug vials’... Propofol Off Shortage List: One drug that has sat on the FDA’s drug shortage list for the past few years was propofol, the anaesthesia infamously associated with the death of Michael Jackson. The shortage had been caused by manufacturing issues first at Teva’s Irvine, California facility and then at Hospira’s Clayton, North Carolina plant, yet following the recent re-entry into propofol manufacturing by these two players, supply levels are, according to Kubaska, ‘anticipated by the firms to be more than adequate to meet demand.’ Last summer the only company manufacturing the drug was Fresenius Kabi, who worked with the FDA in order to ramp up capacity from two of its European sites..."

Conclusion

3.153.
In conclusion, the FDA issued its warning letter regarding Teva’s Jerusalem facility on 31 January 2011; it was site-specific (as with Teva’s Irvine facility); and the FDA did not take in its warning letters a "corporate" view of Teva’s violations in its two facilities. Beyond the Jerusalem warning letter, the FDA did not implement against Teva’s Jerusalem facility any import alert; and the FDA did not initiate any further administrative or enforcement action against Teva in regard to its Jerusalem facility.263 Following the Jerusalem warning letter, Teva proposed immediately to close down production at its Jerusalem facility (as it had earlier with its Irvine facility); and this proposal provoked sustained attempts by the FDA to ensure Teva’s continued production and shipment to the USA of medically necessary drugs. For Teva’s Jerusalem facility, the period from the warning letter in January 2011 to the FDA’s close out letter in September 2011 (following the FDA’s reinspection in June 2011) was nine months.
3.154.
As a matter of fact, on the evidence adduced in this arbitration, the Tribunal concludes that Apotex Inc.’s two facilities at Signet and Etobicoke were regulated differently by the FDA during 2009-2011 from Teva’s Jerusalem facility in 2011, based on the imposition of an import alert in one case and not in the other. The material question is why?
3.155.
Mr. Bradshaw and Mr. Johnson (the expert witnesses called by the Claimants) testified that, in their view, Apotex was not "riskier" than Teva in a way that would justify the FDA treating Apotex less favourably than Teva.264 In contrast, Mr. Vodra (the expert witness called by the Respondent) testified that the FDA "was extremely worried about the impact of the Teva recall on U.S. patients in a way that it was not with the Apotex recall two years before..." Mr. Vodra also testified that, had the cGMP problems with Teva emerged in 2009 and those with Apotex in 2011, "FDA’s drug shortage analysis might well have led to a different regulatory action vis-à-vis Apotex..."265 Apart from drug shortages and timing, Dr. Rosa testified that Teva at its Jerusalem facility, in contrast with Apotex Inc. at its two facilities, was not operating "out of control."266
3.156.
The Tribunal returns to other factual and legal issues later below.

(4) The Sandoz Chronology

3.157.
The Tribunal has taken the following factual chronology principally from: (i) the list of evidentiary references to contemporary documentation which was supplied by the Parties to the Tribunal in regard to Sandoz/Novartis (namely, in response to its Question B2); and (ii) documentary exhibits and testimony cited by the Parties in their written and oral pleadings in this arbitration. The Tribunal did not hear any witness from Sandoz/Novartis in this arbitration. For reasons explained later below, the contemporary public documentary evidence assumed particular significance in this case; and hence it is necessary here to cite much of it verbatim.
3.158.
Novartis AG, a Swiss company, owns a group of companies engaged in the research, development, manufacture and marketing of branded drugs, generic pharmaceutical products, preventive vaccines, diagnostic tools, and consumer health products. Novartis operates through different divisions: Sandoz International GmbH, a German company, is its generic business division which owns subsidiary companies in several countries, including Canada and the USA. Novartis/Sandoz is the second largest generic manufacturer (in terms of revenues) in the world, being engaged in the development, manufacture and marketing of generic medicines (as well as pharmaceutical and biotechnological active ingredients). It has global operations in more than 130 countries; and its revenues in 2011 were US$ 8.5 billion.267 For the USA, it has in excess of 600 ANDAs.268 (For ease of reference below, the Tribunal does not seek to distinguish between the different members of the Novartis group of companies, referring to them as "Sandoz" or "Novartis.")
3.159.
Sandoz operates three manufacturing facilities at (i) Wilson, North Carolina USA, (ii) Boucherville, Quebec, Canada and (iii) Broomfield, Colorado, USA. The FDA inspected the Broomfield facility in April-May 2011, the Wilson facility in March 2008 and June 2011 and the Boucherville facility in July-August 2011.269 These inspections and their consequences are described in further detail below. Sandoz operates a fourth facility at Lincoln, Nebraska, USA.
3.160.
Like Teva, although the Sandoz facilities within the USA make Sandoz subject to other sanctions, its manufacture in Boucherville, Canada, of drugs for export to the US market makes those drugs subject to the Act and eligible for Import Alert 66-40.

2008

3.161.
12 August 2008: The FDA sent a warning letter to Sandoz in regard to its Wilson facility:270 "On March 17 through March 31, 2008, the Food and Drug Administration (FDA) conducted an inspection of your manufacturing facility located at 4700 Sandoz Drive, Wilson, North Carolina. The inspection revealed significant deviations from the Current Good Manufacturing Practice (CGMP) regulations... in the manufacturing of your drug products, which include Metoprolol Succinate ER tablets. These deviations cause your drug products to be adulterated within the meaning of Section 501(a)(2)(B) of the Federal Food, Drug, and Cosmetic Act (the Act) [21 U.S.C. § 351 (a)(2)(B)], The violations include, but are not limited to, the following... [Here follow seven numbered violations]." After the formal warning, the letter concluded: "We acknowledge that some corrections were initiated by your firm during the course of this inspection. We also acknowledge receipt of your initial response to the FDA 483, dated April 9, 2008, as well as your follow-up responses dated April 29, 2008 and June 27, 2008."
3.162.
This Wilson warning letter continued: "In your responses, you committed to implementing a quality improvement plan for your facility after you complete your analysis of the existing quality system and the revision of all control records, which will be completed by [redacted by the Respondent] and [redacted by the Respondent] respectively. You also agreed that the Metoprolol products were not validated, and you have committed to revalidate both strengths (25 and 50 mg). Our concerns with these responses were discussed with Sandoz representatives at the meeting held at the Atlanta District office on July 10. We are in receipt of a follow up response dated August 10 [2008] to that meeting. This latest response is currently under review. You originally decided to temporarily suspend distribution of Metoprolol 25 and 50 mg tablets until the available pre-compression and dissolution data was reviewed. However, you have decided to resume distribution of these products based on your rationale that successful, routine, finished-product testing of manufactured lots is sufficient proof that the product is of acceptable quality. We question the continued distribution of this product until better process controls are implemented and process validation is completed. We are also concerned that the problems noted in the Metoprolol validations could be indicative of problems and poor decisions made with other product validations. In addition to the deficiencies listed above, we are also concerned that you may not be utilizing a global approach to the implementation of manufacturing controls. For example, one proposed corrective action at the Wilson site is to implement an automated investigation management tracking system ([redacted by the Respondent]) which is already in use at other Sandoz sites. It is our expectation that all Sandoz sites intended to be used for the manufacture of drugs have a comprehensive evaluation to assure compliance with all laws and regulations governing the manufacture of drugs. We request that you provide documentation describing the specific steps you will take to perform these evaluations and to implement the necessary corrective actions at all Sandoz’ sites..."
3.163.
Given the paucity of evidence regarding subsequent events in 2008, the Tribunal assumes that the violations in this Wilson warning letter were somehow resolved by Sandoz to the FDA’s ultimate satisfaction. Nonetheless, these violations are relevant to subsequent events in 2011 onwards, with repeat violations later cited by the FDA regarding Sandoz’s facility at Wilson.

2011

3.164.
18 November 201T. The FDA sent a warning letter to Novartis in Basel, regarding the three Sandoz facilities at Boucherville, Broomfield and Wilson.271
3.165.

This Novartis warning letter stated: "... During our April 19 to May 6, 2011, June 6 to 22, 2011, and July 26 to August 4, 2011 inspections of your pharmaceutical manufacturing facilities, Sandoz Inc., located at 2555 W. Midway Blvd, Broomfield, Colorado; Sandoz Inc., located at 4700 Sandoz Dr., Wilson, North Carolina; and Sandoz Canada Inc., located at 145 Jules-Leger Street, Boucherville, Quebec, Canada, investigators from the Food and Drug Administration (FDA) identified significant violations of the Current Good Manufacturing Practice (CGMP) regulations for Finished Pharmaceuticals... These violations cause your drug products to be adulterated within the meaning of section 501 (a)(2)(B) of the Federal Food, Drug, and Cosmetic Act... in that the methods used in, or the facilities or controls used for, their manufacture, processing, packing, or holding do not conform to, or are not operated or administered in conformity with, CGMP. The August 2011 inspection also revealed that Sandoz Canada Inc. failed to submit NDA Field Alert Reports (FARs) to FDA in compliance with 21 CFR § 314.81(b)(l)(ii), as required by section 505(k) of the Act [21 U.S.C. § 355(k)]. An applicant is required to submit, within three working days of receipt, information concerning any bacteriological contamination, or any significant chemical, physical, or other change or deterioration in the distributed drug product, or any failure of one or more distributed batches of drug product to meet the specifications established for it in the application. We have reviewed your firm’s responses of May 31, 2011, July 13, 2011, and August 25, 2011, and note that they lack sufficient corrective action. Specific violations observed during the inspections include, but are not limited to, the following: [here follow several numbered and unnumbered violations]"; and, after the formal warning, the letter continued: "Within fifteen working days of receipt of this letter, please notify this office in writing of the specific steps that you have taken to correct violations. Include an explanation of each step being taken to prevent the recurrence of violations and copies of supporting documentation. If you cannot complete corrective action within fifteen working days, state the reason for the delay and the date by which you will have completed the correction..."

3.166.
The Novartis warning letter concluded: "If, as a result of receiving this Warning Letter or in general, you are considering making a decision that will result in a decreased number of finished drug products or bulk drug substances produced by your manufacturing facility, FDA requests that you contact CDER’s Drug Shortages Program immediately, as you begin your internal discussions, at drugshortages@fda.hhs.gov in order to ensure that your action(s) does not adversely affect the public health."
3.167.
The Tribunal notes that these three inspections of different facilities at similar times, involving two FDA offices and the FDA’s international office were co-ordinated by the FDA in a manner which suggests that the FDA already suspected that Sandoz/Novartis as a corporate entity was not providing sufficient oversight and control of the state of compliance at its facilities, i.e. the FDA was taking a "corporate view" even before the inspections leading to this Novartis warning letter.272 As regards the quotation from the warning letter in the paragraph immediately above, the Tribunal notes that this reference in 2011 to CDER’s Drug Shortages Program did not appear in the FDA’s earlier warning letters regarding Apotex’s two facilities in 2009 and 2010.
3.168.
The Novartis warning letter of 18 November 2011 was addressed to Novartis’ Chief Executive Officer as a "corporate" letter addressing all three facilities collectively and placing full responsibility on the upper management of Novartis/Sandoz, as the following passage makes clear: "We note that CGMP violations listed in this letter include multiple repeated violations from those cited in the August 2008 Warning Letter issued to Sandoz Inc.’s Wilson, North Carolina facility and repeated observations from previous inspections at your Sandoz Canada Inc. facility in Boucherville, Quebec, Canada. It is apparent that Novartis International AG (Novartis) is not implementing global and sustainable corrective actions. We remind you that you are responsible for ensuring that your firm’s drug manufacturing operations comply with applicable requirements, including the CGMP regulations. FDA expects Novartis to undertake a comprehensive and global assessment of your manufacturing operations to ensure that drug products conform to FDA requirements. Finally, the Agency is concerned about the response of Novartis to this matter. Corporate management has the responsibility to ensure the quality, safety, and integrity of its products. Neither upper management at Novartis nor at Sandoz Inc., nor at Sandoz Canada Inc., ensured global, adequate, or timely resolution of the issues at these sites."
3.169.
Dr. Rosa testified that Sandoz voluntarily responded to the cGMP violations found by the FDA at the Boucherville facility by temporarily suspending and slowing production at that facility, adding: "Although Sandoz Canada was focused on remediation efforts and supplying critical injectable drugs to the Canadian market, it supplied certain medically necessary injectable drugs for the U.S. market. FDA determined that the medical necessity of these drugs and Sandoz Canada’s remediation commitments weighed against adding the facility to the Import Alert. As a result, Sandoz Canada continued to market life-sustaining, single source drugs with the concurrence of FDA’s Drug Shortage Office. The firm voluntarily stopped shipping other products to the United States. FDA’s investigation of this facility remains ongoing."273
3.170.
At the Hearing, Dr. Rosa was asked for the sources of his information summarised in the paragraph immediately above, to which he replied: "They [Sandoz Canada] submitted the information in writing to us that was going to be the action. They also, during conversations, said that they were going to be eliminating, ceasing production, specifically ceasing, not moving products out that were not - they were not continuing manufacturing products that were not essential products. In terms of slow production, that is actually one of the documents that they submitted. So that’s where the information is coming from, and from conversations and meetings held with the Center for Drugs."274 Earlier during his testimony at the Hearing, Dr. Rosa had acknowledged that he was not personally involved in the FDA’s decisions about drug shortages, but rather: "I’m involved in sending the consult [sic], having the discussion in terms of their assessment, and moving forward based on an agency decision."275 The Tribunal accepts that Dr. Rosa was generally involved in the Novartis warning letter and its consequences, based on his testimony at the Hearing: "I would have to see exactly if I reviewed the exact [Novartis] Warning Letter [of 18 November 2011] and the details of the case. But I do recall having discussions and looking at and being involved, to the extent - if I sign off on [sic]... I was one of the reviewers, I would have to say - meaning one of the senior officers reviewing the case, I would have to refer to the record and see if I was."276 The Tribunal was not shown this "record" by the Respondent nor the written "information" from Sandoz described by Dr. Rosa, for reasons explained below.

2012

3.171.
2008 - 2012: Sandoz was ranked second (after Teva) based on US Annual IMS Data for Total Sales.277
3.172.
January 25, 2012: The Novartis Annual Report (SEC Form 20-F) cited the FDA’s warning letter of 18 November 2011.278 It advised, under the heading "Forward Looking Statements" of "unexpected product manufacturing issues, including the potential outcomes of the Warning Letter issued to us with respect to three Sandoz manufacturing facilities, and the potential outcome of the shutdown of the OTC manufacturing facility at Lincoln, Nebraska... " (p. 2); and "Like our competitors, we have faced, and continue to face, significant manufacturing issues. For example, in November 2011, we received a Warning Letter from the FDA with respect to three of our Sandoz Division’s facilities - in Broomfield, Colorado, Wilson, North Carolina, and Boucherville, Canada - which remains unresolved. The Warning Letter raised concerns regarding these facilities’ compliance with FDA cGMP regulations. It states that until the FDA confirms that the deficiencies have been corrected, the FDA can recommend disapproval of any pending applications or supplements listing Novartis affiliates as a drug manufacturer. In addition, FDA may refuse requests to issue export certificates to our Sandoz US affiliate, or import certificates to our Sandoz Canada affiliates. The letter further states that other federal agencies may take the Warning Letter into account when considering the award of contracts. Sandoz is collaborating with the FDA to promptly correct all concerns raised in the Warning Letter, and to ensure that our products are safe and effective and meet highest quality standards. However, if we fail to fully resolve the issues raised in the Warning Letter then we could be subject to legal action without further notice including, without limitation, seizure and injunction." (p. 10).
3.173.

19 February 2012: The Globe and Mail, Canada’s national newspaper, reported:279 "... Today, Sandoz Canada’s reputation lies in tatters after chronic problems at its state-of-the-art plant on Montreal’s south shore caught the eye of U.S. regulators [i.e. the Boucherville facility]. Much of its production is halted as it tries to fix the problems, leaving pharmacists and health-care providers alarmed at what could be months of shortages of injectable medications that treat everything from nausea among cancer patients and abnormal heart rhythms to endometriosis. Last week, Sandoz told Canadian health-care providers it would discontinue certain products and temporarily suspend production on the heels of a scathing ‘warning letter’ from the U.S. Food and Drug Administration three months ago that criticized the plant’s ‘ineffective quality system’. ‘As we progress with our remediation activities, all production processes will be affected, significantly reducing output from our Boucherville plant and likely resulting in temporary supply disruptions,’ Sandoz Canada president Michel Robidoux said in a Feb. 16 [2012] letter to pharmacists, obtained by The Globe and Mail. He didn't specify how long the disruption would last, but that Sandoz Canada would focus on ‘optimizing’ supplies of medically necessary drugs to the Canadian market and had halted production of ointments, ophthalmics, suppositories and all non-medically necessary drugs.... In a statement to The Globe and Mail, Sandoz Canada said it was intensifying efforts ‘to ensure high quality standards’... It said the decision to halt production was voluntary and related to efforts to restore ‘high quality standards in manufacturing operations’... In total, Sandoz said it had committed a total of over $170-million (U.S.) to improve quality at the Boucherville plant as well as two other plants in Colorado and North Carolina that were also cited in the FDA letter..."

3.174.
20 February 2012: CBC News (of the Canadian Broadcasting Corporation) reported:280 "The revelation that a major drugmaker is cutting production at its Quebec plant has ramped up fears among doctors and patients about a critical shortage of injectable medicines nationwide. Supplies have already dried up for some pharmacies seeking to stock up after Sandoz Canada - one of the country’s leading suppliers of generic cancer and heart medications - announced Sunday it was temporarily suspending production at its Boucherville Que., facility.... The company said it was expecting ‘a significant reduction in output’ and was halting production lines to upgrade operations after quality-control assessments by the U.S. Food and Drug Administration warned the factory fell short of FDA standards... Some products will be discontinued, while others will resume production once the suspension is lifted, although Sandoz has not clarified which drugs will go out of production. The company said in a statement it would prioritize production of its most critical drugs... ‘We will focus all available capacity on the supply of lifesaving and acute care injectable medicines to ensure that Canadian patients with critical medical conditions continue receiving adequate treatment,’ the statement read. In the meantime, physicians are scrambling to find replacement therapies to treat certain ailments. Response from Sandoz Canada: ‘In light of the November 2011 FDA Warning Letter, Sandoz Canada has further intensified its ongoing efforts to ensure high quality standards across its manufacturing operations. As part of these efforts, we will temporarily suspend or discontinue the production of certain products at our Boucherville site, most of which have alternatives in the marketplace, to prioritize production of most medically necessary products, and focus on the supply of critical medicines to the Canadian market.’..."