SUPREME COURT OF
CANADA
Between:
Her
Majesty The Queen in Right of Canada
Appellant
/ Respondent on cross-appeal
and
Imperial
Tobacco Canada Limited
Respondent
/ Appellant on cross-appeal
-
and -
Attorney
General of Ontario and Attorney General of British Columbia
Interveners
And
Between:
Attorney
General of Canada
Appellant
/ Respondent on cross-appeal
and
Her
Majesty The Queen in Right of British Columbia
Respondent
Imperial
Tobacco Canada Limited, Rothmans, Benson & Hedges Inc.,
Rothmans
Inc., JTI-MacDonald Corp., R.J. Reynolds Tobacco Company,
R.J.
Reynolds Tobacco International Inc., B.A.T. Industries p.l.c.,
British
American Tobacco (Investments) Limited, Carreras Rothmans Limited,
Philip
Morris USA Inc. and Philip Morris International Inc.
Respondents
/ Appellants on cross-appeal
-
and -
Attorney
General of Ontario, Attorney General of British Columbia
and
Her Majesty The Queen in Right of the Province of New Brunswick
Interveners
Coram: McLachlin C.J. and Binnie, LeBel, Deschamps, Fish, Abella,
Charron, Rothstein and Cromwell JJ.
|
Reasons
for Judgment:
(paras. 1 to 151)
|
McLachlin C.J. (Binnie, LeBel, Deschamps, Fish, Abella,
Charron, Rothstein and Cromwell JJ. concurring)
|
R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45
Her Majesty
The Queen in Right
of Canada Appellant/Respondent on cross‑appeal
v.
Imperial Tobacco Canada Limited Respondent/Appellant on cross‑appeal
and
Attorney
General of Ontario and
Attorney General of British Columbia Interveners
‑ and ‑
Attorney General of Canada Appellant/Respondent on cross‑appeal
v.
Her Majesty The Queen in Right of British Columbia Respondent
and
Imperial
Tobacco Canada Limited, Rothmans, Benson
& Hedges
Inc., Rothmans Inc., JTI‑MacDonald Corp.,
R.J. Reynolds
Tobacco Company, R.J. Reynolds
Tobacco
International Inc., B.A.T. Industries p.l.c.,
British
American Tobacco (Investments) Limited,
Carreras Rothmans Limited,
Philip Morris USA Inc.
and Philip Morris International Inc. Respondents/Appellants
on cross‑appeal
and
Attorney
General of Ontario, Attorney General of
British
Columbia and Her Majesty The Queen in
Right of the Province of New Brunswick Interveners
Indexed as: R. v. Imperial Tobacco Canada Ltd.
2011 SCC 42
File Nos.: 33559, 33563.
2011: February 24; 2011: July 29.
Present: McLachlin C.J. and Binnie, LeBel, Deschamps, Fish,
Abella, Charron, Rothstein and Cromwell JJ.
on
appeal from the court of appeal for british columbia
Civil procedure — Third‑party claims —
Motion to strike — Tobacco manufacturers being sued by provincial government to
recover health care costs of tobacco‑related illnesses, and by consumers
of “light” or “mild” cigarettes for damages and punitive damages — Tobacco
companies issuing third‑party notices to federal government claiming
contribution and indemnity — Whether plain and obvious that third‑party
claims disclose no reasonable cause of action.
Torts — Negligent misrepresentation — Failure to
warn — Negligent design — Duty of care — Proximity — Tobacco manufacturers
being sued by provincial government and consumers and issuing third‑party
notices to federal government claiming contribution and indemnity — Federal
government claiming representations constituted government policy immune from
judicial review — Whether facts as pleaded establish prima facie duty of care —
If so, whether conflicting policy considerations negate such duty.
Torts — Provincial statutory scheme establishing
rights of action against tobacco manufacturers and suppliers — Whether federal
government liable as a “manufacturer” under the Tobacco Damages and Health Care
Costs Recovery Act, S.B.C. 2000, c. 30, or a “supplier” under the Business
Practices and Consumer Protection Act, S.B.C. 2004, c. 2, and the Trade
Practice Act, R.S.B.C. 1996, c. 457.
The
appeal concerns two cases before the courts in British Columbia. In the Costs
Recovery case, the Government of British Columbia is seeking to recover,
pursuant to the Tobacco Damages and Health Care Costs Recovery Act (“CRA”),
the cost of paying for the medical treatment of individuals suffering from
tobacco‑related illnesses from a group of tobacco companies, including
Imperial. British Columbia alleges that by 1950, the tobacco companies knew or
ought to have known that cigarettes were harmful to one’s health, and that they
failed to properly warn the public about the risks associated with smoking
their product. In the Knight case, a class action was brought against
Imperial alone on behalf of class members who purchased “light” or “mild”
cigarettes, seeking a refund of the cost of the cigarettes and punitive
damages. The class alleges that the levels of tar and nicotine listed on
Imperial’s packages for light and mild cigarettes did not reflect the actual
deliveries of toxic emissions to smokers, and alleges that the smoke produced
by light cigarettes was just as harmful as that produced by regular cigarettes.
In
both cases, the tobacco companies issued third‑party notices to the
Government of Canada, alleging that if the tobacco companies are held liable to
the plaintiffs, they are entitled to compensation from Canada for negligent
misrepresentation, negligent design and failure to warn, as well as at equity.
They also allege that Canada would itself be liable as a “manufacturer” under
the CRA or a “supplier” under the Business Practices and Consumer
Protection Act and the Trade Practice Act, and that they are
entitled to contribution and indemnity from Canada pursuant to the Negligence
Act. Canada brought motions to strike the third‑party notices,
arguing that it was plain and obvious that the third‑party claims failed
to disclose a reasonable cause of action. In both cases, the chambers judges
struck all of the third‑party notices. The British Columbia Court of
Appeal allowed the tobacco companies’ appeals in part. A majority held
that the negligent misrepresentation claims arising from Canada’s alleged duty
of care to the tobacco companies in both the Costs Recovery case and the
Knight case should proceed to trial. A majority in the Knight case
further held that the negligent misrepresentation claim based on Canada’s
alleged duty of care to consumers should proceed, as should the negligent
design claim. The court unanimously struck the remainder of the tobacco
companies’ claims.
Held: The appeals should be allowed and the claims should be struck out.
The tobacco companies’ cross‑appeals should be dismissed.
On
a motion to strike, a claim will only be struck if it is plain and obvious,
assuming the facts pleaded to be true, that the pleading discloses no
reasonable cause of action. The approach must be generous, and err on the side
of permitting a novel but arguable claim to proceed to trial. However,
the judge cannot consider what evidence adduced in the future might or might
not show. Here, it is plain and obvious that none of the tobacco companies’
claims against Canada have a reasonable chance of success.
Canada’s Alleged Duties of Care to Smokers in the Costs Recovery
Case
In
the Costs Recovery case, the private law claims against Canada for
contribution and indemnity based on alleged breaches of a duty of care to
smokers must be struck. A third party may only be liable for contribution
under the Negligence Act if it is directly liable to the plaintiff, in
this case, British Columbia. Here, even if Canada breached duties to smokers,
this would have no effect on whether it was liable to British Columbia.
The Claims for Negligent Misrepresentation
There
are two relationships at issue in these claims: one between Canada and
consumers and one between Canada and tobacco companies. In the Knight
case, Imperial alleges that Canada negligently represented the health
attributes of low‑tar cigarettes to consumers. In both the Knight
case and the Costs Recovery case, the tobacco companies allege that
Canada made negligent misrepresentations to the tobacco companies.
The
facts as pleaded do not bring Canada’s relationship with consumers and the
tobacco companies within a settled category of negligent misrepresentation.
Accordingly, to determine whether the alleged causes of action have a
reasonable prospect of success, the general requirements for liability in tort
must be met. At the first stage, the question is whether the facts disclose a
relationship of proximity in which failure to take reasonable care might
foreseeably cause loss or harm to the plaintiff. In a claim of negligent
misrepresentation, both of these requirements for a prima facie duty of
care are established if there was a “special relationship” between the
parties. A special relationship will be established where: (1) the defendant
ought reasonably to foresee that the plaintiff will rely on his or her
representation; and (2) reliance by the plaintiff would be reasonable in the
circumstances of the case. If proximity is established, a prima facie
duty of care arises and the analysis proceeds to the second stage, which asks
whether there are policy reasons why this prima facie duty of care
should not be recognized.
Here,
on the facts as pleaded, Canada did not owe a prima facie duty of care
to consumers. The relationship between the two was limited to Canada’s
statements to the general public that low‑tar cigarettes are less
hazardous. There were no specific interactions between Canada and the class
members. Consequently, a finding of proximity in this relationship must arise
from the governing statutes. However, the relevant statutes establish only
general duties to the public, and no private law duties to consumers. In light
of the lack of proximity, this claim in the Knight case should be struck
at the first stage of the analysis.
As
for the tobacco companies, the facts pleaded allege a history of interactions
between Canada and the tobacco companies capable of establishing a special
relationship of proximity giving rise to a prima facie duty of care.
The allegations are that Canada assumed the role of adviser to a finite number
of manufacturers and that there were commercial relationships entered into
between Canada and the companies based in part on the advice given to the
companies by government officials, going far beyond the sort of statements made
by Canada to the public at large. Furthermore, Canada’s regulatory powers over
the manufacturers coupled with its specific advice and its commercial
involvement could be seen as supporting a conclusion that Canada ought
reasonably to have foreseen that the tobacco companies would rely on the
representations and that such reliance would be reasonable in the pleaded
circumstance.
Canada’s
alleged negligent misrepresentations do not give rise to tort liability,
however, because of conflicting policy considerations. The alleged
representations constitute protected expressions of government policy. Core
government policy decisions protected from suit are decisions as to a course or
principle of action that are based on public policy considerations, such as
economic, social and political factors, provided they are neither irrational
nor taken in bad faith. The representations in this case were part and parcel
of a government policy, adopted at the highest level in the Canadian government
and developed out of concern for the health of Canadians and the individual and
institutional costs associated with tobacco‑related disease, to encourage
people who continued to smoke to switch to low‑tar cigarettes.
The
claims for negligent misrepresentation should also fail because they would
expose Canada to indeterminate liability. Recognizing a duty of care for
representations to the tobacco companies would effectively amount to a duty to
consumers. While the quantum of damages owed by Canada to the companies in
both cases would depend on the number of smokers and the number of cigarettes
sold, Canada had no control over the number of people who smoked light
cigarettes.
The Claims for Failure to Warn
The
tobacco companies make two allegations for failure to warn: (1) that Canada
directed the tobacco companies not to provide warnings on cigarette packages
about the health hazards of cigarettes and (2) that Canada failed to warn the
tobacco companies about the dangers posed by the strains of tobacco it designed
and licensed. These two claims should be struck. The crux of the first claim
is essentially the same as the negligent misrepresentation claim, and should be
rejected for the same policy reasons. The Minister of Health’s recommendations
on warning labels were integral to the government’s policy of encouraging
smokers to switch to low‑tar cigarettes. As such, they cannot ground a
claim in failure to warn. The same is true of the second claim. While the
tort of failure to warn requires evidence of a positive duty towards the
plaintiff, nothing in the third‑party notices suggests that Canada was
under such a positive duty here. A plea of negligence, without more, will not
suffice to raise a duty to warn. In any event, such a claim would fail for the
policy reasons applicable to the negligent misrepresentation claim.
The Claims for Negligent Design
The
tobacco companies have brought two types of negligent design claims against
Canada. They submit that Canada breached its duty of care to the tobacco
companies when it negligently designed its strains of low‑tar tobacco.
In the Knight case, Imperial submits that Canada breached its duty of
care to consumers of light and mild cigarettes. The two negligent design
claims establish a prima facie duty of care. With respect to Canada’s
design of low‑tar tobacco strains, the proximity alleged with the tobacco
companies is not based on a statutory duty, but on commercial interactions
between Canada and the tobacco companies. In the Knight case also, it
is at least arguable that Canada was acting in a commercial capacity towards
the consumers of light and mild cigarettes when it designed its strains of
tobacco. However, the decision to develop low‑tar strains of tobacco on
the belief that the resulting cigarettes would be less harmful to health is a
decision that constitutes a course or principle of action based on Canada’s
health policy and based on social and economic factors. As a core government
policy decision, it cannot ground a claim for negligent design. These claims
should accordingly be struck.
Liability as a “Manufacturer” and a “Supplier”
The
tobacco companies’ contribution claim in the Costs Recovery case that
Canada could qualify as a “manufacturer” under the CRA should be
struck. It is plain and obvious that the federal government does not qualify
as a manufacturer of tobacco under that Act. When the Act is read in
context and all of its provisions are taken into account, it is apparent that
the British Columbia legislature did not intend Canada to be liable as a
manufacturer. This is confirmed by the text of the statute, the intent of the
legislature in adopting the Act, and the broader context of the relationship between
the province and the federal government. Holding Canada accountable under the CRA
would defeat the legislature’s intention of transferring the health‑care
costs resulting from tobacco‑related wrongs from taxpayers to the tobacco
industry. Similarly, the tobacco companies cannot rely on the recently adopted
Health Care Costs Recovery Act in an action for contribution under the CRA.
Finally, Canada could not be liable for contribution under the Negligence
Act or at common law since it is not directly liable to British Columbia.
Imperial’s
claim in the Knight case that Canada could qualify as a “supplier” under
the Trade Practice Act and the Business Practices and Consumer
Protection Act which replaced it should also be struck. Canada’s purpose
for developing and promoting tobacco as described in the third‑party
notice suggests that it was not acting “in the course of business” or “in the
course of the person’s business” as those phrases are used in those statutes.
Those phrases must be understood as limited to activities undertaken for a
commercial purpose. Here, it is plain and obvious from the facts pleaded that
Canada did not promote the use of low‑tar cigarettes for a commercial
purpose, but for a health purpose. Canada is therefore not a supplier and is
not liable under those statutes.
Claims for Equitable Indemnity and Procedural Considerations
The
tobacco companies’ claims of equitable indemnity should be struck. Equitable
indemnity is a narrow doctrine, confined to situations of an express or implied
understanding that a principal will indemnify its agent for acting on the
directions given. When Canada directed the tobacco industry about how it
should conduct itself, it was doing so in its capacity as a government
regulator that was concerned about the health of Canadians. Under such
circumstances, it is unreasonable to infer that Canada was implicitly promising
to indemnify the industry for acting on its request.
Finally,
the claims for declaratory relief should be struck. The tobacco companies’
ability to mount defences would not be severely prejudiced if Canada was no
longer a third party in the litigation.
Cases Cited
Applied:
Odhavji Estate v. Woodhouse, 2003 SCC 69,
[2003] 3 S.C.R. 263; Hunt v. Carey Canada Inc., [1990] 2 S.C.R.
959; Anns v. Merton London Borough Council, [1978] A.C. 728; Cooper
v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537; Hercules Managements
Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165; referred to: Syl
Apps Secure Treatment Centre v. B.D., 2007 SCC 38, [2007] 3 S.C.R. 83;
Attorney General of Canada v. Inuit Tapirisat of
Canada, [1980] 2 S.C.R. 735; Donoghue v. Stevenson, [1932]
A.C. 562; Hedley Byrne & Co. v.
Heller & Partners, Ltd.,
[1963] 2 All E.R. 575; Operation Dismantle Inc. v. The Queen, [1985] 1
S.C.R. 441; Giffels Associates Ltd. v. Eastern Construction Co.,
[1978] 2 S.C.R. 1346; Childs v.
Desormeaux, 2006 SCC 18, [2006] 1 S.C.R. 643; Hill v. Hamilton‑Wentworth
Regional Police Services Board, 2007 SCC 41, [2007] 3 S.C.R. 129; Canadian
National Railway Co. v. Norsk Pacific Steamship Co., [1992] 1 S.C.R. 1021; Bow
Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., [1997] 3
S.C.R. 1210; Fullowka v. Pinkerton’s of Canada Ltd., 2010 SCC 5, [2010]
1 S.C.R. 132; Heaslip Estate v. Mansfield Ski Club Inc., 2009 ONCA 594,
96 O.R. (3d) 401; Eliopoulos Estate v. Ontario (Minister of Health and Long‑Term
Care) (2006), 276 D.L.R. (4th) 411; Just
v. British Columbia, [1989] 2 S.C.R. 1228; Home Office v. Dorset Yacht
Co., [1970] 2 W.L.R. 1140; Brown v. British Columbia (Minister of
Transportation and Highways), [1994] 1 S.C.R. 420; Swinamer
v. Nova Scotia (Attorney General), [1994] 1 S.C.R. 445; Lewis (Guardian ad litem of) v. British
Columbia, [1997] 3 S.C.R. 1145; X v. Bedfordshire County Council,
[1995] 3 All E.R. 353; Stovin v. Wise, [1996] A.C. 923; Barrett v.
Enfield London Borough Council, [2001] 2 A.C. 550; Sutherland Shire
Council v. Heyman (1985), 157 C.L.R. 424; Pyrenees Shire Council v. Day,
[1998] HCA 3, 192 C.L.R. 330; Office of Personnel Management v. Richmond,
496 U.S. 414 (1990); United States v. Neustadt, 366 U.S. 696 (1961); Dalehite
v. United States, 346 U.S. 15 (1953); United States v. Gaubert, 499
U.S. 315 (1991); Berkovitz v. United States, 486 U.S. 531 (1988); United States v. S.A. Empresa de Viacao Aerea Rio
Grandense (Varig Airlines), 467 U.S. 797 (1984); Design Services
Ltd. v. Canada, 2008 SCC 22, [2008] 1 S.C.R. 737; Day v. Central
Okanagan (Regional District), 2000 BCSC 1134, 79 B.C.L.R. (3d) 36; Elias
v. Headache and Pain Management Clinic, 2008 CanLII 53133; British
Columbia v. Imperial Tobacco Canada Ltd., 2005 SCC 49, [2005] 2 S.C.R. 473;
Blackwater v. Plint, 2005 SCC 58, [2005] 3 S.C.R. 3; Parmley v.
Parmley, [1945] S.C.R. 635.
Statutes and Regulations Cited
Business Practices and Consumer Protection Act, S.B.C. 2004, c. 2,
s. 1(1) “supplier”.
Department of Agriculture and Agri-Food Act, R.S.C. 1985, c. A‑9, s. 4 .
Department of Health Act, S.C. 1996,
c. 8, s. 4(1) .
Federal Tort Claims Act, 28 U.S.C. §§2680(a), (h).
Health Care Costs Recovery Act, S.B.C. 2008, c. 27, ss. 8(1), 24(3)(b).
Negligence Act, R.S.B.C. 1996,
c. 333.
Supreme Court Civil Rules, B.C. Reg.
168/2009, r. 9‑5.
Supreme Court Rules, B.C. Reg. 221/90,
rr. 19(24), (27).
Tobacco Act, S.C. 1997, c. 13,
s. 4 .
Tobacco Damages and Health Care Costs Recovery Act, S.B.C. 2000, c. 30, ss. 1(1) “manufacture”,
“manufacturer”, 2, 3(3)(b).
Tobacco Products Control Act, R.S.C.
1985, c. 14 (4th Supp.), s. 3 [rep. 1997, c. 13, s. 64].
Trade Practice Act, R.S.B.C.
1996, c. 457, s. 1 “supplier”.
Authors Cited
British Columbia. Official Report of Debates of the Legislative
Assembly (Hansard), vol. 20, 4th Sess., 36th Parl., June 7, 2000,
p. 16314.
New Oxford Dictionary of English.
Oxford: Clarendon Press, 1998, “policy”.
APPEAL
and CROSS‑APPEAL from a judgment of the British Columbia Court of Appeal
(Hall, Saunders, Lowry, Tysoe and Smith JJ.A.), 2009 BCCA 541, 99 B.C.L.R.
(4th) 93, 313 D.L.R. (4th) 695, [2010] 2 W.W.R. 9, 280 B.C.A.C. 160, 474 W.A.C.
160, [2009] B.C.J. No. 2445 (QL), 2009 CarswellBC
3300, reversing in part a decision of Satanove J. striking out third‑party
notices, 2007 BCSC 964, 76 B.C.L.R. (4th) 100, [2008] 4
W.W.R. 156, [2007] B.C.J. No. 1461 (QL), 2007 CarswellBC 1806 (sub nom.
Knight v. Imperial Tobacco Canada Ltd.). Appeal allowed and cross‑appeal
dismissed.
APPEAL
and CROSS‑APPEAL from a judgment of the British Columbia Court of Appeal
(Hall, Saunders, Lowry, Tysoe and Smith JJ.A.), 2009 BCCA 540, 98 B.C.L.R.
(4th) 201, 313 D.L.R. (4th) 651, [2010] 2 W.W.R. 385, 280 B.C.A.C. 100, 474
W.A.C. 100, [2009] B.C.J. No. 2444 (QL), 2009 CarswellBC 3307, reversing
in part a decision of Wedge J. striking out third‑party notices, 2008 BCSC 419, 82 B.C.L.R. (4th) 362, 292 D.L.R. (4th) 353, [2008] 12
W.W.R. 241, [2008] B.C.J. No. 609 (QL), 2008 CarswellBC 687 (sub nom.
British Columbia v. Imperial Tobacco Canada Ltd.). Appeal allowed and
cross‑appeal dismissed.
John S. Tyhurst,
Paul Vickery and Travis Henderson, for the appellant/respondent
on cross‑appeal Her Majesty the Queen in Right of Canada (33559).
Paul Vickery, John S.
Tyhurst and Travis Henderson, for the appellant/respondent on cross‑appeal
the Attorney General of Canada (33563).
Deborah Glendining
and Nada Khirdaji, for the respondent/appellant on cross‑appeal
Imperial Tobacco Canada Limited (33559).
Ryan D. W. Dalziel and Daniel A. Webster, Q.C., for the respondent
Her Majesty the Queen in Right of British Columbia (33563).
John J. L. Hunter, Q.C., and Brent B. Olthuis, for the
respondent/appellant on cross‑appeal Imperial Tobacco Canada Limited
(33563).
Written
submissions only by Kenneth N. Affleck, Q.C., for the
respondents/appellants on cross‑appeal Rothmans, Benson & Hedges Inc.
and Rothmans Inc. (33563).
Written submissions only by Jeffrey J. Kay, Q.C.,
for the respondents/appellants on cross‑appeal JTI‑MacDonald Corp.,
R.J. Reynolds Tobacco Company and R.J. Reynolds Tobacco International Inc.
(33563).
Written submissions
only by Craig P. Dennis and Michael D. Shirreff, for
the respondents/appellants on cross‑appeal B.A.T. Industries p.l.c. and
British American Tobacco (Investments) Limited (33563).
Written
submissions only by Christopher M. Rusnak, for the
respondent/appellant on cross‑appeal Carreras Rothmans Limited (33563).
Written
submissions only by D. Ross Clark, for the respondent/appellant
on cross‑appeal Philip Morris U.S.A. Inc. (33563).
Simon V. Potter, Michael A.
Feder and Angela M. Juba, for the respondent/appellant on cross‑appeal
Philip Morris International Inc. (33563).
Malliha Wilson and Lynne McArdle,
for the intervener the Attorney General of Ontario (33559‑33563).
Jeffrey S.
Leon, Robyn M. Ryan Bell and Michael A. Eizenga,
for the intervener Her Majesty the Queen in Right of the Province of New
Brunswick (33563).
Nancy
Brown, for the intervener the Attorney General of British Columbia (33559‑33563).
The
judgment of the Court was delivered by
The Chief Justice —
I. Introduction
[1]
Imperial Tobacco Canada
Ltd. (“Imperial”) is a defendant in two cases before the courts in
British Columbia, British Columbia v. Imperial Tobacco Canada Ltd.,
Docket: S010421, and Knight v. Imperial Tobacco Canada Ltd., Docket:
L031300. In the first case, the Government of British Columbia is seeking to
recover the cost of paying for the medical treatment of individuals suffering
from tobacco-related illnesses from a group of 14 tobacco companies, including
Imperial (“Costs Recovery case”). The second case is a class action
brought against Imperial alone by Mr. Knight on behalf of class members who
purchased “light” or “mild” cigarettes, seeking a refund of the cost of the
cigarettes and punitive damages (“Knight case”).
[2]
In both cases, the
tobacco companies issued third-party notices to the Government of Canada,
alleging that if the tobacco companies are held liable to the plaintiffs, they
are entitled to compensation from Canada for negligent misrepresentation,
negligent design, and failure to warn, as well as at equity. They also allege
that Canada would itself be liable under the statutory schemes at issue in the
two cases. In the Costs Recovery case, it is alleged that Canada would
be liable under the Tobacco Damages and Health Care Costs Recovery Act,
S.B.C. 2000, c. 30 (“CRA”), as a “manufacturer”. In the Knight
case, it is alleged that Canada would be liable as a “supplier” under the Business
Practices and Consumer Protection Act, S.B.C. 2004, c. 2 (“BPCPA”),
and its predecessor, the Trade Practice Act, R.S.B.C. 1996, c.
457 (“TPA”).
[3]
In both cases, Canada
brought motions to strike the third party notices under r. 19(24) of the Supreme
Court Rules, B.C. Reg. 221/90 (replaced by the Supreme Court
Civil Rules, B.C. Reg. 168/2009, r. 9-5), arguing that it was plain and
obvious that the third-party claims failed to disclose a reasonable cause of
action. In both cases, the chambers judges agreed with Canada, and struck all
of the third-party notices. The British Columbia Court of Appeal allowed the
tobacco companies’ appeals in part. A majority of 3-2 held that the negligent
misrepresentation claims arising from Canada’s alleged duty of care to the
tobacco companies in both the Costs Recovery case and the Knight case
should proceed to trial. A majority in the Knight case further held that
the negligent misrepresentation claim based on Canada’s alleged duty of care to
consumers should proceed, as should the negligent design claims in the Knight
case. The court unanimously struck the remainder of the tobacco companies’
claims.
[4]
The Government of
Canada appeals the finding that the claims for negligent misrepresentation and
the claim for negligent design should be allowed to go to trial. The tobacco
companies cross-appeal the striking of the other claims.
[5]
For the reasons that
follow, I conclude that all the claims of Imperial and the other tobacco
companies brought against the Government of Canada are bound to fail, and
should be struck. I would allow the appeals of the Government of Canada in
both cases and dismiss the cross-appeals.
II. Underlying Claims and Judicial History
A. The Knight Case
[6]
In the Knight case,
consumers in British Columbia have brought a class action against Imperial
under the BPCPA and its predecessor, the TPA. The class consists
of consumers of light or mild cigarettes. It alleges that Imperial engaged in
deceptive practices when it promoted low-tar cigarettes as less hazardous to
the health of consumers. The class alleges that the levels of tar and nicotine
listed on Imperial’s packages for light and mild cigarettes did not reflect the
actual deliveries of toxic emissions to smokers, and alleges that the smoke
produced by light cigarettes was just as harmful as that produced by regular
cigarettes. The class seeks reimbursement of the cost of the cigarettes
purchased, and punitive damages.
[7]
Imperial issued a
third-party notice against Canada. It alleges that Health Canada advised
tobacco companies and the public that low-tar cigarettes were less hazardous
than regular cigarettes. Imperial alleges that while Health Canada was
initially opposed to the use of health warnings on cigarette packaging, it
changed its policy in 1967. It instructed smokers to switch to low-tar
cigarettes if they were unwilling to quit smoking altogether, and it asked
tobacco companies to voluntarily list the tar and nicotine levels on their
advertisements to encourage consumers to purchase low-tar brands. Contrary to
expectations, it now appears that low-tar cigarettes are potentially more
harmful to smokers.
[8]
Imperial also alleges
that Agriculture Canada researched, developed, manufactured, and licensed
several strains of low-tar tobacco, and collected royalties from the companies,
including Imperial, that used these strains. By 1982, Imperial pleads, the
tobacco strains developed by Agriculture Canada were “almost the only tobacco
varieties available to Canadian tobacco manufacturers” (Knight case,
amended third-party notice of Imperial, at para. 97).
[9]
Imperial makes five
allegations against Canada:
(1) Canada
is itself liable under the BPCPA and the TPA as a “supplier” of
tobacco products that engaged in deceptive practices, and Imperial is entitled
to contribution and indemnity from Canada pursuant to the provisions of the Negligence
Act, R.S.B.C. 1996, c. 333.
(2) Canada
breached private law duties to consumers by negligently misrepresenting the
health attributes of low-tar cigarettes, by failing to warn them against the
hazards of low-tar cigarettes, and by failing to design its tobacco strain with
due care. Consequently, Imperial alleges that it is entitled to contribution
and indemnity from Canada under the Negligence Act.
(3) Canada
breached its private law duties to Imperial by negligently misrepresenting the
health attributes of low-tar cigarettes, by failing to warn Imperial about the
hazards of low-tar cigarettes, and by failing to design its tobacco strain with
due care. Imperial alleges that it is entitled to damages against Canada to
the extent of any liability Imperial may have to the class members.
(4) In
the alternative, Canada is obliged to indemnify Imperial under the doctrine of
equitable indemnity.
(5) If
Canada is not liable to Imperial under any of the above claims, Imperial is
entitled to declaratory relief against Canada so that it will remain a party to
the action and be subject to discovery procedures under the Supreme Court
Rules.
[10]
Canada brought an
application to strike the third-party claims. It was successful before
Satanove J. in the Supreme Court of British Columbia (2007 BCSC 964, 76
B.C.L.R. (4th) 100). The chambers judge struck all of the claims against
Canada. Imperial was partially successful in the Court of Appeal (2009 BCCA
541, 99 B.C.L.R. (4th) 93). The Court of Appeal unanimously struck the
statutory claim, the claim of negligent design between Canada and Imperial, and
the equitable indemnity claim. However, the majority, per Tysoe J.A.,
held that the two negligent misrepresentation claims and the negligent design
claim between Canada and consumers should be allowed to proceed. The majority
reasons did not address the failure to warn claim. Hall J.A., dissenting,
would have struck all the third-party claims.
B. The Costs Recovery Case
[11]
The Government of
British Columbia has brought a claim under the CRA to recover the
expense of treating tobacco-related illnesses caused by “tobacco related
wrong[s]”. Under the CRA, manufacturers of tobacco products are liable
to the province directly. The claim was brought against 14 tobacco companies.
British Columbia alleges that by 1950, these tobacco companies knew or ought to
have known that cigarettes were harmful to one’s health, and that they failed
to properly warn the public about the risks associated with smoking their
product.
[12]
Various defendants in
the Costs Recovery case, including Imperial, brought third-party notices
against Canada for its alleged role in the tobacco industry. I refer to them
collectively as the “tobacco companies”. The allegations in this claim are
strikingly similar to those in the Knight case. The tobacco companies
plead that Health Canada advised them and the public that low-tar cigarettes
were less hazardous and instructed smokers that they should quit smoking or
purchase low-tar cigarettes. The tobacco companies allege that Canada was
initially opposed to the use of warning labels on cigarette packaging, but
ultimately instructed the industry that warning labels should be used and what
they should say. The tobacco companies also plead that Agriculture Canada
researched, developed, manufactured and licensed the strains of low-tar tobacco
which they used for their cigarettes in exchange for royalties.
[13]
The tobacco companies
brought the following claims against Canada:
(1) Canada
is itself liable under the CRA as a “manufacturer” of tobacco products,
and the tobacco companies are entitled to contribution and indemnity from
Canada pursuant to the Negligence Act.
(2) Canada
breached private law duties to consumers for failure to warn, negligent design,
and negligent misrepresentation, and the tobacco companies are entitled to
contribution and indemnity from Canada to the extent of any liability they may
have to British Columbia under the CRA.
(3) Canada
breached its private law duties owed to the tobacco companies for failure to
warn and negligent design, and negligently misrepresented the attributes of
low-tar cigarettes. The tobacco companies allege that they are entitled to
damages against Canada to the extent of any liability they may have to British
Columbia under the CRA.
(4) In
the alternative, Canada is obliged to indemnify the tobacco companies under the
doctrine of equitable indemnity.
(5) If
Canada is not liable to the tobacco companies under any of the above claims, they
are entitled to declaratory relief.
[14]
Canada was successful
before the chambers judge, Wedge J., who struck all of the claims (2008 BCSC
419, 82 B.C.L.R. (4th) 362). In the Court of Appeal, the majority, per Tysoe
J.A., allowed the negligent misrepresentation claim between Canada and the
tobacco companies to proceed (2009 BCCA 540, 98 B.C.L.R. (4th) 201). Hall
J.A., dissenting, would have struck all the third-party claims.
III. Issues Before the Court
[15]
There is significant
overlap between the issues on appeal in the Costs Recovery case and the Knight
case, particularly in relation to the common law claims. Both cases
discuss whether Canada could be liable at common law in negligent misrepresentation,
negligent design and failure to warn, and in equitable indemnity. To reduce
duplication, I treat the issues common to both cases together.
[16]
There are also issues
and arguments that are distinct in the two cases. Uniquely in the Costs
Recovery case, Canada argues that all the contribution claims based on the Negligence
Act and Canada’s alleged duties of care to smokers should be struck because
even if these alleged duties were breached, Canada would not be liable to the
sole plaintiff British Columbia. The statutory claims are also distinct in the
two cases. The issues may therefore be stated as follows:
1. What
is the test for striking out claims for failure to disclose a reasonable cause
of action?
2. Should
the claims for contribution and indemnity based on the Negligence Act
and alleged breaches of duties of care to smokers be struck in the Costs
Recovery case?
3. Should
the tobacco companies’ negligent misrepresentation claims be struck out?
4. Should
the tobacco companies’ claims of failure to warn be struck out?
5. Should
the tobacco companies’ claims of negligent design be struck out?
6. Should
the tobacco companies’ claim in the Costs Recovery case that Canada
could qualify as a “manufacturer” under the CRA be struck out?
7. Should
Imperial’s claim in the Knight case that Canada could qualify as a
“supplier” under the TPA and the BPCPA be struck out?
8. Should
the tobacco companies’ claims of equitable indemnity be struck out?
9. If
Canada is not liable to the tobacco companies under any of the third-party
claims, are the tobacco companies nonetheless entitled to declaratory relief
against Canada so that it will remain a party to both actions and be subject to
discovery procedures under the Supreme Court Rules?
IV. Analysis
A. The Test for Striking Out
Claims
[17]
The parties agree on
the test applicable on a motion to strike for not disclosing a reasonable cause
of action under r. 19(24)(a) of the B.C. Supreme Court Rules. This
Court has reiterated the test on many occasions. A claim will only be struck
if it is plain and obvious, assuming the facts pleaded to be true, that the
pleading discloses no reasonable cause of action: Odhavji Estate v.
Woodhouse, 2003 SCC 69, [2003] 3 S.C.R. 263, at para. 15; Hunt v. Carey
Canada Inc., [1990] 2 S.C.R. 959, at p. 980. Another way of putting the
test is that the claim has no reasonable prospect of success. Where a
reasonable prospect of success exists, the matter should be allowed to proceed
to trial: see, generally, Syl Apps Secure Treatment Centre v. B.D., 2007
SCC 38, [2007] 3 S.C.R. 83; Odhavji Estate; Hunt; Attorney
General of Canada v. Inuit Tapirisat of Canada, [1980] 2 S.C.R. 735.
[18]
Although all agree on
the test, the arguments before us revealed different conceptions about how it
should be applied. It may therefore be useful to review the purpose of the
test and its application.
[19]
The power to strike out
claims that have no reasonable prospect of success is a valuable housekeeping
measure essential to effective and fair litigation. It unclutters the
proceedings, weeding out the hopeless claims and ensuring that those that have
some chance of success go on to trial.
[20]
This promotes two goods
— efficiency in the conduct of the litigation and correct results. Striking
out claims that have no reasonable prospect of success promotes litigation
efficiency, reducing time and cost. The litigants can focus on serious claims,
without devoting days and sometimes weeks of evidence and argument to claims
that are in any event hopeless. The same applies to judges and juries, whose
attention is focused where it should be — on claims that have a reasonable
chance of success. The efficiency gained by weeding out unmeritorious claims
in turn contributes to better justice. The more the evidence and arguments are
trained on the real issues, the more likely it is that the trial process will
successfully come to grips with the parties’ respective positions on those
issues and the merits of the case.
[21]
Valuable as it is, the motion
to strike is a tool that must be used with care. The law is not static and
unchanging. Actions that yesterday were deemed hopeless may tomorrow succeed.
Before Donoghue v.
Stevenson, [1932] A.C. 562 (H.L.) introduced a general duty of care to
one’s neighbour premised on foreseeability, few would have predicted that,
absent a contractual relationship, a bottling company could be held liable for
physical injury and emotional trauma resulting from a snail in a bottle of
ginger beer. Before Hedley Byrne &
Co. v. Heller & Partners, Ltd.,
[1963] 2 All E.R. 575 (H.L.), a tort action for negligent
misstatement would have been regarded as incapable of success. The history of
our law reveals that often new developments in the law first surface on motions
to strike or similar preliminary motions, like the one at issue in Donoghue
v. Stevenson. Therefore, on a motion to strike, it is not
determinative that the law has not yet recognized the particular claim. The
court must rather ask whether, assuming the facts pleaded are true, there is a
reasonable prospect that the claim will succeed. The approach must be generous
and err on the side of permitting a novel but arguable claim to proceed to
trial.
[22]
A motion to strike for failure
to disclose a reasonable cause of action proceeds on the basis that the facts
pleaded are true, unless they are manifestly incapable of being proven: Operation
Dismantle Inc. v. The Queen, [1985] 1 S.C.R. 441, at p. 455. No evidence
is admissible on such a motion: r. 19(27) of the Supreme Court Rules
(now r. 9-5(2) of the Supreme Court Civil Rules). It is incumbent on
the claimant to clearly plead the facts upon which it relies in making its
claim. A claimant is not entitled to rely on the possibility that new facts
may turn up as the case progresses. The claimant may not be in a position to
prove the facts pleaded at the time of the motion. It may only hope to be able
to prove them. But plead them it must. The facts pleaded are the firm basis
upon which the possibility of success of the claim must be evaluated. If they
are not pleaded, the exercise cannot be properly conducted.
[23]
Before us, Imperial and
the other tobacco companies argued that the motion to strike should take into
account, not only the facts pleaded, but the possibility that as the case
progressed, the evidence would reveal more about Canada’s conduct and role in
promoting the use of low-tar cigarettes. This fundamentally misunderstands
what a motion to strike is about. It is not about evidence, but the
pleadings. The facts pleaded are taken as true. Whether the evidence
substantiates the pleaded facts, now or at some future date, is irrelevant to
the motion to strike. The judge on the motion to strike cannot consider what evidence
adduced in the future might or might not show. To require the judge to do so
would be to gut the motion to strike of its logic and ultimately render it
useless.
[24]
This is not unfair to
the claimant. The presumption that the facts pleaded are true operates in the
claimant’s favour. The claimant chooses what facts to plead, with a view to
the cause of action it is asserting. If new developments raise new
possibilities — as they sometimes do — the remedy is to amend the pleadings to
plead new facts at that time.
[25]
Related to the issue of
whether the motion should be refused because of the possibility of unknown
evidence appearing at a future date is the issue of speculation. The judge on
a motion to strike asks if the claim has any reasonable prospect of success.
In the world of abstract speculation, there is a mathematical chance that any
number of things might happen. That is not what the test on a motion to strike
seeks to determine. Rather, it operates on the assumption that the claim will
proceed through the court system in the usual way — in an adversarial system
where judges are under a duty to apply the law as set out in (and as it may
develop from) statutes and precedent. The question is whether, considered in the
context of the law and the litigation process, the claim has no reasonable
chance of succeeding.
[26]
With this framework in
mind, I proceed to consider the tobacco companies’ claims.
B. Canada’s Alleged Duties of
Care to Smokers in the Costs Recovery Case
[27]
In the Costs
Recovery case, Canada argues that all the claims for contribution based on
its alleged duties of care to smokers must be struck. Under the Negligence
Act, Canada submits, contribution may only be awarded if the third party
would be liable to the plaintiff directly. It argues that even if Canada
breached duties to smokers, such breaches cannot ground the tobacco companies’
claims for contribution if they are found liable to British Columbia, the sole
plaintiff in the Costs Recovery case. This argument was successful in
the Court of Appeal.
[28]
The tobacco companies
argue that direct liability to the plaintiff is not a requirement for being
held liable in contribution. They argue that contribution in the
Negligence Act turns on fault, not liability. The object of the Negligence
Act is to allow defendants to recover from other parties that were also at
fault for the damage that resulted to the plaintiff, and barring a claim
against Canada would defeat this purpose, they argue.
[29]
I agree with Canada and
the Court of Appeal that a third party may only be liable for contribution
under the Negligence Act if it is directly liable to the plaintiff. In
Giffels Associates Ltd. v. Eastern Construction Co., [1978] 2 S.C.R. 1346,
dealing with a statutory provision similar to that in British Columbia, Laskin
C.J. stated:
. . . I am of the view that it is a
precondition of the right to resort to contribution that there be liability to
the plaintiff. I am unable to appreciate how a claim for contribution can
be made under s. 2(1) by one person against another in respect of loss
resulting to a third person unless each of the former two came under a
liability to the third person to answer for his loss. [Emphasis added; p.
1354.]
[30]
Accordingly, it is
plain and obvious that the private law claims against Canada in the Costs
Recovery case that arise from an alleged duty of care to consumers must be
struck. Even if Canada breached duties to smokers, this would have no effect
on whether it was liable to British Columbia, the plaintiff in that case. This
holding has no bearing on the consumer claim in the Knight case since
consumers of light or mild cigarettes are the plaintiffs in the underlying
action.
[31]
The discussion of the
private law claims in the remainder of these reasons will refer exclusively to
the claims based on Canada’s alleged duties of care to the tobacco companies in
both cases before the Court, and Canada’s alleged duties to consumers in the Knight
case.
C. The Claims for Negligent Misrepresentation
[32]
There are two types of
negligent misrepresentation claims that remain at issue on this appeal. First,
in the Knight case, Imperial alleges that Canada negligently
misrepresented the health attributes of low-tar cigarettes to consumers, and is
therefore liable for contribution and indemnity on the basis of the Negligence
Act if the class members are successful in this suit. Second, in both
cases before the Court, Imperial and the other tobacco companies allege that
Canada made negligent misrepresentations to the tobacco companies, and that
Canada is liable for any losses that the tobacco companies incur to the
plaintiffs in either case.
[33]
Canada applies to have
the claims struck on the ground that they have no reasonable prospect of
success.
[34]
For the purposes of the
motion to strike, we must accept as true the facts pleaded. We must therefore
accept that Canada represented to consumers and to tobacco companies that light
or mild cigarettes were less harmful, and that these representations were not
accurate. We must also accept that consumers and the tobacco companies relied
on Canada’s representations and acted on them to their detriment.
[35]
The law first
recognized a tort action for negligent misrepresentation in Hedley Byrne.
Prior to this, parties were confined to contractual remedies for
misrepresentations. Hedley Byrne represented a break with this
tradition, allowing a claim for economic loss in tort for misrepresentations
made in the absence of a contract between the parties. In the decades that
have followed, liability for negligent misrepresentation has been imposed in a
variety of situations where the relationship between the parties disclosed
sufficient proximity and foreseeability, and policy considerations did not
negate liability.
[36]
Imperial and the other
tobacco companies argue that the facts pleaded against Canada bring their
claims within the settled parameters of the tort of negligent
misrepresentation, and therefore a prima facie duty of care is
established. The majority in the Court of Appeal accepted this argument in
both decisions below (Knight case, at paras. 45 and 66; Costs
Recovery case, at para. 70).
[37]
The first question is
whether the facts as pleaded bring Canada’s relationships with consumers and
the tobacco companies within a settled category that gives rise to a duty of
care. If they do, a prima facie duty of care will be established: see Childs
v. Desormeaux, 2006 SCC 18, [2006] 1 S.C.R. 643, at para. 15. However, it
is important to note that liability for negligent misrepresentation depends on
the nature of the relationship between the plaintiff and defendant, as
discussed more fully below. The question is not whether negligent
misrepresentation is a recognized tort, but whether there is a reasonable
prospect that the relationship alleged in the pleadings will give rise to
liability for negligent misrepresentation.
[38]
In my view, the facts
pleaded do not bring either claim within a settled category of negligent misrepresentation.
The law of negligent misrepresentation has thus far not recognized liability in
the kinds of relationships at issue in these cases. The error of the tobacco
companies lies in assuming that the relationships disclosed by the pleadings
between Canada and the tobacco companies on the one hand and between Canada and
consumers on the other are like other relationships that have been held to give
rise to liability for negligent misrepresentation. In fact, they differ in
important ways. It is sufficient at this point to note that the tobacco
companies have not been able to point to any case where a government has been
held liable in negligent misrepresentation for statements made to an industry.
To determine whether such a cause of action has a reasonable prospect of
success, we must therefore consider whether the general requirements for
liability in tort are met, on the test set out by the House of Lords in Anns
v. Merton London Borough Council, [1978]
A.C. 728, and somewhat reformulated but consistently applied by this Court,
most notably in Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R.
537.
[39]
At the first stage of
this test, the question is whether the facts disclose a relationship of
proximity in which failure to take reasonable care might foreseeably cause loss
or harm to the plaintiff. If this is established, a prima facie duty of
care arises and the analysis proceeds to the second stage, which asks whether
there are policy reasons why this prima facie duty of care should not be
recognized: Hill v. Hamilton-Wentworth Regional Police Services Board,
2007 SCC 41, [2007] 3 S.C.R. 129.
(1) Stage One: Proximity and Foreseeability
[40]
On the first branch of
the test, the tobacco companies argue that the facts pleaded establish a
sufficiently close and direct, or “proximate”, relationship between Canada and
consumers (in the Knight case) and between Canada and tobacco companies
(in both cases) to support a duty of care with respect to government statements
about light and mild cigarettes. They also argue that Canada could reasonably
have foreseen that consumers and the tobacco industry would rely on Canada’s
statements about the health advantages of light cigarettes, and that such
reliance was reasonable. Canada responds that it was acting exclusively in a
regulatory capacity when it made statements to the public and to the industry,
which does not give rise to sufficient proximity to ground the alleged duty of
care. In the Costs Recovery case, Canada also alleges that it could not
have reasonably foreseen that the B.C. legislature would enact the CRA
and therefore cannot be liable for the potential losses of the tobacco
companies under that Act.
[41]
Proximity and
foreseeability are two aspects of one inquiry — the inquiry into whether the
facts disclose a relationship that gives rise to a prima facie duty of
care at common law. Foreseeability is the touchstone of negligence law.
However, not every foreseeable outcome will attract a commensurate duty of
care. Foreseeability must be grounded in a relationship of sufficient
closeness, or proximity, to make it just and reasonable to impose an obligation
on one party to take reasonable care not to injure the other.
[42]
Proximity and
foreseeability are heightened concerns in claims for economic loss, such as
negligent misrepresentation: see, generally, Canadian National Railway Co.
v. Norsk Pacific Steamship Co., [1992] 1 S.C.R. 1021; Bow Valley Husky
(Bermuda) Ltd. v. Saint John Shipbuilding Ltd., [1997] 3 S.C.R. 1210. In a
claim of negligent misrepresentation, both these requirements for a prima
facie duty of care are established if there was a “special relationship”
between the parties: Hercules Managements Ltd. v. Ernst & Young,
[1997] 2 S.C.R. 165, at para. 24. In Hercules Managements, the Court, per
La Forest J., held that a special relationship will be established where: (1)
the defendant ought reasonably to foresee that the plaintiff will rely on his
or her representation; and (2) reliance by the plaintiff would be reasonable in
the circumstances of the case (ibid.). Where such a relationship is
established, the defendant may be liable for losses suffered by the plaintiff
as a result of a negligent misstatement.
[43]
A complicating factor
is the role that legislation should play when determining if a government actor
owed a prima facie duty of care. Two situations may be distinguished.
The first is the situation where the alleged duty of care is said to arise
explicitly or by implication from the statutory scheme. The second is the
situation where the duty of care is alleged to arise from interactions between
the claimant and the government, and is not negated by the statute.
[44]
The argument in the first
kind of case is that the statute itself creates a private relationship of
proximity giving rise to a prima facie duty of care. It may be
difficult to find that a statute creates sufficient proximity to give rise to a
duty of care. Some statutes may impose duties on state actors with respect to
particular claimants. However, more often, statutes are aimed at public goods,
like regulating an industry (Cooper), or removing children from harmful
environments (Syl Apps). In such cases, it may be difficult to infer
that the legislature intended to create private law tort duties to claimants.
This may be even more difficult if the recognition of a private law duty would
conflict with the public authority’s duty to the public: see, e.g., Cooper
and Syl Apps. As stated in Syl Apps, “[w]here an alleged
duty of care is found to conflict with an overarching statutory or public duty,
this may constitute a compelling policy reason for refusing to find proximity”
(at para. 28; see also Fullowka v. Pinkerton’s of Canada Ltd., 2010
SCC 5, [2010] 1 S.C.R. 132, at para. 39).
[45]
The second situation is
where the proximity essential to the private duty of care is alleged to arise
from a series of specific interactions between the government and the
claimant. The argument in these cases is that the government has, through its
conduct, entered into a special relationship with the plaintiff sufficient to
establish the necessary proximity for a duty of care. In these cases, the
governing statutes are still relevant to the analysis. For instance, if a
finding of proximity would conflict with the state’s general public duty
established by the statute, the court may hold that no proximity arises: Syl
Apps; see also Heaslip Estate v. Mansfield Ski Club Inc.,
2009 ONCA 594, 96 O.R. (3d) 401. However, the factor that gives rise to a duty
of care in these types of cases is the specific interactions between the
government actor and the claimant.
[46]
Finally, it is possible
to envision a claim where proximity is based both on interactions between the
parties and the government’s statutory duties.
[47]
Since this is a motion
to strike, the question before us is simply whether, assuming the facts pleaded
to be true, there is any reasonable prospect of successfully establishing
proximity, on the basis of a statute or otherwise. On one hand, where the sole
basis asserted for proximity is the statute, conflicting public duties may rule
out any possibility of proximity being established as a matter of statutory
interpretation: Syl Apps. On the other, where the asserted basis for
proximity is grounded in specific conduct and interactions, ruling a claim out
at the proximity stage may be difficult. So long as there is a reasonable
prospect that the asserted interactions could, if true, result in a finding of
sufficient proximity, and the statute does not exclude that possibility, the
matter must be allowed to proceed to trial, subject to any policy
considerations that may negate the prima facie duty of care at the
second stage of the analysis.
[48]
As mentioned above,
there are two relationships at issue in these claims: the relationship between
Canada and consumers (the Knight case), and the relationship between
Canada and tobacco companies (both cases). The question at this stage is
whether there is a prima facie duty of care in either or both these
relationships. In my view, on the facts pleaded, Canada did not owe a prima
facie duty of care to consumers, but did owe a prima facie duty to
the tobacco companies.
[49]
The facts pleaded in
Imperial’s third-party notice in the Knight case establish no direct
relationship between Canada and the consumers of light cigarettes. The
relationship between the two was limited to Canada’s statements to the general
public that low-tar cigarettes are less hazardous. There were no specific
interactions between Canada and the class members. Consequently, a finding of
proximity in this relationship must arise from the governing statutes: Cooper,
at para. 43.
[50]
The relevant statutes
establish only general duties to the public, and no private law duties to
consumers. The Department of Health Act, S.C. 1996, c. 8 , establishes
that the duties of the Minister of Health relate to “the promotion and
preservation of the health of the people of Canada”: s. 4(1) . Similarly, the Department
of Agriculture and Agri-Food Act, R.S.C. 1985, c. A-9, s. 4 , the Tobacco
Act, S.C. 1997, c. 13, s. 4 , and the Tobacco Products Control Act,
R.S.C. 1985, c. 14 (4th Supp.), s. 3 [rep. 1997, c. 13, s. 64], only establish
duties to the general public. These general duties to the public do not give
rise to a private law duty of care to particular individuals. To borrow the
words of Sharpe J.A. of the Ontario Court of Appeal in Eliopoulos Estate v.
Ontario (Minister of Health and Long-Term Care) (2006), 276 D.L.R. (4th)
411, “I fail to see how it could be possible to convert any of the Minister’s
public law discretionary powers, to be exercised in the general public
interest, into private law duties owed to specific individuals”: para. 17. At
the same time, the governing statutes do not foreclose the possibility of
recognizing a duty of care to the tobacco companies. Recognizing a duty of
care on the government when it makes representations to the tobacco companies
about the health attributes of tobacco strains would not conflict with its
general duty to protect the health of the public.
[51]
Turning to the
relationship between Canada and the tobacco companies, at issue in both of the
cases before the Court, the tobacco companies contend that a duty of care on
Canada arose from the transactions between them and Canada over the years.
They allege that Canada went beyond its role as regulator of industry players
and entered into a relationship of advising and assisting the companies in
reducing harm to their consumers. They hope to show that Canada gave erroneous
information and advice, knowing that the companies would rely on it, which they
did.
[52]
The question is whether
these pleadings bring the tobacco companies within the requirements for a
special relationship under the law of negligent misrepresentation as set out in
Hercules Managements. As noted above, a special relationship will be
established where (1) the defendant ought reasonably to foresee that the
plaintiff will rely on his or her representation, and (2) such reliance would,
in the particular circumstances of the case, be reasonable. In the cases at
bar, the facts pleaded allege a history of interactions between Canada and the
tobacco companies capable of fulfilling these conditions.
[53]
What is alleged against
Canada is that Health Canada assumed duties separate and apart from its
governing statute, including research into and design of tobacco and tobacco
products and the promotion of tobacco and tobacco products (third-party
statement of claim of Imperial in the Costs Recovery case, A.R., vol.
II, at p. 66). In addition, it is alleged that Agriculture Canada carried
out a programme of cooperation with and support for tobacco growers and
cigarette manufacturers including advising cigarette manufacturers of the
desirable content of nicotine in tobacco to be used in the manufacture of
tobacco products. It is alleged that officials, drawing on their knowledge and
expertise in smoking and health matters, provided both advice and directions to
the manufacturers including advice that the tobacco strains designed and
developed by officials of Agriculture Canada and sold or licensed to the
manufacturers for use in their tobacco products would not increase health risks
to consumers or otherwise be harmful to them (ibid., at pp. 109-10).
Thus, what is alleged is not simply that broad powers of regulation were
brought to bear on the tobacco industry, but that Canada assumed the role of
adviser to a finite number of manufacturers and that there were commercial relationships
entered into between Canada and the companies based in part on the advice given
to the companies by government officials.
[54]
What is alleged with
respect to Canada’s interactions with the manufacturers goes far beyond the
sort of statements made by Canada to the public at large. Canada is alleged to
have had specific interactions with the manufacturers in contrast to the
absence of such specific interactions between Canada and the class members.
Whereas the claims in relation to consumers must be founded on a statutory
framework establishing very general duties to the public, the claims alleged in
relation to the manufacturers are not alleged to arise primarily from such
general regulatory duties and powers but from roles undertaken specifically in
relation to the manufacturers by Canada apart from its statutory duties, namely
its roles as designer, developer, promoter and licensor of tobacco strains.
With respect to the issue of reasonable reliance, Canada’s regulatory powers
over the manufacturers, coupled with its specific advice and its commercial
involvement, could be seen as supporting a conclusion that reliance was
reasonable in the pleaded circumstance.
[55]
The indicia of
proximity offered in Hercules Managements for a special relationship (direct
financial interest; professional skill or knowledge; advice provided in the
course of business, deliberately or in response to a specific request) may not
be particularly apt in the context of alleged negligent misrepresentations by
government. I note, however, that the representations are alleged to have been
made in the course of Health Canada’s regulatory and other activities, not in
the course of casual interaction. They were made specifically to the
manufacturers who were subject to Health Canada’s regulatory powers and by
officials alleged to have special skill, judgment and knowledge.
[56]
Before leaving this
issue, two final arguments must be considered. First, in the Costs Recovery
case, Canada submits that there is no prima facie duty of care between
Canada and the tobacco companies because the potential damages that the tobacco
companies may incur under the CRA were not foreseeable. It argues that
“[i]t was not reasonably foreseeable by Canada that a provincial government
might create a wholly new type of civil obligation to reimburse costs incurred
by a provincial health care scheme in respect of defined tobacco related
wrongs, with unlimited retroactive and prospective reach” (A.F., at para. 36).
[57]
In my view, Canada’s
argument was correctly rejected by the majority of the Court of Appeal. It is
not necessary that Canada should have foreseen the precise statutory vehicle
that would result in the tobacco companies’ liability. All that is required is
that it could have foreseen that its negligent misrepresentations would result
in a harm of some sort to the tobacco companies: Hercules Managements,
at paras. 25-26 and 42. On the facts pleaded, it cannot be ruled out that
the tobacco companies may succeed in proving that Canada foresaw that the tobacco
industry would incur this type of penalty for selling a more hazardous
product. As held by Tysoe J.A., it is not necessary that Canada foresee that
the liability would extend to health care costs specifically, or that provinces
would create statutory causes of action to recover these costs. Rather, “[i]t
is sufficient that Canada could have reasonably foreseen in a general way that
the appellants would suffer harm if the light and mild cigarettes were more
hazardous to the health of smokers than regular cigarettes” (Costs Recovery case,
at para. 78).
[58]
Second, Canada argues
that the relationship in this case does not meet the requirement of reasonable
reliance because Canada was not acting in a commercial capacity, but rather as
a regulator of an industry. It was therefore not reasonable for the tobacco
companies to have relied on Canada as an advisor, it submits. This view was
adopted by Hall J.A. in dissent, holding that “it could never have been the
perception of the appellants that Canada was taking responsibility for their
interests” (Costs Recovery case, at para. 51).
[59]
In my view, this
argument misconceives the reliance necessary for negligent misrepresentation
under the test in Hercules Managements. When the jurisprudence refers
to “reasonable reliance” in the context of negligent misrepresentation, it asks
whether it was reasonable for the listener to rely on the speaker’s statement
as accurate, not whether it was reasonable to believe that the speaker is
guaranteeing the accuracy of its statement. It is not plain and obvious that
it was unreasonable for the tobacco companies to rely on Canada’s statements
about the advantages of light or mild cigarettes. In my view, Canada’s
argument that it was acting as a regulator does not relate to reasonable
reliance, although it exposes policy concerns that should be considered at
stage two of the Anns/Cooper test: Hercules Managements, at para.
41.
[60]
In sum, I conclude that
the claims between the tobacco companies and Canada should not be struck out at
the first stage of the analysis. The pleadings, assuming them to be true,
disclose a prima facie duty of care in negligent misrepresentation.
However, the facts as pleaded in the Knight case do not show a
relationship between Canada and consumers that would give rise to a duty of
care. That claim should accordingly be struck at this stage of the analysis.
(2) Stage Two: Conflicting Policy Considerations
[61]
Canada submits that
there can be no duty of care in the cases at bar because of stage-two policy
considerations. It relies on four policy concerns: (1) that the alleged
misrepresentations were policy decisions of the government; (2) that
recognizing a duty of care would give rise to indeterminate liability to an
indeterminate class; (3) that recognizing a duty of care would create an
unintended insurance scheme; and (4) that allowing Imperial’s claim would
transfer responsibility for tobacco products to the government from the
manufacturer, and the manufacturer “is best positioned to address liability for
economic loss” (A.F., at para. 72).
[62]
For the reasons that
follow, I accept Canada’s submission that its alleged negligent
misrepresentations to the tobacco industry in both cases should not give rise
to tort liability because of stage-two policy considerations. First, the
alleged statements are protected expressions of government policy. Second,
recognizing a duty of care would expose Canada to indeterminate liability.
(a) Government Policy Decisions
[63]
Canada contends that it
had a policy of encouraging smokers to consume low-tar cigarettes, and pursuant
to this policy, promoted this variety of cigarette and developed strains of
low-tar tobacco. Canada argues that statements made pursuant to this policy
cannot ground tort liability. It relies on the statement of Cory J. in Just
v. British Columbia, [1989] 2 S.C.R. 1228, that “[t]rue policy
decisions should be exempt from tortious claims so that governments are not
restricted in making decisions based upon social, political or economic
factors” (p. 1240).
[64]
The tobacco companies,
for their part, contend that Canada’s actions were not matters of policy, but
operational acts implementing policy, and therefore, are subject to tort
liability. They submit that Canada’s argument fails to account for the “facts”
as pleaded in the third-party notices, namely that Canada was acting in an
operational capacity, and as a participant in the tobacco industry. The
tobacco companies also argue that more evidence is required to determine if the
government’s actions were operational or pursuant to policy, and that the
matter should therefore be permitted to go to trial.
[65]
In the Knight case,
the majority in the Court of Appeal, per Tysoe J.A., agreed with
Imperial’s submissions, holding that “evidence is required to determine which
of the actions and statements of Canada in this case were policy decisions and
which were operational decisions” (para. 52). Hall J.A. dissented; in his
view, it was clear that all of Canada’s initiatives were matters of government
policy:
[Canada] had a responsibility, as
pleaded in the Third Party Notice, to protect the health of the Canadian public
including smokers. Any initiatives it took to develop less hazardous
strains of tobacco, or to publish the tar and nicotine yields of different
cigarette brands were directed to this end. While the development of new
strains of tobacco involved Agriculture Canada, in my view the government
engaged in such activities as a regulator of the tobacco industry seeking to
protect the health interests of the Canadian public. Policy
considerations underlaid all of these various activities undertaken by
departments of the federal government. [para. 100]
[66]
In order to resolve the
issue of whether the alleged “policy” nature of Canada’s conduct negates the prima
facie duty of care for negligent misrepresentation established at stage one
of the analysis, it is necessary to first consider several preliminary matters.
(i) Conduct at Issue
[67]
The first preliminary
matter is the conduct at issue for purposes of this discussion. The
third-party notices describe two distinct types of conduct — one that is
related to the allegation of negligent misrepresentation and one that is not.
The first type of conduct relates to representations by Canada that low-tar and
light cigarettes were less harmful to health than other cigarettes. The second
type of conduct relates to Agriculture Canada’s role in developing and growing
a strain of low-tar tobacco and collecting royalties on the product. In
argument, the tobacco companies merged the two types of conduct, emphasizing
aspects that cast Canada in the role of a business operator in the tobacco
industry. However, in considering negligent misrepresentation, only the first
type of conduct — conduct relevant to statements and representations made by
Canada — is at issue.
(ii) Relevance of Evidence
[68]
This brings us to the
second and related preliminary matter — the helpfulness of evidence in
resolving the question of whether the third-party claims for negligent
misrepresentation should be struck. The majority of the Court of Appeal
concluded that evidence was required to establish whether Canada’s alleged
misrepresentations were made pursuant to a government policy. Likewise, the
tobacco companies in this Court argued strenuously that insofar as Canada was
developing, growing, and profiting from low-tar tobacco, it should not be
regarded as a government regulator or policy maker, but rather a business
operator. Evidence was required, they urged, to determine the extent to which
this was business activity.
[69]
There are two problems
with this argument. The first is that, as mentioned, it relies mainly on
conduct — the development and marketing of a strain of low-tar tobacco — that
is not directly related to the allegation of negligent misrepresentation. The
only question at this point of the analysis is whether policy considerations
weigh against finding that Canada was under a duty of care to the tobacco
companies to take reasonable care to accurately represent the qualities of
low-tar tobacco. Whether Canada produced strains of low-tar tobacco is not
directly relevant to that inquiry. The question is whether, insofar as it made
statements on this matter, policy considerations militate against holding it
liable for those statements.
[70]
The second problem with
the argument is that, as discussed above, a motion to strike is, by its very
nature, not dependent on evidence. The facts pleaded must be assumed to be
true. Unless it is plain and obvious that on those facts the action has no
reasonable chance of success, the motion to strike must be refused. To put it
another way, if there is a reasonable chance that the matter as pleaded may in
fact turn out not to be a matter of policy, then the application to strike must
be dismissed. Doubts as to what may be proved in the evidence should be
resolved in favour of proceeding to trial. The question for us is therefore
whether, assuming the facts pleaded to be true, it is plain and obvious that
any duty of care in negligent misrepresentation would be defeated on the ground
that the conduct grounding the alleged misrepresentation is a matter of
government policy and hence not capable of giving rise to liability in tort.
[71]
Before we can answer
this question, we must consider a third preliminary issue: what constitutes a
policy decision immune from review by the courts?
(iii) What
Constitutes a Policy Decision Immune From Judicial Review?
[72]
The question of what
constitutes a policy decision that is generally protected from negligence
liability is a vexed one, upon which much judicial ink has been spilled. There
is general agreement in the common law world that government policy decisions
are not justiciable and cannot give rise to tort liability. There is also
general agreement that governments may attract liability in tort where
government agents are negligent in carrying out prescribed duties. The problem
is to devise a workable test to distinguish these situations.
[73]
The jurisprudence
reveals two approaches to the problem, one emphasizing discretion, the other,
policy, each with variations. The first approach focuses on the discretionary
nature of the impugned conduct. The “discretionary decision” approach was
first adopted in Home Office v. Dorset Yacht Co., [1970] 2 W.L.R. 1140
(H.L.). This approach holds that public authorities should be exempt from
liability if they are acting within their discretion, unless the challenged decision
is irrational.
[74]
The second approach
emphasizes the “policy” nature of protected state conduct. Policy decisions
are conceived of as a subset of discretionary decisions, typically
characterized as raising social, economic and political considerations. These
are sometimes called “true” or “core” policy decisions. They are exempt from
judicial consideration and cannot give rise to liability in tort, provided they
are neither irrational nor taken in bad faith. A variant of this is the
policy/operational test, in which “true” policy decisions are distinguished
from “operational” decisions, which seek to implement or carry out settled
policy. To date, the policy/operational approach is the dominant approach in
Canada: Just; Brown v. British Columbia (Minister of Transportation
and Highways), [1994] 1 S.C.R. 420; Swinamer v. Nova Scotia (Attorney
General), [1994] 1 S.C.R. 445; Lewis (Guardian ad litem of) v.
British Columbia, [1997] 3 S.C.R. 1145.
[75]
To complicate matters,
the concepts of discretion and policy overlap and are sometimes used
interchangeably. Thus Lord Wilberforce in Anns defined policy as a
synonym for discretion (p. 754).
[76]
There is wide consensus
that the law of negligence must account for the unique role of government
agencies: Just. On the one hand, it is important for public authorities
to be liable in general for their negligent conduct in light of the pervasive
role that they play in all aspects of society. Exempting all government
actions from liability would result in intolerable outcomes. On the other
hand, “the Crown is not a person and must
be free to govern and make true policy decisions without becoming subject to
tort liability as a result of those decisions”: Just, at p. 1239. The
challenge, to repeat, is to fashion a just and workable legal test.
[77]
The main difficulty
with the “discretion” approach is that it has the potential to create an
overbroad exemption for the conduct of government actors. Many decisions can
be characterized as to some extent discretionary. For this reason, this
approach has sometimes been refined or replaced by tests that narrow the scope
of the discretion that confers immunity.
[78]
The main difficulty
with the policy/operational approach is that courts have found it notoriously
difficult to decide whether a particular government decision falls on the
policy or operational side of the line. Even low-level state employees may
enjoy some discretion related to how much money is in the budget or which of a
range of tasks is most important at a particular time. Is the decision of a
social worker when to visit a troubled home, or the decision of a snow-plow
operator when to sand an icy road, a policy decision or an operational
decision? Depending on the circumstances, it may be argued to be either or
both. The policy/operational distinction, while capturing an important element
of why some government conduct should generally be shielded from liability,
does not work very well as a legal test.
[79]
The elusiveness of a
workable test to define policy decisions protected from judicial review is
captured by the history of the issue in various courts. I begin with the House
of Lords. The House initially adopted the view that all discretionary
decisions of government are immune, unless they are irrational: Dorset
Yacht. It then moved on to a two-stage test that asked first whether the
decision was discretionary and, if so, rational; and asked second whether it
was a core policy decision, in which case it was entirely exempt from judicial
scrutiny: X v. Bedfordshire County Council, [1995] 3 All E.R. 353.
Within a year of adopting this two-stage test, the House abandoned it with a
ringing declamation of the policy/operational distinction as unworkable in
difficult cases, a point said to be evidenced by the Canadian jurisprudence: Stovin
v. Wise, [1996] A.C. 923 (H.L.), per Lord Hoffmann. In its most
recent foray into the subject, the House of Lords affirmed that both the
policy/operational distinction and the discretionary decision approach are
valuable tools for discerning which government decisions attract tort
liability, but held that the final test is a “justiciability” test: Barrett
v. Enfield London Borough Council, [2001] 2 A.C. 550. The ultimate
question on this test is whether the court is institutionally capable of
deciding on the question, or “whether the court should accept that it has no
role to play” (p. 571). Thus at the end of the long judicial voyage the
traveller arrives at a test that essentially restates the question. When
should the court hold that a government decision is protected from negligence
liability? When the court concludes that the matter is one for the government
and not the courts.
[80]
Australian judges in
successive cases have divided between a discretionary/irrationality model and a
“true policy” model. In Sutherland Shire Council v. Heyman (1985), 157
C.L.R. 424 (H.C.), two of the justices (Gibbs C.J. and Wilson J.) adopted the Dorset
Yacht rule that all discretionary decisions are immune, provided they are
rational (p. 442). They endorsed the policy/operational distinction as a
logical test for discerning which decisions should be protected, and adopted
Lord Wilberforce’s definition of policy as a synonym for discretion. Mason J.,
by contrast, held that only core policy decisions, which he viewed as a
narrower subset of discretionary decisions, were protected (p. 500). Deane J.
agreed with Mason J. for somewhat different reasons. Brennan J. did not
comment on which test should be adopted, leaving the test an open question. The
Australian High Court again divided in Pyrenees Shire Council v. Day,
[1998] HCA 3, 192 C.L.R. 330, with three justices holding that a discretionary
government action will only attract liability if it is irrational and two
justices endorsing different versions of the policy/operational distinction.
[81]
In the United States,
the liability of the federal government is governed by the Federal Tort
Claims Act of 1946, 28 U.S.C. (“FTCA”), which waived sovereign
immunity for torts, but created an exemption for discretionary decisions.
Section 2680(a) excludes liability in tort for
[a]ny claim based upon an act or
omission of an employee of the Government, exercising due care, in the
execution of a statute or regulation, whether or not such statute or regulation
be valid, or based upon the exercise or performance or the failure to
exercise or perform a discretionary function or duty on the part of a federal
agency or an employee of the Government, whether or not the discretion
involved be abused.
Significantly,
s. 2680(h) of the FTCA exempts the federal government from any claim of
misrepresentation, either intentional or negligent: Office of Personnel
Management v. Richmond, 496 U.S. 414 (1990), at p.
430; United States v. Neustadt, 366 U.S. 696 (1961).
[82]
Without detailing the
complex history of the American jurisprudence on the issue, it suffices to say
that the cases have narrowed the concept of discretion in the FTCA by
reference to the concept of policy. Some cases develop this analysis by
distinguishing between policy and operational decisions: e.g., Dalehite v.
United States, 346 U.S. 15 (1953). The Supreme Court of the United States
has since distanced itself from the approach of defining a true policy decision
negatively as “not operational”, in favour of an approach that asks whether the
impugned state conduct was based on public policy considerations. In United
States v. Gaubert, 499 U.S. 315 (1991), White J. faulted the Court of
Appeals for relying on “a nonexistent dichotomy between discretionary functions
and operational activities” (p. 326). He held that the “discretionary function
exception” of the FTCA “protects only governmental actions and
decisions based on considerations of public policy” (at p. 323, citing Berkovitz
v. United States, 486 U.S. 531 (1988), at p. 537 (emphasis added)), such as
those involving social, economic and political considerations: see also United
States v. S.A. Empresa de Viacao Aerea Rio Grandense (Varig Airlines), 467
U.S. 797 (1984).
[83]
In Gaubert, only
Scalia J. found lingering appeal in defining policy decisions as “not
operational”, but only in the narrow sense that people at the operational level
will seldom make policy decisions. He stated that “there is something to the
planning vs. operational dichotomy — though . . . not precisely what the Court
of Appeals believed” (p. 335). That “something” is that “[o]rdinarily, an
employee working at the operational level is not responsible for policy decisions,
even though policy considerations may be highly relevant to his actions”. For
Scalia J., a government decision is a protected policy decision if it “ought to
be informed by considerations of social, economic, or political policy and is
made by an officer whose official responsibilities include assessment of those
considerations”.
[84]
A review of the
jurisprudence provokes the following observations. The first is that a test
based simply on the exercise of government discretion is generally now viewed as
too broad. Discretion can imbue even routine tasks, like driving a government
vehicle. To protect all government acts that involve discretion unless they
are irrational simply casts the net of immunity too broadly.
[85]
The second observation
is that there is considerable support in all jurisdictions reviewed for the
view that “true” or “core” policy decisions should be protected from negligence
liability. The current Canadian approach holds that only “true” policy
decisions should be so protected, as opposed to operational decisions: Just.
The difficulty in defining such decisions does not detract from the fact that
the cases keep coming back to this central insight. Even the most recent
“justiciability” test in the U.K. looks to this concept for support in defining
what should be viewed as justiciable.
[86]
A third observation is
that defining a core policy decision negatively as a decision that is not an
“operational” decision may not always be helpful as a stand-alone test. It
posits a stark dichotomy between two water-tight compartments — policy
decisions and operational decisions. In fact, decisions in real life may not
fall neatly into one category or the other.
[87]
Instead of defining
protected policy decisions negatively, as “not operational”, the majority in Gaubert
defines them positively as discretionary legislative or administrative
decisions and conduct that are grounded in social, economic, and political
considerations. Generally, policy decisions are made by legislators or
officers whose official responsibility requires them to assess and balance
public policy considerations. The decision is a considered decision that
represents a “policy” in the sense of a general rule or approach, applied to a
particular situation. It represents “a course or principle of action adopted
or proposed by a government”: New Oxford Dictionary of English (1998),
at p. 1434. When judges are faced with such a course or principle of action
adopted by a government, they generally will find the matter to be a policy
decision. The weighing of social, economic, and political considerations to
arrive at a course or principle of action is the proper role of government, not
the courts. For this reason, decisions and conduct based on these
considerations cannot ground an action in tort.
[88]
Policy, used in this
sense, is not the same thing as discretion. Discretion is concerned with
whether a particular actor had a choice to act in one way or the other. Policy
is a narrow subset of discretionary decisions, covering only those decisions
that are based on public policy considerations, like economic, social and
political considerations. Policy decisions are always discretionary, in the
sense that a different policy could have been chosen. But not all
discretionary decisions by government are policy decisions.
[89]
While the main focus on
the Gaubert approach is on the nature of the decision, the role of the
person who makes the decision may be of assistance. Did the decision maker
have the responsibility of looking at social, economic or political factors and
formulating a “course” or “principle” of action with respect to a particular
problem facing the government? Without suggesting that the question can be
resolved simply by reference to the rank of the actor, there is something to Scalia
J.’s observation in Gaubert that employees working at the operational
level are not usually involved in making policy choices.
[90]
I conclude that “core
policy” government decisions protected from suit are decisions as to a course
or principle of action that are based on public policy considerations, such as
economic, social and political factors, provided they are neither irrational
nor taken in bad faith. This approach is consistent with the basic thrust of
Canadian cases on the issue, although it emphasizes positive features of policy
decisions, instead of relying exclusively on the quality of being
“non-operational”. It is also supported by the insights of emerging
jurisprudence here and elsewhere. This said, it does not purport to be a
litmus test. Difficult cases may be expected to arise from time to time where
it is not easy to decide whether the degree of “policy” involved suffices for
protection from negligence liability. A black and white test that will provide
a ready and irrefutable answer for every decision in the infinite variety of
decisions that government actors may produce is likely chimerical.
Nevertheless, most government decisions that represent a course or principle of
action based on a balancing of economic, social and political considerations
will be readily identifiable.
[91]
Applying this approach
to motions to strike, we may conclude that where it is “plain and obvious” that
an impugned government decision is a policy decision, the claim may properly be
struck on the ground that it cannot ground an action in tort. If it is not
plain and obvious, the matter must be allowed to go to trial.
(iv) Conclusion
on the Policy Argument
[92]
As discussed, the
question is whether the alleged representations of Canada to the tobacco
companies that low-tar cigarettes are less harmful to health are matters of
policy, in the sense that they constitute a course or principle of action of
the government. If so, the representations cannot ground an action in tort.
[93]
The third-party notices
plead that Canada made statements to the public (and to the tobacco companies)
warning about the hazards of smoking, and asserting that low-tar cigarettes are
less harmful than regular cigarettes; that the representations that low-tar
cigarettes are less harmful to health were false; and that insofar as
consumption caused extra harm to consumers for which the tobacco companies are
held liable, Canada is required to indemnify the tobacco companies and/or
contribute to their losses.
[94]
The third-party notices
implicitly accept that in making the alleged representations, Health Canada was
acting out of concern for the health of Canadians, pursuant to its policy of
encouraging smokers to switch to low-tar cigarettes. They assert, in effect,
that Health Canada had a policy to warn the public about the hazardous effects
of smoking, and to encourage healthier smoking habits among Canadians. The
third-party claims rest on the allegation that Health Canada accepted that some
smokers would continue to smoke despite the adverse health effects, and decided
that these smokers should be encouraged to smoke lower-tar cigarettes.
[95]
In short, the
representations on which the third-party claims rely were part and parcel of a
government policy to encourage people who continued to smoke to switch to
low-tar cigarettes. This was a “true” or “core” policy, in the sense of a
course or principle of action that the government adopted. The government’s
alleged course of action was adopted at the highest level in the Canadian government,
and involved social and economic considerations. Canada, on the pleadings,
developed this policy out of concern for the health of Canadians and the
individual and institutional costs associated with tobacco-related disease. In
my view, it is plain and obvious that the alleged representations were matters
of government policy, with the result that the tobacco companies’ claims
against Canada for negligent misrepresentation must be struck out.
[96]
Having concluded that
the claims for negligent misrepresentation are not actionable because the
alleged representations were matters of government policy, it is not necessary
to canvas the other stage-two policy grounds that Canada raised against the
third-party claims relating to negligent misrepresentation. However, since the
argument about indeterminate liability was fully argued, I will briefly discuss
it. In my view, it confirms that no liability in tort should be recognized for
Canada’s alleged misrepresentations.
(b) Indeterminate Liability
[97]
Canada submits that
allowing the defendants’ claims in negligent misrepresentation would result in
indeterminate liability, and must therefore be rejected. It submits that
Canada had no control over the number of cigarettes being sold. It argues that
in cases of economic loss, the courts must limit liability to cases where the
third party had a means of controlling the extent of liability.
[98]
The tobacco companies
respond that Canada faces extensive, but not indeterminate liability. They
submit that the scope of Canada’s liability to tobacco companies is
circumscribed by the tort of negligent misrepresentation. Canada would only be
liable to the smokers of light cigarettes and to the tobacco companies.
[99]
I agree with Canada
that the prospect of indeterminate liability is fatal to the tobacco companies’
claims of negligent misrepresentation. Insofar as the claims are based on
representations to consumers, Canada had no control over the number of people
who smoked light cigarettes. This situation is analogous to Cooper,
where this Court held that it would have declined to apply a duty of care to
the Registrar of Mortgage Brokers in respect of economic losses suffered by
investors because “[t]he Act itself imposes no limit and the Registrar has no
means of controlling the number of investors or the amount of money invested in
the mortgage brokerage system” (para. 54). While this statement was made in obiter,
the argument is persuasive.
[100]
The risk of
indeterminate liability is enhanced by the fact that the claims are for pure
economic loss. In Design Services Ltd. v. Canada, 2008 SCC 22, [2008] 1
S.C.R. 737, the Court, per Rothstein J., held that “in cases of pure
economic loss, to paraphrase Cardozo C.J., care must be taken to find that a
duty is recognized only in cases where the class of plaintiffs, the time and
the amounts are determinate” (para. 62). If Canada owed a duty of care to
consumers of light cigarettes, the potential class of plaintiffs and the amount
of liability would be indeterminate.
[101]
Insofar as the claims
are based on representations to the tobacco companies, they are at first blush
more circumscribed. However, this distinction breaks down on analysis.
Recognizing a duty of care for representations to the tobacco companies would
effectively amount to a duty to consumers, since the quantum of damages owed to
the companies in both cases would depend on the number of smokers and the
number of cigarettes sold. This is a flow-through claim of negligent
misrepresentation, where the tobacco companies are passing along their
potential liability to consumers and to the province of British Columbia. In
my view, in both cases, these claims should fail because Canada was not in control
of the extent of its potential liability.
(c) Summary on Stage-Two Policy Arguments
[102]
In my view, this Court
should strike the negligent misrepresentation claims in both cases as a result
of stage-two policy concerns about interfering with government policy decisions
and the prospect of indeterminate liability.
D. Failure to Warn
[103]
The tobacco companies
make two allegations of failure to warn: B.A.T. alleges that Canada directed
the tobacco companies not to provide warnings on cigarette packages (the
labelling claim) about the health hazards of cigarettes; and Imperial alleges
that Canada failed to warn the tobacco companies about the dangers posed by the
strains of tobacco designed and licensed by Canada.
(1) Labelling Claim
[104]
B.A.T. alleges that by
instructing the industry to not put warning labels on their cigarettes, Canada
is liable in tort for failure to warn. In the Knight case, Tysoe J.A.
did not address the failure to warn claims. Hall J.A., writing for the
minority, would have struck those claims on stage-two grounds, finding that
Canada’s decision was a policy decision and that liability would be
indeterminate. Hall J.A. also held that liability would conflict with the
government’s public duties (para. 99). In the Costs Recovery case,
Tysoe J.A. adopted Hall J.A.’s analysis from the Knight case in
rejecting the failure to warn claim as between Canada and the tobacco companies
(para. 89). B.A.T. challenges these findings.
[105]
The crux of this
failure to warn claim is essentially the same as the negligent
misrepresentation claim, and should be rejected for the same policy reasons.
The Minister of Health’s recommendations on warning labels were integral to the
government’s policy of encouraging smokers to switch to low-tar cigarettes. As
such, they cannot ground a claim in failure to warn.
(2) Failure to Warn Imperial
About Health Hazards
[106]
The Court of Appeal, per
Tysoe J.A., held that the third-party notices did not sufficiently plead that
Canada failed to warn the industry about the health hazards of its strains of
tobacco. Imperial argues that this was in error, because the elements of a
failure to warn claim are identical to the elements of the negligence claim,
which was sufficiently pleaded.
[107]
Canada points out that
the two paragraphs of the third-party notices that discuss failure to warn only
mention the claims that relate to labels, and not the claim that Canada failed
to warn Imperial about potential health hazards of the tobacco strains. Canada
also argues that to support a claim of failure to warn, the plaintiff must not
only show that the defendant acted negligently, but that the defendant was also
under a positive duty to act. It submits that nothing in the third-party
notices suggests that Canada was under such a positive duty here.
[108]
I agree with Canada
that the tort of failure to warn requires evidence of a positive duty towards
the plaintiff. Positive duties in tort law are the exception rather than the
rule. In Childs v. Desormeaux, the Court held:
Although there is no doubt that an
omission may be negligent, as a general principle, the common law is a jealous
guardian of individual autonomy. Duties to take positive action in the
face of risk or danger are not free-standing. Generally, the mere fact
that a person faces danger, or has become a danger to others, does not itself
impose any kind of duty on those in a position to become involved. [para. 31]
Moreover,
none of the authorities cited by Imperial support the proposition that a plea
of negligence, without more, will suffice to raise a duty to warn: Day v.
Central Okanagan (Regional District), 2000 BCSC 1134, 79 B.C.L.R. (3d) 36, per
Drossos J.; see also Elias v. Headache and Pain Management Clinic,
2008 CanLII 53133 (Ont. S.C.J.), per Macdonald J. (paras. 6 to 9).
[109]
Even if pleading
negligence were viewed as sufficient to raise a claim of duty to warn, which I
do not accept, the claim would fail for the stage-two policy reasons applicable
to the negligent misrepresentation claim.
E. Negligent Design
[110]
The tobacco companies
have brought two types of negligent design claims against Canada that remain to
be considered. First, they submit that Canada breached its duty of care to the
tobacco companies when it negligently designed its strains of low-tar tobacco.
The Court of Appeal held that the pleadings supported a prima facie duty
of care in this respect, but held that the duty was negated by the stage-two
policy concern of indeterminate liability. Second, Imperial submits that Canada
breached its duty of care to the consumers of light and mild cigarettes in the Knight
case. A majority of the Court of Appeal held that this claim should
proceed to trial.
[111]
In my view, both
remaining negligent design claims establish a prima facie duty of care,
but fail at the second stage of the analysis because they relate to core
government policy decisions.
(1) Prima Facie
Duty of Care
[112]
I begin with the claim
that Canada owed a prima facie duty of care to the tobacco companies.
Canada submits that there was no prima facie duty of care since there is
no proximity between Canada and the tobacco companies, relying on the same
arguments that it raises in the negligent misrepresentations claims.
[113]
In my view, the Court
of Appeal correctly concluded that Canada owed a prima facie duty of
care towards the tobacco companies with respect to its design of low-tar
tobacco strains. I agree with Tysoe J.A. that the alleged relationship in this
case meets the requirements for proximity:
If sufficient proximity exists in the
relationship between a designer of a product and a purchaser of the product, it
would seem to me to follow that there is sufficient proximity in the
relationship between the designer of a product and a manufacturer who uses the
product in goods sold to the public. Also, the designer of the product
ought reasonably to have the manufacturer in contemplation as a person who
would be affected by its design in the context of the present case. It
would have been reasonably foreseeable to the designer of the product that a
manufacturer of goods incorporating the product could be required to refund the
purchase price paid by consumers if the design of the product did not
accomplish that which it was intended to accomplish. [Knight case, para.
67]
[114]
The allegation is that
Canada was acting like a private company conducting business, and conducted
itself toward the tobacco companies in a way that established proximity. The
proximity alleged is not based on a statutory duty, but on interactions between
Canada and the tobacco companies. Canada’s argument that a duty of care would result
in conflicting private and public duties does not negate proximity arising from
conduct, although it may be a relevant stage-two policy consideration.
[115]
For similar reasons, I
conclude that on the facts pleaded, Canada owed a prima facie duty of
care to the consumers of light and mild cigarettes in the Knight case.
On the facts pleaded, it is at least arguable that Canada was acting in a
commercial capacity when it designed its strains of tobacco. As Tysoe J.A.
held in the court below, “a person who designs a product intended for sale to
the public owes a prima facie duty of care to the purchasers of the
product” (para. 48).
(2) Stage-Two Policy Considerations
[116]
For the reasons given
in relation to the negligent misrepresentation claim, I am of the view that
stage-two policy considerations negate this prima facie duty of care for
the claims of negligent design. The decision to develop low-tar strains of
tobacco on the belief that the resulting cigarettes would be less harmful to
health is a decision that constitutes a course or principle of action based on
Canada’s health policy. It was a decision based on social and economic
factors. As a core government policy decision, it cannot ground a claim for
negligent design. This conclusion makes it unnecessary to consider the
argument of indeterminate liability also raised as a stage-two policy objection
to the claim of negligent design.
F. The Direct Claims Under the Costs Recovery Acts
[117]
The tobacco companies
submit that the Court of Appeal erred when it held that it was plain and
obvious that Canada could not qualify as a manufacturer under the CRA.
They also present three alternative arguments: (1) that if Canada is not
liable under the Act, it is liable under the recently adopted Health Care
Costs Recovery Act, S.B.C. 2008, c. 27 (“HCCRA”); (2) that if Canada
is not liable under either the CRA or the HCCRA, it is
nonetheless liable to the defendants for contribution under the Negligence
Act; and (3) that in the further alternative, Canada could be liable for
contribution under the common law (joint factum of Rothmans, Benson &
Hedges (“RBH”) and Philip Morris only).
[118]
Section 2 of the CRA
establishes that “[t]he government has a direct and distinct action against a
manufacturer to recover the cost of health care benefits caused or contributed
to by a tobacco related wrong”. The words “manufacture” and “manufacturer” are
defined in s. 1(1) of the Act as follows:
1 (1) . . .
“manufacture” includes, for a tobacco product, the production, assembly or
packaging of the tobacco product;
“manufacturer” means a person who manufactures or has manufactured a tobacco
product and includes a person who currently or in the past
(a) causes,
directly or indirectly, through arrangements with contractors, subcontractors,
licensees, franchisees or others, the manufacture of a tobacco product,
(b) for
any fiscal year of the person, derives at least 10% of revenues, determined on
a consolidated basis in accordance with generally accepted accounting
principles in Canada, from the manufacture or promotion of tobacco products by
that person or by other persons,
(c) engages
in, or causes, directly or indirectly, other persons to engage in the promotion
of a tobacco product, or
(d) is
a trade association primarily engaged in
(i) the
advancement of the interests of manufacturers,
(ii) the
promotion of a tobacco product, or
(iii) causing,
directly or indirectly, other persons to engage in the promotion of a tobacco
product;
The
third-party notices allege that Canada grew (manufactured) tobacco and licensed
it to the tobacco industry for a profit, and that Canada “promoted” the use of
mild or light cigarettes to the industry and the public. These facts, they
say, bring Canada within the definition of “manufacturer” of the CRA.
[119]
Canada submits that it
is not a manufacturer under the Act. In the alternative, it submits that it is
immune from the operation of this provincial statute at common law and
alternatively under the Constitution.
[120]
For the reasons that
follow, I conclude that Canada is not a manufacturer under the Act. Indeed,
holding Canada accountable under the CRA would defeat the legislature’s
intention of transferring the health-care costs resulting from tobacco related
wrongs from taxpayers to the tobacco industry. This conclusion makes it
unnecessary to consider Canada’s arguments that it would in any event be immune
from liability under the provincial Act. I would also reject the tobacco
companies’ argument for contribution under the HCCRA and the Negligence
Act, and the common law contribution argument.
(1) Could Canada Qualify as a
Manufacturer Under the Tobacco Damages and Health Care Costs Recovery Act?
[121]
The Court of Appeal
held that the definition of “manufacturer” could not apply to the Government of
Canada. I agree. While the argument that Canada could qualify as a
manufacturer under the CRA has superficial appeal, when the Act is
read in context and all of its provisions are taken into account, it is
apparent that the British Columbia legislature did not intend for Canada to be
liable as a manufacturer. This is confirmed by the text of the statute, the
intent of the legislature in adopting the Act, and the broader context of the
relationship between the province and the federal government.
(a) Text of the Statute
[122]
The definition of
manufacturer in s. 1(1) “manufacturer” (b) of the Act includes a person
who “for any fiscal year of the person, derives at least 10% of revenues,
determined on a consolidated basis in accordance with generally accepted
accounting principles in Canada, from the manufacture or promotion of tobacco
products by that person or by other persons”. Hall J.A. held that this
definition indicated that the legislature intended the Act to apply to
companies involved in the tobacco industry, and not to governments.
[123]
The tobacco companies
respond that the definition of “manufacturer” is disjunctive since it uses the
word “or”, such that an individual will qualify as a manufacturer if it meets
any of the four definitions in (a) to (d). Even if Canada is incapable of
meeting the definition in (b) of the Act (deriving 10% of its revenues
from the manufacture or promotion of tobacco products), Canada qualifies under
subparagraphs (a) (causing the manufacture of tobacco products) and (c)
(engaging in or causing others to engage in the promotion of tobacco products)
on the facts pled, they argue.
[124]
Like the Court of
Appeal, I would reject this argument. It is true that s. 1 must be read
disjunctively, and that an individual will qualify as a manufacturer if it
meets any of the four definitions in (a) to (d). However, the Act must
nevertheless be read purposively and as a whole. A proper reading of the Act
will therefore take each of the four definitions into account. It will also
consider the rest of the statutory scheme, and the legislative context. When
the Act is read in this way, it is clear that the B.C. legislature did not
intend to include the federal government as a potential manufacturer under the CRA.
[125]
The fact that one of
the statutory definitions is based on revenue percentage suggests that the term
“manufacturer” is meant to capture businesses or individuals who earn profit
from tobacco-related activities. This interpretation is reinforced by the
provisions of the Act that establish the liability of defendants.
Section 3(3)(b) provides that “each defendant to which the presumptions
[provided in s. 3(2) of the CRA] apply is liable for the proportion of
the aggregate cost referred to in paragraph (a) equal to its market share in
the type of tobacco product”. This language cannot be stretched to include the
Government of Canada.
[126]
I conclude that the
text of the CRA, read as a whole, does not support the view that Canada
is a “manufacturer” under the Act.
(b) Legislative Intention
[127]
I agree with Canada
that considerations related to legislative intent further support the view that
Canada does not fall within the definition of “manufacturer”. When the CRA was
introduced in the legislature, the Minister responsible stated that “the
industry” manufactured a lethal product, and that “the industry” composed of
“tobacco companies” should accordingly be held accountable (B.C. Official
Report of Debates of the Legislative Assembly (Hansard), vol. 20, 4th
Sess., 36th Parl., June 7, 2000, at p. 16314). It is plain and obvious
that the Government of Canada would not fit into these categories.
[128]
Imperial submits that
it is improper to rely on excerpts from Hansard on an application to
strike a pleading, since evidence is not admissible on such an application.
However, a distinction lies between evidence that is introduced to prove a
point of fact and evidence of legislative intent that is provided to assist the
court in discerning the proper interpretation of a statute. The former is not
relevant on an application to strike; the latter may be. Applications to
strike are intended to economize judicial resources in cases where on the facts
pled, the law does not support the plaintiff’s claim. Courts may consider all
evidence relevant to statutory interpretation in order to achieve this purpose.
(c) Broader Context
[129]
The broader context of
the statute strongly supports the conclusion that the British Columbia
legislature did not intend the federal government to be liable as a
manufacturer of tobacco products. The object of the Act is to recover the cost
of providing health care to British Columbians from the companies that sold
them tobacco products. As held by this Court in British Columbia v.
Imperial Tobacco Canada Ltd., 2005 SCC 49, [2005] 2 S.C.R. 473:
[T]he driving force of the Act’s cause
of action is compensation for the government of British Columbia’s health care
costs, not remediation of tobacco manufacturers’ breaches of duty. While
the Act makes the existence of a breach of duty one of several necessary
conditions to a manufacturer’s liability to the government, it is not the
mischief at which the cause of action created by the Act is aimed. [para. 40]
The
legislature sought to transfer the medical costs from provincial taxpayers to
the private sector that sold a harmful product. This object would be
fundamentally undermined if the funds were simply recovered from the federal
government, which draws its revenue from the same taxpayers.
[130]
The tobacco companies’
proposed application of the CRA to Canada is particularly problematic in
light of the long-standing funding relationship between the federal and
provincial governments with regards to health care. The federal government has
been making health transfer payments to the provinces for decades. As held by
Hall J.A.:
If the Costs Recovery Act were
to be construed to permit the inclusion of Canada as a manufacturer targeted
for the recovery of provincial health costs, this would permit a direct
economic claim to be advanced against Canada by British Columbia to obtain
further funding for health care costs. In light of these longstanding fiscal
arrangements between governments, I cannot conceive that the legislature of
British Columbia could ever have envisaged that Canada might be a target under
the Costs Recovery Act. [para. 33]
[131]
Imperial argues that
the only way to achieve the object of the CRA is to allow the province
to recover from all those who participated in the tobacco industry, including
the federal government. I disagree. Holding the federal government
accountable under the Act would defeat the legislature’s intention of
transferring the cost of medical treatment from taxpayers to the tobacco
industry.
(d) Summary
[132]
For the foregoing
reasons, I conclude that it is plain and obvious that the federal government
does not qualify as a manufacturer of tobacco products under the CRA.
This pleading must therefore be struck.
(2) Could Canada Be Found Liable Under the Health Care Costs Recovery Act?
[133]
The tobacco companies
submit that if Canada is not liable under the CRA, it would be liable
under the HCCRA, which creates a cause of action for the province to
recover health care costs generally from wrongdoers (s. 8(1)). Canada submits
that the HCCRA is inapplicable because it provides that the cause of
action does not apply to cases that qualify as “tobacco related wrong[s]” under
the CRA (s. 24(3)(b)). RBH and Philip Morris respond that a “tobacco
related wrong” under the CRA may only be committed by a “manufacturer”.
Consequently, if the CRA does not apply to Canada because it cannot
qualify as a manufacturer, it is not open to Canada to argue that the more
general HCCRA does not apply either.
[134]
In my view, the tobacco
companies cannot rely on the HCCRA in a CRA action for
contribution. While it is true that Canada is incapable of committing a
tobacco-related wrong itself if it is not a manufacturer, the underlying cause
of action in this case is that it is the defendants who are alleged to have
committed a tobacco-related wrong. The HCCRA specifies that it does not
apply in cases “arising out of a tobacco related wrong as defined in the Tobacco
Damages and Health Care Costs Recovery Act” (s. 24(3)(b)). This precludes
contribution claims arising out of that Act.
(3) Could Canada
Be Liable for Contribution Under the Negligence Act if It Is Not
Directly Liable to British Columbia?
[135]
RBH and Philip Morris
submit that even if Canada is not liable to British Columbia, it can still be
held liable for contribution under the Negligence Act. They argue that
direct liability to the plaintiff is not a requirement for being held liable in
contribution.
[136]
As noted above, I agree
with Canada’s submission that, following Giffels, a party can only be
liable for contribution if it is also liable to the plaintiff directly.
[137]
Accordingly, I would
reject the argument that the Negligence Act in British Columbia allows
recovery from a third party that could not be liable to the plaintiff.
(4) Could Canada Be Liable for Common Law Contribution?
[138]
RBH and Philip Morris
submit that if this Court rejects the contribution claim under the Negligence
Act, it should allow a contribution claim under the common law. They rely
on this Court’s decisions in Bow Valley and Blackwater v. Plint,
2005 SCC 58, [2005] 3 S.C.R. 3, in which this Court recognized claims of
contribution which were not permitted by statute.
[139]
I would reject this
argument. In my view, the cases cited by RBH and Philip Morris support common
law contribution claims only if the third party is directly liable to the
plaintiff. In Bow Valley, the Court recognized a limited right of
contribution “between tortfeasors”, and noted that the defendants were “jointly
and severally liable to the plaintiff” (paras. 101 and 102). A similar point
was made by this Court in Blackwater (per McLachlin C.J.), which
stated that a “common law right of contribution between tortfeasors may
exist” (para. 68 (emphasis added)). There is no support in our jurisprudence
for allowing contribution claims in cases where the third party is not liable
to the plaintiff.
G. Liability
Under the Trade Practice Act and the Business Practices and Consumer Protection
Act
[140]
In the Knight
case, Imperial alleges that Canada satisfies the definition of a “supplier”
under the Trade Practice Act (“TPA”) and the Business
Practices and Consumer Protection Act (“BPCPA”). The TPA was
repealed and replaced by the BPCPA in 2004. Imperial argues that the
Court of Appeal erred in striking its claim against Canada under these
statutes.
[141]
In my view, Canada
could not qualify as a “supplier” under the Acts on the facts pled. Section 1
of the TPA defined “supplier” as follows:
1 . . .
“supplier” means a person, other than a consumer, who in the
course of the person’s business solicits, offers, advertises or promotes the
disposition or supply of the subject of a consumer transaction or who engages
in, enforces or otherwise participates in a consumer transaction, whether or
not privity of contract exists between that person and the consumer, and
includes the successor to, and assignee of, any rights or obligations of the
supplier.
Section
1(1) of the BPCPA defines “supplier” as follows:
1 (1) . . .
“supplier”
means a person, whether in British Columbia or not,
who in the course of business participates in a consumer transaction by
(a) supplying
goods or services or real property to a consumer, or
(b) soliciting,
offering, advertising or promoting with respect to a transaction referred to in
paragraph (a) of the definition of “consumer transaction”,
whether or not privity of contract
exists between that person and the consumer, and includes the successor to, and
assignee of, any rights or obligations of that person and, except in Parts 3 to
5 [Rights of Assignees and Guarantors Respecting Consumer Credit; Consumer
Contracts; Disclosure of the Cost of Consumer Credit], includes a person
who solicits a consumer for a contribution of money or other property by the
consumer;
[142]
The Court of Appeal
unanimously held that neither definition could apply to Canada because its
alleged actions were not undertaken “in the course of business”. The court held
that the pleadings allege that Canada promoted the use of mild or light
cigarettes, but only in order to reduce the health risks of smoking, not in the
course of a business carried on for the purpose of earning a profit (Knight
case, para. 35).
[143]
Imperial submits that
it is not necessary for Canada to have been motivated by profit to qualify as a
“supplier” under the Acts, provided it researched, designed and manufactured a
defective product. Canada responds that its alleged purpose of improving the
health of Canadians shows that it was not acting in the course of business.
This was not a case where a public authority was itself operating in the
private market as a business, but rather a case where a public authority sought
to regulate the industry by promoting a type of cigarette.
[144]
I accept that Canada’s
purpose for developing and promoting tobacco as described in the third-party
notice suggests that it was not acting “in the course of business” or “in the
course of the person’s business” as those phrases are used in the TPA or
the BPCPA, and therefore that Canada could not be a “supplier” under
either of those statutes. The phrases “in the course of business” and “in the
course of the person’s business” may have different meanings, depending of the
context. On the one hand, they can be read as including all activities that an
individual undertakes in his or her professional life: e.g., see discussion of
the indicia of reasonable reliance above. On the other, they can be understood
as limited to activities undertaken for a commercial purpose. In my view, the
contexts in which the phrases are used in the TPA and the BPCPA
support the latter interpretation. The definitions of “supplier” in both Acts
refer to “consumer transaction[s]”, and contrast suppliers, who must have a
commercial purpose, with consumers. It is plain and obvious from the facts
pleaded that Canada did not promote the use of low-tar cigarettes for a
commercial purpose, but for a health purpose. Canada is therefore not a
supplier under the TPA or the BPCPA, and the contribution claim
based on this ground and the Negligence Act should be struck.
[145]
Having concluded that
Canada is not liable under the TPA and the BPCPA, it is unnecessary
to consider whether, if it were, Canada would be protected by Crown immunity.
H. The Claim for Equitable Indemnity
[146]
RBH and Philip Morris
submit that if the tobacco companies are found liable in the Costs Recovery case,
Canada is liable for “equitable indemnity” on the facts pleaded. They submit
that whenever a person requests or directs another person to do something that
causes the other to incur liability, the requesting or directing person is
liable to indemnify the other for its liability. Imperial adopts this argument
in the Knight case.
[147]
Equitable indemnity is
a narrow doctrine, confined to situations of an express or implied
understanding that a principal will indemnify its agent for acting on the
directions given. As stated in Parmley v. Parmley, [1945] S.C.R. 635,
claims of equitable indemnity “proceed upon the notion of a request which one
person makes under circumstances from which the law implies that both parties
understand that the person who acts upon the request is to be indemnified if he
does so” (p. 648, quoting Bowen L.J. in Birmingham and District Land Co. v.
London and North Western Railway Co. (1886), 34 Ch. D. 261, at p. 275.
[148]
In my view, the Court
of Appeal, per Hall J.A., correctly held that the tobacco companies
could not establish this requirement of the claim:
[I]f the notional reasonable observer
were asked whether or not Canada, in the interaction it had over many decades
with the appellants, was undertaking to indemnify them from some future liability
that might be incurred relating to their business, the observer would reply
that this could not be a rational expectation, having regard to the
relationship between the parties. Likewise, if Canada through its agents
had been specifically asked or a suggestion had been made to its agents by
representatives of the appellants that Canada might in future be liable for any
such responsibility or incur such a liability, the answer would have been
firmly in the negative. [Costs Recovery case, para. 57]
When
Canada directed the tobacco industry about how it should conduct itself, it was
doing so in its capacity as a government regulator that was concerned about the
health of Canadians. Under such circumstances, it is unreasonable to infer
that Canada was implicitly promising to indemnify the industry for acting on
its request.
I. Procedural Considerations
[149]
In the courts below,
the tobacco companies argued that even if the claims for compensation against
Canada are struck, Canada should remain a third party in the litigation for
procedural reasons. The tobacco companies argued that their ability to mount
defences against British Columbia in the Costs Recovery case and the
class members in the Knight case would be severely prejudiced if Canada
was no longer a third party. This argument was rejected in chambers by both
Wedge J. and Satanove J. The majority of the Court of Appeal found it
unnecessary to consider the question, while Hall J.A. would have affirmed the
holdings of the chambers judges.
[150]
The tobacco companies
did not pursue this issue on appeal. I would affirm the findings of Wedge J.,
Satanove J. and Hall J.A. and strike the claims for declaratory relief.
V. Conclusion
[151]
I conclude that it is
plain and obvious that the tobacco companies’ claims against Canada have no
reasonable chance of success, and should be struck out. Canada’s appeals in the
Costs Recovery case and the Knight case are allowed, and
the cross-appeals are dismissed. Costs are awarded throughout against Imperial
in the Knight case, and against the tobacco companies in the Costs
Recovery case. No costs are awarded against or in favour of British
Columbia in the Costs Recovery case.
Appeals
allowed and cross‑appeals dismissed with costs.
Solicitor
for the appellants/respondents on cross‑appeal (33559‑33563): Attorney
General of Canada, Ottawa.
Solicitors
for the respondent/appellant on cross‑appeal Imperial Tobacco Canada
Limited (33559): Hunter Litigation Chambers Law Corporation,
Vancouver.
Solicitors
for the respondent Her Majesty the Queen in Right of British Columbia
(33563): Bull, Housser & Tupper, Vancouver.
Solicitors
for the respondent/appellant on cross‑appeal Imperial Tobacco Canada
Limited (33563): Osler, Hoskin & Harcourt, Toronto.
Solicitors
for the respondents/appellants on cross‑appeal Rothmans, Benson &
Hedges Inc. and Rothmans Inc. (33563): Affleck Hira Burgoyne,
Vancouver.
Solicitors
for the respondents/appellants on cross‑appeal JTI‑MacDonald Corp.,
R.J. Reynolds Tobacco Company and R.J. Reynolds Tobacco International Inc.
(33563): Farris, Vaughan, Wills & Murphy, Vancouver.
Solicitors
for the respondents/appellants on cross‑appeal B.A.T. Industries p.l.c.
and British American Tobacco (Investments) Limited (33563): Sugden,
McFee & Roos, Vancouver.
Solicitors
for the respondent/appellant on cross‑appeal Carreras Rothmans Limited
(33563): Harper Grey, Vancouver.
Solicitors
for the respondent/appellant on cross‑appeal Philip Morris U.S.A. Inc.
(33563): Davis & Company, Vancouver.
Solicitors
for the respondent/appellant on cross‑appeal Philip Morris International
Inc. (33563): McCarthy Tétrault, Montréal.
Solicitor
for the intervener the Attorney General of Ontario (33559‑33563): Attorney
General of Ontario, Toronto.
Solicitors
for the intervener Her Majesty the Queen in Right of the Province of New
Brunswick (33563): Bennett Jones, Toronto.
Solicitor
for the intervener the Attorney General of British Columbia (33559‑33563): Attorney
General of British Columbia, Victoria.
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