R. v. Thomas Fuller Construction Co. (1958) Ltd. et al., [1980] 1 SCR 695

Supreme Court of Canada

R. v. Thomas Fuller Construction Co. (1958) Ltd. et al., [1980] 1 S.C.R. 695

Date: 1979-12-21

Her Majesty The Queen (Defendant) Appellant;

and

Thomas Fuller Construction Co. (1958) Limited (Third Party)

and

Foundation Company of Canada Limited (Plaintiff) Respondents.

1979: April 26; 1979: December 21.

Present: Martland, Pigeon, Dickson, Beetz, Estey, Pratte and McIntyre JJ.

ON APPEAL FROM THE FEDERAL COURT OF APPEAL

Courts—Federal Court—Jurisdiction—Third party proceedings by the Crown—Not based on federal law—The British North America Act, 1867, s. 101—Federal Court Act, R.S.C. 1970 (2nd Supp.), c. 10, s. 17(4)—Crown Liability Act, R.S.C. 1970, c. C-38—The Negligence Act, R.S.O. 1970, c. 296, s. 2.

The respondent Foundation Co. of Canada Ltd. (“Foundation”) has brought an action against the appellant (“The Crown”) for alleged breaches of a building contract and negligence in respect of blasting operations carried on by the other respondent, Thomas Fuller Construction Co. (1958) Ltd. (“Fuller”). Before filing a statement of defence, the Crown has filed against Fuller a third party notice claiming indemnity under its contract with Fuller against the Crown’s liability to Foundation and claiming also contribution from Fuller pursuant to The Negligence Act of Ontario. The third party notice was struck out by Décary J. of the Trial Division of the Federal Court. The trial judge stated that there was no federal law involved to support the jurisdiction of the Federal Court to entertain the third party claim and therefore the Court was, on the basis of the McNamara decision, [1977] 2 S.C.R. 654, without jurisdiction. The Crown appeal to the Federal Court of Appeal was dismissed. Hence the appeal to this Court.

Held (Martland J. dissenting): The appeal should be dismissed.

Per Pigeon, Dickson, Beetz, Estey, Pratte and McIntyre JJ.: For purposes of s. 101 of the B.N.A. Act an action and a third party proceeding are two separate proceedings. In The Bank of Montreal v. The Royal Bank of Canada, [1933] S.C.R. 311, Duff C.J. stated

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that “the proceedings against the third party is a substantive proceeding and not a mere incident of the principal action”. For the Federal Court to have jurisdiction in either proceeding, that proceeding must be to enforce a right conferred by a federal law. In McNamara Construction v. The Queen, [1977] 2 S.C.R. 654, it was held that the Crown could not bring action for breach of a construction contract in the Federal Court. In the present case the Crown Liability Act deals only with the liability which is asserted in the main action and does not embrace the issues on the third party notice. The claim against Fuller arises out of the contract and of The Negligence Act and therefore the laws on which the third party notice is founded are not those of Canada but those of the Province of Ontario. It is not clear that the claim under The Negligence Act cannot be asserted before the courts of Ontario. But, even if the remedy sought by the Crown against the third party cannot be otherwise obtained in Ontario, this could not justify a conclusion that the Crown must be allowed to institute third party proceedings in the Federal Court so as not to be deprived of the benefit of The Negligence Act. The basic principle governing the Canadian system of judicature is the jurisdiction of the superior courts of the provinces in all matters federal and provincial. The federal Parliament is empowered to derogate from this principle by establishing additional courts only for the better administration of the laws of Canada. The application of the ancillary power doctrine is limited to what is truly necessary for the effective exercise of Parliament’s legislative authority. If it is considered desirable to be able to take advantage of provincial legislation on contributory negligence, the proper solution is to make it possible to have those rights enforced before the superior court of the province.

Per Martland J. dissenting: The important difference between the present case and the McNamara case is that in the present case the Crown has been brought before the Federal Court as a defendant and there is no question raised as to the jurisdiction of the Federal Court to hear the suit brought by Foundation against the Crown. The Crown has been properly impleaded in the Federal Court in respect of claims against it founded in contract and in tort. To succeed in its claim against a third party for indemnification or contribution, it must establish its liability to the plaintiff, Foundation. That liability can only be established in the suit against the Crown in the Federal Court. While it is clear that an action and third party proceedings are separate proceedings, the existence here of a judgment given by the

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Federal Court against the Crown in the principal action is the very foundation of the Crown’s third party claim, and that judgment would be a pronouncement of “federal law”. That is a sufficient basis on which to found a jurisdiction in the Federal Court to deal with the third party claim pursuant to para. 17(4)(a) of the Federal Court Act. Furthermore, if the Crown cannot take third party proceedings in the Federal Court, where the claim against it is based on negligence, it would mean that the whole issue would have to be retried in another Court. As a Crown’s claim for contribution based on the Ontario Negligence Act could not be pursued in the Courts of Ontario, the Crown would then be without a remedy.

[The Bank of Montreal v. The Royal Bank of Canada, [1933] S.C.R. 311; McNamara Construction v. The Queen, [1977] 2 S.C.R. 654; Quebec North Shore Paper Co. v. Canadian Pacific Ltd., [1977] 2 S.C.R. 1054 applied; Valin v. Langlois (1879), 3 S.C.R. 1; Cohen v. McCord, [1944] O.R. 568; Rickwood v. Town of AyImer (1957), 8 D.L.R. (2d) 702; National Capital Commission v. Pugliese, [1979] 2 S.C.R. 104, referred to.]

APPEAL from a judgment of the Federal Court of Appeal[1] affirming a judgment of Décary J. of the Trial Division of the Federal Court striking out a third party notice. Appeal dismissed, Martland J. dissenting.

T.B. Smith, Q.C., and D. Sgayias, for the appellant.

Don Rasmussen and A.H.A. Keenleyside, for the respondent Thomas Fuller Construction Co. (1958) Ltd.

The following are the reasons delivered by

MARTLAND J. (dissenting)—The respondent, Foundation Company of Canada Limited (“Foundation”), is a party to a contract with the appellant (“The Crown”), pursuant to which it undertook the construction of a research centre at Tunney’s Pasture in Ottawa.

On October 25, 1974, the Crown instructed Foundation to cease work on the project because damage had been caused to the footing of a part of

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the foundation wall as a result of blasting operations carried on by the respondent, Thomas Fuller Construction Co. (1958) Limited (“Fuller”), which, under contract with the Crown, was in the course of installing sewer services to the proposed building.

Foundation has brought an action against the Crown founded on the allegation that it was an express term of its contract that the Crown would be responsible for any extra expense, loss or damage directly attributable to neglect or delay on the part of the Crown in failing to do any act which the Crown would be required to do, in accordance with the usage of the trade, necessary to enable Foundation to carry out its obligation under the contract.

Paragraphs 5 and 6 of the statement of claim allege:

5. On or about the 25th day of October, 1974, the Plaintiff, pursuant to the written instructions delivered by the Defendant’s architect, stopped work on the site. At that time, the Plaintiff was informed that damage had been done to the footing of part of the foundation wall by blasting operations conducted a short distance from the site by an agent, employee, and/or a sewer contractor of the Defendant, Thomas Fuller Construction Co. (1958) Limited.

6. The Plaintiff alleges that the damage to the foundation wall was caused solely and directly by the blasting operations conducted by the said Thomas Fuller Construction Co. (1958) Limited, with the approval and authorization of the Defendant.

Foundation claims that it was delayed in its work for a total of ten weeks and alleges that it suffered damage in the amount of $461,636.

Foundation also founds its claim in tort for negligence on the part of the Crown in failing adequately to supervise the work being carried on by Fuller and in failing to take normal precautions to ensure that Fuller’s blasting operations would not damage Foundation’s construction work and operations.

The Crown issued a third party notice to Fuller claiming indemnity under its contract with Fuller against the Crown’s liability to Foundation. The

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Crown also claimed contribution from Fuller pursuant to The Negligence Act, R.S.O., 1970, c. 296, on the ground that the damage to the foundation wall was caused by the negligence of Fuller, or the negligence of Fuller’s officers, servants and agents, acting in the course of their employment.

On an application for directions the third party notice was struck out by a judge of the Trial Division of the Federal Court. His reasons for so doing were as follows:

On the face of it the claim asserted by the Crown against the Third Party is not based on the contract alleged by the Plaintiff. It is based on the Negligence Act of Ontario and on a separate contract between it and the Third Party. There is no “federal law” involved to support the jurisdiction of the Court to entertain the Third party claim. On the basis of the McNamara decision, the Court is without jurisdiction.

An appeal by the Crown to the Federal Court of Appeal was dismissed. Chief Justice Jackett, delivering the reasons for judgment of the Court, said:

The appellant’s appeal to this court, as I understand it, is based, in effect, on the contention that the McNamara decision of the Supreme Court of Canada ([1977] 2 S.C.R. 654) does not apply because the third party proceedings are in respect of the appellant’s possible liability in the main action, which is based on a federal law, and the third party proceedings therefore fall within the jurisdiction that Parliament can confer on the Federal Court under Section 101 of the British North America Act, 1867, notwithstanding the McNamara decision.

In my view, for purposes of section 101, an action and a third party proceeding are two separate proceedings; and, for the Federal Court to have jurisdiction in either proceeding, that proceeding must be to enforce a right conferred by a “federal law” (Western Caissons (Quebec) Limited v. McNamara Corporation of Newfoundland Co. Limited et al., [1979] 1 F.C. 509). Furthermore, in my view, the third part proceeding in this case is to enforce a right claimed to have been conferred by the ordinary provincial law of contract as applicable between subject and subject or by the Ontario Negligence Act, neither of which is a “federal law”; and in my view, such a claim does not become a claim based on a “federal law” because the operation of a federal law enters into the creation of the conditions precedent

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to the existence of the right that is being claimed under the provincial law.

This is the law established by the reasons for judgment in the McNamara case, as I understand them, and it is not subject to modification by reasons of possible inconvenience or, indeed, as might happen in this case, by reason of the fact that Her Majesty may, in consequence, have no right of contribution under the Ontario Negligence Act. The remedy, if one is desirable, lies in appropriate legislation.

With great respect, I do not agree that it follows from the McNamara decision that the Crown is necessarily precluded from joining Fuller in the proceedings before the Federal Court by reason of a third party notice. In the McNamara case the proceedings in the Federal Court were instituted by the Crown against a construction company and a firm of architects for breaches of their respective contracts in relation to the construction of a building, and against an insurance company in respect of a surety bond. Third party proceedings were instituted by the contractor and the insurance company against the architects and against a subcontractor. The judgment of this court struck out the statement of claim for want of jurisdiction in the Federal Court. The grounds for this decision appear in the following passage from the reasons of Chief Justice Laskin at pp. 658-60:

Shortly put, the main issue in these appeals is whether the Federal Court of Canada may be invested with jurisdiction over a subject at the suit of the Crown in right of Canada which seeks to enforce in that Court a claim for damages for breach of contract. The basis for the conferring of any such jurisdiction must be found in s. 101 of the British North America Act which, inter alia, confers upon Parliament legislative power to establish courts “for the better administration of the laws of Canada”. In Quebec North Shore Paper Company v. Canadian Pacific Limited ([1977] 2 S.C.R. infra), (a decision which came after the judgments of the Federal Court of Appeal in the present appeals), this Court held that the quoted provisions of s. 101, make it a prerequisite to the exercise of jurisdiction by the Federal Court that there be existing and applicable federal law which can be invoked to support any proceedings before it. It is not enough that the Parliament of Canada have legislative jurisdiction in respect of some matter which is the subject of litigation in the Federal Court. As this Court

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indicated in the Quebec North Shore Paper Company case, judicial jurisdiction contemplaed by s. 101 is not co-extensive with federal legislative jurisdiction. It follows that the mere fact that Parliament has exclusive legislative authority in relation to “the public debt and property” under s. 91(1A) of the British North America Act and in relation to “the establishment, maintenance and management of penitentiaries” under s. 91(28), and that the subject matter of the construction contract may fall within either or both of these grants of power, is not enough to support a grant of jurisdiction to the Federal Court to entertain the claim for damages made in these cases.

Section 17(4) of the Federal Court Act is the foundation for the assertion of jurisdiction herein at the suit of the Crown. Section 17(1) and (2) invest the Trial Division of the Federal Court with jurisdiction in actions against the Crown, and no issue arises here as to the validity of those provisions. Nor are we concerned here with the validity of s. 17(3) which provides for jurisdiction through agreement in certain situations between the Crown and a subject, and also in proceedings to resolve conflicting claims in respect of an alleged obligation of the Crown. Section 17(4) reads as follows:

(4) The Trial Division has concurrent original jurisdiction

(a) in proceedings of a civil nature in which the Crown or the Attorney General of Canada claims relief; and

(b) in proceedings in which relief is sought against any person for anything done or omitted to be done in the performance of his duties as an officer or servant of the Crown.

A comparable predecessor provision was s. 29(d) of the Exchequer Court Act, R.S.C. 1952, c. 98, which gave jurisdiction to the Exchequer Court

in all other actions and suits of a civil nature at common law or equity in which the Crown is plaintiff or petitioner.

In the Quebec North Shore Paper Company case, this Court observed, referring to this provision, that the Crown in right of Canada in seeking to bring persons into the Exchequer Court as defendants must have founded its action on some existing federal law, whether statute or regulation or common law.

What must be decided in the present appeals, therefore, is not whether the Crown’s action is in respect of

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matters that are within federal legislative jurisdiction but whether it is founded on existing federal law. I do not think that s. 17(4), read literally, is valid federal legislation under s. 101 of the British North America Act in purporting to give jurisdiction to the Federal Court to entertain any type of civil action simply because the Crown in right of Canada asserts a claim as plaintiff. The common law rule that the Crown may sue in any Court having jurisdiction in the particular matter, developed in unitary England, has no unlimited application to federal Canada where legislative and executive powers are distributed between the central and provincial levels of legislature and government and where, moreover, there is a constitutional limitation on the power of Parliament to establish courts.

The important difference between the present case and the McNamara case is that in the present case the Crown has been brought before the Federal Court as a defendant and there is no question raised as to the jurisdiction of the Federal Court to hear the suit brought by Foundation against the Crown. In the McNamara case, the Chief Justice, at p. 662, said:

What remains for consideration here on the question of jurisdiction is whether there is applicable federal law involved in the cases in appeal to support the competence of the Federal Court to entertain the Crown’s action, both with respect to the claim for damages and the claim on the surety bond. In the Quebec North Shore Paper Company case, this Court referred to what I may for convenience call Crown law as follows:

… It should be recalled that the law respecting the Crown came into Canada as part of the public or constitutional law of Great Britain, and there can be no pretence that that law is provincial law. In so far as there is a common law associated with the Crown’s position as a litigant it is federal law in relation to the Crown in right of Canada, just as it is provincial law in relation to the Crown in right of a Province, and is subject to modification in each case by the competent Parliament or Legislature. Crown law does not enter into the present case.

This passage cannot be taken as saying that it is enough that the Crown is a party to a contract, on which it is suing as a plaintiff, to satisfy the requirement of applicable federal law. The situation is different if Crown liability is involved because in that respect there were

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existing common law rules respecting Crown liability in contract and immunity in tort, rules which have been considerably modified by legislation. Where it is not the Crown’s liability that is involved but that of the other party to a bilateral contract, a different situation prevails as to the right of the Crown to compel that person to answer process issued out of the Federal Court.

In the main action, the Court will have to deal with the allegations of Foundation that damage was caused to the foundation wall by the operations of Fuller and of negligence on the part of the Crown in respect of those operations. Fuller is not before the Court as a party, since Foundation did not join Fuller as a defendant. The Crown is seeking to bring Fuller before the Court by means of the third party proceedings.

In order to succeed in its third party claim, the Crown must first establish its own liability to Foundation. That liability involves “federal law”, as is pointed out in the second passage from the McNamara case cited above.

The Crown’s liability in tort is the result of federal legislation, the Crown Liability Act, R.S.C. 1970, c. C-38. The enforcement of contractual liability against the Crown by court proceedings has evolved over a period of time and is the result of federal legislation. At common law a writ could not issue out of His Majesty’s courts addressed to His Majesty. To overcome this difficulty, the procedure by way of a petition of right was evolved. At the time of Confederation, the position was that a petitioner might obtain his remedy against the Crown if he would have had a remedy as against a fellow subject. In 1875 Parliament enacted the Petition of Right Act. In order to proceed, the petitioner had to obtain a fiat from the Governor General “that right be done”. This Act was replaced by the Petition of Right Act, 1876. The necessity for the issuance of a fiat continued until 1951. As a result of an amendment to the Petition of Right Act in that year, S.C. 1951, c. 33, the fiat was no longer required.

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The Petition of Right Act was repealed when the Federal Court Act, R.S.C. 1970 (2nd Supp.), c. 10, was enacted at which time provision was made in subss. (1) and (2) of s. 17 to enable the Federal Court exclusively to hear cases where relief was claimed against the Crown for, inter alia, claims arising out of contract. Those subsections are as follows:

17. (1) The Trial Division has original jurisdiction in all cases where relief is claimed against the Crown and, except where otherwise provided, the Trial Division has exclusive original jurisdiction in all such cases.

(2) Without restricting the generality of subsection (1), the Trial Division has exclusive original jurisdiction, except where otherwise provided, in all cases in which the land, goods or money of any person are in the possession of the Crown or in which the claim arises out of a contract entered into by or on behalf of the Crown, and in all cases in which there is a claim against the Crown for injurious affection.

The position is, therefore, that the Crown has been properly impleaded in the Federal Court in respect of claims against it founded in contract and in tort. Its liability to be sued in contract or in tort is the consequence of federal legislation. To succeed in its claim against a third party for indemnification or contribution, it must establish its liability to the plaintiff, Foundation. That liability can only be established in the suit against the Crown in the Federal Court. The conduct of Fuller in respect of its blasting operations is an issue in the main action by Foundation and is also in issue in the third party proceedings against Fuller.

The position is also that as far as the Crown’s claim for contribution is concerned, it could not be pursued in the Courts of Ontario. The Court of Appeal of Ontario has held in Cohen v. McCord[2], that a claim for contribution made under The Negligence Act has to be made in the principal action and cannot be asserted in fresh legal proceedings after judgment has been rendered in the

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principal action. This judgment was followed and applied in Rickwood v. Town of AyImer[3], at pp. 703-5, and in Paul Papp Ltd. v. Fitzpatrick[4], at p. 570.

The judgment of the Court of Appeal in the present case takes the position that, for the purposes of s. 101 of the British North America Act, an action and a third party proceeding are two separate proceedings; that the Federal Court has jurisdiction only if a proceeding is to enforce a right conferred by “federal law”; and that the third party proceeding in this case is to enforce rights conferred by provincial law. It is said that it is not sufficient to make the third party claim one based on “federal law” because federal law enters into the creation of the conditions precedent to the existence of the right claimed. It is also said that this is the law established by the McNamara case.

With respect, it should be noted that in the final paragraph of the McNamara case, at p. 664, after noting that since the statement of claim in the main action was struck out, the consequential proceedings also fell, the following passage was added:

I would, however, observe that if there had been jurisdiction in the Federal Court there could be some likelihood of proceedings for contribution or indemnity being similarly competent, at least between the parties, in so far as the supporting federal law embraced the issues arising therein.

While it is clear that an action and third party proceeding are separate proceedings, as was stated by this Court in The Bank of Montreal v. The Royal Bank of Canada[5], I do not share the view that the interrelationship of those proceedings in considering the jurisdiction of the Federal Court under s. 101 can be ignored. The existence of a judgment given by the Federal Court against the Crown in the principal action is the very foundation of the Crown’s third party claim, and that judgment would be a pronouncement of “federal

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law”. In my opinion that is a sufficient basis on which to found a jurisdiction in the Federal Court to deal with the third party claim pursuant to para. 17(4)(a) of the Federal Court Act, which provides as follows:

(4) The Trial Division has concurrent original jurisdiction

(a) in proceedings of a civil nature in which the Crown or the Attorney General of Canada claims relief; and

(b) in proceedings in which relief is sought against any person for anything done or omitted to be done in the performance of his duties as an officer or servant of the Crown.

I am reinforced in this conclusion by a consideration of the rather startling consequence which would result from the other view. Suits against the Crown have to be brought in the Federal Court which, under s. 17(1) and (2) of the Federal Court Act, has exclusive jurisdiction in such matters. If the Crown cannot take third party proceedings in the Federal Court, where the claim against it is based on negligence, it would mean that the whole issue would have to be retried in another court. In Ontario, at least, where a Crown claim for contribution was based on the Ontario Negligence Act, in the light of the Cohen v. McCord case, this could not be done and the Crown would be without a remedy.

In my opinion, the appeal should be allowed and the judgment of the Federal Court of Appeal set aside. I would direct that the Crown’s third party notice be restored. The Crown should be entitled to costs as against Fuller in this Court and in the Courts below.

The judgment of Pigeon, Dickson, Beetz, Estey, Pratte and McIntyre JJ. was delivered by

PIGEON J.—A special feature of the constitution enacted for Canada by the British North America Act is the provision for provincial superior courts of general jurisdiction to be established in cooperation by each province and by the federal authority. While it is usual to refer to these courts as provincial, they are so only in a limited sense.

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Under s. 96 the federal government plays the most important role in their establishment: the appointment of the judges and, under s. 100, their salaries are fixed and provided by Parliament. As was aptly said in Valin v. Langlois[6], (at pp. 19-20):

… These courts are surely bound to execute all laws in force in the Dominion, whether they are enacted by the Parliament of the Dominion or by the Local Legislatures, respectively. They are not mere local courts for the administration of the local laws passed by the Local Legislatures of the Provinces in which they are organized. They are the courts which were the established courts of the respective Provinces before Confederation, ….They are the Queen’s Courts, bound to take cognizance of and execute all laws, whether enacted by the Dominion Parliament or the Local Legislatures,…

The reason for such provincial courts of general jurisdiction is well known, it was a desire to avoid the difficulties of divided jurisdiction. However, Parliament was empowered by s. 101 to establish not only a “General Court of Appeal for Canada”, but also “additional Courts for the better Administration of the Laws of Canada”. As a result of the extensive jurisdiction conferred upon the Federal Court of Canada under the authority of this provision, some of the difficulties that were sought to be avoided by a system of courts of general jurisdiction have now to be faced. It is settled that in s. 101 the expression “Laws of Canada” means laws enacted by Parliament. However, the present case shows that problems remain in the application of this principle.

Foundation Company of Canada Limited (“Foundation”) has filed a claim against the Government of Canada for alleged breaches of a building contract and negligence in respect of blasting operations carried on by another contractor, Thomas Fuller Construction Co. (1958) Limited (“Fuller”). The legal basis of this claim is obviously the Crown Liability Act, R.S.C. 1970, c. C-38, a law of Canada. Before filing a statement of

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defence, the Crown has filed against Fuller a third party notice the material part of which reads:

TAKE NOTICE that this action has been brought by the Plaintiff against the Defendant for recovery of damages in respect of loss alleged to have been sustained by the Plaintiff in respect of damage to a foundation wall at the site of the construction of the Research Centre of the Health Protection Branch of the Department of National Health and Welfare at Tunney’s Pasture in the City of Ottawa in the Province of Ontario on or about October 23, 1974. The claim of the Plaintiff is set out in the Statement of Claim herein, a copy of which is served with this Notice.

The Deputy Attorney General of Canada, on behalf of the Defendant, claims the Defendant is entitled to be indemnified by you against liability to the Plaintiff pursuant to the contract between the Defendant and yourself entered into on or about July 8, 1974 for the extension of site services at the Research Centre of the Health Protection Branch of the Department of National Health and Welfare at Tunney’s Pasture in the City of Ottawa, in the Province of Ontario, on the ground that the damage to a foundation wall as aforesaid was caused by, arose out of, was related to, or was occasioned by your activities in executing work under that contract.

The Deputy Attorney General of Canada, on behalf of the Defendant, claims the Defendant is entitled to contribution from you pursuant to The Negligence Act R.S.O. 1970, Chapter 296, on the ground that any damage or loss suffered by the Plaintiff in respect of the damage to a foundation wall as aforesaid was caused by your negligence or the negligence of your officers, servants, and agents, all acting within the course of their employment, for whose negligence you are responsible.

This Third Party Notice was struck out by Décary J. on the basis that there was no federal law invoked to support the jurisdiction of the Court to entertain it. This judgment was affirmed by the Federal Court of Appeal[7] Jackett C.J., saying in particular (at p. 879):

In my view, for purposes of section 101, an action and a third party proceeding are two separate proceedings; and, for the Federal Court to have jurisdiction in either proceeding, that proceeding must be to enforce a right conferred by a “federal law”. Furthermore, in my view,

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the third party proceeding in this case is to enforce a right claimed to have been conferred by the ordinary provincial law of contract as applicable between subject and subject or by the Ontario Negligence Act, neither of which is a “federal law”; and in my view, such a claim does not become a claim based on a “federal law” because the operation of a federal law enters into the creation of the conditions precedent to the existence of the right that is being claimed under the provincial law. (Foot-note omitted)

In my view, the first statement rests on conclusive authority. In The Bank of Montreal v. The Royal Bank of Canada[8], the Crown was claiming from the Bank of Montreal in the Exchequer Court the reimbursement of cheques drawn on it and paid on forged endorsements. By third party notice, the Bank was claiming indemnity from the Royal Bank of Canada as a prior endorser. Duff C.J. said, giving the unanimous judgment of the Court (at pp. 315-316):

… The Supreme Court of Ontario has jurisdiction, by virtue of the statutes and rules by which it is governed, to entertain and dispose of claims in what are known as third party proceedings. Claims for indemnity, for example, from a third party, by a defendant in respect of the claim in the principal action against him, can be preferred and dealt with in the principal action. But there can be no doubt that the proceedings against the third party is a substantive proceeding and not a mere incident of the principal action. These rules are in essence rules of practice, not of law, introduced for the purpose of convenience and to prevent circuity of proceedings. We think, therefore, that section 30, in virtue of the sub-paragraph mentioned, by which the Exchequer Court possesses “concurrent original jurisdiction * *. * in * * * actions * * * of a civil nature * * * in which the Crown is plaintiff,” does not make it competent to the Exchequer Court to deal with the claim in question.

The remaining point concerns the language of subparagraph (a) by force of which the Court is given jurisdiction in all cases relating to the revenue in which it is sought to enforce any law of Canada * * *

We do not doubt that the words “to enforce any law of Canada” would have, standing alone, sufficient scope to

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include a claim under section 50 of the Bills of Exchange Act. No doubt the principal action is strictly within the words “cases relating to the revenue.” There is also, no doubt, a sense in which the third party claim relates to the revenue since it is a claim to have the third party indemnify the defendant in respect of a debt which the defendant is called upon to pay to the Crown. There is a great deal to be said also on grounds of convenience in favour of investing the Court with jurisdiction to entertain such claims for indemnity. On the whole, however, we think, having regard to the context, that this claim is not within the intendment of sub-paragraph (a). (Underlining added).

In McNamara Construction v. The Queen[9], it was held that the Crown could not bring action for breach of a construction contract in the Federal Court. Laskin C.J. said, speaking for the Court, (at p. 662) after referring to a passage in Quebec North Shore Paper Company v. Canadian Pacific Limited[10] (at p. 1063):

This passage cannot be taken as saying that it is enough that the Crown is a party to a contract, on which it is suing as a plaintiff, to satisfy the requirement of applicable federal law. The situation is different if Crown liability is involved because in that respect there were existing common law rules respecting Crown liability in contract and immunity in tort, rules which have been considerably modified by legislation. Where it is not the Crown’s liability that is involved but that of the other party to a bilateral contract, a different situation prevails as to the right of the Crown to compel that person to answer to process issued out of the Federal Court.

At the end of this judgment Laskin C.J., after concluding that the statements of claim should be struck out, added (at p. 664):

… In view of this conclusion, the consequential proceedings between the co-defendants and the third party proceedings must likewise fall, and it is unnecessary to deal with the issues raised as to their validity or propriety. I would, however, observe that if there had been jurisdiction in the Federal Court there could be some likelihood of proceedings for contribution or indemnity being similarly competent, at least between the parties,

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in so far as the supporting federal law embraced the issues arising therein ….

The question in the present case is, as I see it, “Does federal law embrace the issues on the third party notice?” In my view it does not. The Crown Liability Act deals only with the liability which is asserted in the main action. While without such liability there would be no claim over, such claim does not arise out of this liability but only out of the contract and of the Negligence Act. It appears to me that the reasoning in The Bank of Montreal case is applicable a fortiori. In that case as in the instant case the defendant could not claim against the third party unless it was found liable to the plaintiff and it was accepted that the claim for such liability was within the jurisdiction. However, it was held that this did not bring in the claim against the third party because “this is a substantive proceeding and not a mere incident of the principal action”. In The Bank of Montreal case both claims arose under federal law, the Bills of Exchange Act, and, therefore, the third party claim could have been brought within the jurisdiction of the Exchequer Court by appropriate legislation as s. 23 of the Federal Court Act now does. But, although there was no constitutional difficulty, this Court declined to construe the legislation giving jurisdiction over the claim in the main action as extending to the claim for indemnity against a third party. What I have quoted shows that the Court was conscious of the inconvenience resulting from this conclusion. However, it did not feel that this authorized the extension of the general jurisdiction of the federal tribunal by implication. In the present case the objection to the jurisdiction is not founded on the construction of the statute, but arises out of the constitutional restriction of Parliament’s power which, as concerns the Canadian judicature, restricts it to the establishment of “Courts for the better Administration of the Laws of Canada”. In the present case the laws on which the third party notice is founded are not those of Canada but those of the Province of Ontario.

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In so far as the third party notice is based on negligence, it is alleged on behalf of the Crown that the remedy sought cannot be otherwise obtained and reference is made to the judgments of the Ontario Court of Appeal in Cohen v. McCord[11] and Rickwood v. Town of Aylmer[12]. In the first case, it was held that when a plaintiff had abandoned his action against one of two defendants charged with negligence, the remaining defendant could not after judgment claim contribution from the other. In the second case, the plaintiff and two defendants had been held guilty of negligence in varying degrees. One of the two defendants having counter‑claimed against the plaintiff and obtained partial recovery accordingly, the plaintiff was held to be prevented from recovering a contribution from the other defendant in proportion to this defendant’s degree of negligence, for the sole reason that he had failed to claim such contribution before judgment was rendered on the main action. I am not at all sure that the construction of the statute which gave this unsatisfactory result was correct. Section 2 of the Negligence Act is an enactment dealing with substantive law and nothing in my view shows an intention that the procedural provisions in other sections of the Act operate to circumscribe its application. When the Cohen case was decided those procedural provisions did not contemplate a claim for contribution based on a settlement. It seems to me that the addition of this provision shows that the right of contribution created by s. 2 is not procedure dependent but a substantive right: it may be enforced even when the liability of the tort-feasor claiming contribution is determined by a settlement rather than by judgment in an action. In a recent case the narrow view of the effect of a statutory alteration of the law in respect of ground water was overruled (National Capital Commission v. Pugliese[13]).

Even if I had to accept the view taken by the Ontario Court of Appeal of the effect of the Negligence Act, I would not agree that this could justify a conclusion that the Crown must be

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allowed to institute third party proceedings in the Federal Court so as not to be deprived of the benefit of The Negligence Act. It must be considered that the basic principle governing the Canadian system of judicature is the jurisdiction of the superior courts of the provinces in all matters federal and provincial. The federal Parliament is empowered to derogate from this principle by establishing additional courts only for the better administration of the laws of Canada. Such establishment is not therefore necessary for the administration of these laws. Consequently, I fail to see any basis for the application of the ancillary power doctrine which is limited to what is truly necessary for the effective exercise of Parliament’s legislative authority. If it is considered desirable to be able to take advantage of provincial legislation on contributory negligence which is not meant to be exercised outside the courts of the province, the proper solution is to make it possible to have those rights enforced in the manner contemplated by the general rule of the Constitution of Canada, that is before the superior court of the province.

I would dismiss the appeal with costs.

Appeal dismissed with costs, MARTLAND J. dissenting.

Solicitor for the appellant: Roger Tassé, Deputy Attorney General of Canada, Ottawa.

Solicitors for the respondent Thomas Fuller Construction Co. (1958) Ltd.: Hewitt, Hewitt, Nesbitt & Reid, Ottawa.