Her Majesty The Queen in Right of Canada Appellant / Respondent on cross-appeal v. Imperial Tobacco Canada Limited, 2011 SCC 42

SUPREME COURT OF CANADA Citation: R. v.

Imperial Tobacco Canada Ltd., 2011 SCC 42 , [2011] 3 S.C.R. 45 Date: 20110729 Docket: 33559, 33563 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. H eld : 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 decisionsprotected 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 andparcel of a government policy, adopted at the highest level in the Canadian government and developed out of concern for the health ofCanadians and the individual and institutional costs associated with tobacco-related disease, to encourage people who continued tosmoke 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 thequantum of damages owed by Canada to the companies in both cases would depend on the number of smokers and the number ofcigarettes 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 toprovide warnings on cigarette packages about the health hazards of cigarettes and (2) that Canada failed to warn the tobacco companiesabout the dangers posed by the strains of tobacco it designed and licensed. These two claims should be struck.

The crux of the firstclaim is essentially the same as the negligent misrepresentation claim, and should be rejected for the same policy reasons. The Ministerof Health’s recommendations on warning labels were integral to the government’s policy of encouraging smokers to switch to low-tarcigarettes. As such, they cannot ground a claim in failure to warn. The same is true of the second claim. While the tort of failure towarn requires evidence of a positive duty towards the plaintiff, nothing in the third-party notices suggests that Canada was under such apositive 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 forthe 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 Canadabreached 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 claimsestablish a prima facie duty of care. With respect to Canada’s design of low-tar tobacco strains, the proximity alleged with the tobaccocompanies is not based on a statutory duty, but on commercial interactions between Canada and the tobacco companies. In the Knightcase also, it is at least arguable that Canada was acting in a commercial capacity towards the consumers of light and mild cigarettes whenit designed its strains of tobacco.

However, the decision to develop low-tar strains of tobacco on the belief that the resulting cigaretteswould be less harmful to health is a decision that constitutes a course or principle of action based on Canada’s health policy and based onsocial and economic factors. As a core government policy decision, it cannot ground a claim for negligent design. These claims shouldaccordingly 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” underthe CRA should be struck.

It is plain and obvious that the federal government does not qualify as a manufacturer of tobacco under thatAct. When the Act is read in context and all of its provisions are taken into account, it is apparent that the British Columbia legislaturedid not intend Canada to be liable as a manufacturer. This is confirmed by the text of the statute, the intent of the legislature in adoptingthe Act, and the broader context of the relationship between the province and the federal government.

Holding Canada accountableunder the CRA would defeat the legislature’s intention of transferring the health-care costs resulting from tobacco-related wrongs fromtaxpayers to the tobacco industry. Similarly, the tobacco companies cannot rely on the recently adopted Health Care Costs Recovery Actin an action for contribution under the CRA. Finally, Canada could not be liable for contribution under the Negligence Act or at commonlaw 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 BusinessPractices and Consumer Protection Act which replaced it should also be struck. Canada’s purpose for developing and promotingtobacco 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’sbusiness” as those phrases are used in those statutes. Those phrases must be understood as limited to activities undertaken for acommercial purpose.

Here, it is plain and obvious from the facts pleaded that Canada did not promote the use of low-tar cigarettes for acommercial 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, confinedto situations of an express or implied understanding that a principal will indemnify its agent for acting on the directions given.

WhenCanada directed the tobacco industry about how it should conduct itself, it was doing so in its capacity as a government regulator thatwas concerned about the health of Canadians. Under such circumstances, it is unreasonable to infer that Canada was implicitlypromising 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 beseverely 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., (SCC), [1990] 2 S.C.R. 959; Anns v. Merton London Borough Council, [1978] A.C. 728; Cooper v. Hobart, 2001 SCC 79, [2001] 3S.C.R. 537; Hercules Managements Ltd. v. Ernst & Young, (SCC), [1997] 2 S.C.R. 165; referred to: Syl Apps SecureTreatment Centre v. B.D., 2007 SCC 38, [2007] 3 S.C.R. 83; Attorney General of Canada v. Inuit Tapirisat of Canada, (SCC), [1980] 2 S.C.R. 735; Donoghue v. Stevenson, (FOREP), [1932] A.C. 562; Hedley Byrne & Co. v. Heller &

Partners, Ltd., [1963] 2 All E.R. 575; Operation Dismantle Inc. v. The Queen, (SCC), [1985] 1 S.C.R. 441; GiffelsAssociates Ltd. v. Eastern Construction Co., (SCC), [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 NationalRailway Co. v. Norsk Pacific Steamship Co., (SCC), [1992] 1 S.C.R. 1021; Bow Valley Husky (Bermuda) Ltd. v. SaintJohn Shipbuilding Ltd., (SCC), [1997] 3 S.C.R. 1210; Fullowka v. Pinkerton’s of Canada Ltd., 2010 SCC 5, [2010] 1S.C.R. 132; Heaslip Estate v.

Mansfield Ski Club Inc., 2009 ONCA 594, 96 O.R. (3d) 401; Eliopoulos Estate v. Ontario (Minister ofHealth and Long-Term Care) (2006), (ON CA), 276 D.L.R. (4th) 411; Just v. British Columbia, (SCC), [1989] 2 S.C.R. 1228; Home Office v. Dorset Yacht Co., [1970] 2 W.L.R. 1140; Brown v. British Columbia (Minister ofTransportation and Highways), (SCC), [1994] 1 S.C.R. 420; Swinamer v. Nova Scotia (Attorney General), (SCC), [1994] 1 S.C.R. 445; Lewis (Guardian ad litem of) v. British Columbia, (SCC), [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 BoroughCouncil, [2001] 2 A.C. 550; Sutherland Shire Council v. Heyman (1985), 1988 ABCA 234 , 157 C.L.R. 424; Pyrenees ShireCouncil 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); Berkovitzv. 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 BCSC1134, 79 B.C.L.R. (3d) 36; Elias v. Headache and Pain Management Clinic, ; British Columbia v. Imperial TobaccoCanada 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, (SCC), [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, Tysoeand 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, 2007BCSC 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, Tysoeand 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, 2008BCSC 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 inRight of Canada (33559). Paul Vickery, John S.

Tyhurst and Travis Henderson, for the appellant/respondent on cross-appeal the Attorney General ofCanada (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 — TABLE OF CONTENTS Paragraph I. Introduction ....................................................................................................... 1 II.

Underlying Claims and Judicial History ............................................................... 6 A. The Knight Case .............................................................................................. 6 B. The Costs Recovery Case .............................................................................. 11 III. Issues Before the Court ................................................................................... 15 IV. Analysis ........................................................................................................... 17 A.

The Test for Striking Out Claims ................................................................... 17 B. Canada’s Alleged Duties of Care to Smokers in the Costs Recovery Case ............................................................................................................... 27 C. The Claims for Negligent Misrepresentation ................................................. 32

(1) Stage One: Proximity and Foreseeability .......................................................... 40

(2) Stage Two: Conflicting Policy Considerations .................................................. 61 (

a) Government Policy Decisions ........................................................................ 63 (

i) Conduct at Issue .............................................................................................. 67 (ii) Relevance of Evidence ..................................................................................... 68 (iii) What Constitutes a Policy Decision Immune From Judicial Review? .................. 72 (iv) Conclusion on the Policy Argument .................................................................. 92 (

b) Indeterminate Liability .................................................................................. 97 (

c) Summary on Stage-Two Policy Arguments ................................................. 102

D. Failure to Warn ........................................................................................... 103

(1) Labelling Claim .............................................................................................. 104

(2) Failure to Warn Imperial About Health Hazards ............................................. 106 E. Negligent Design .......................................................................................... 110

(1) Prima Facie Duty of Care ............................................................................ 112

(2) Stage-Two Policy Considerations .................................................................. 116 F. The Direct Claims Under the Costs Recovery Acts ..................................... 117

(1) Could Canada Qualify as a Manufacturer Under the Tobacco Damages and Health Care Costs Recovery Act ? ........................................ 121 (

a) Text of the Statute ....................................................................................... 122 (

b) Legislative Intention .................................................................................... 127 (

c) Broader Context .......................................................................................... 129 (

d) Summary ...................................................................................................... 132

(2) Could Canada Be Found Liable Under the Health Care Costs Recovery Act ? .............................................................................................................. 133

(3) Could Canada Be Liable for Contribution Under the Negligence Act if It Is Not Directly Liable to British Columbia? ............................................... 135

(4) Could Canada Be Liable for Common Law Contribution? .............................. 138 G. Liability Under the Trade Practice Act and the Business Practices and Consumer Protection Act ............................................................................ 140 H. The Claim for Equitable Indemnity ............................................................. 146 I. Procedural Considerations .......................................................................... 149 V. Conclusion .................................................................................................... 151 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 BritishColumbia under the CRA.

(3) Canada breached its private law duties owed to the tobacco companies for failure to warn and negligent design, andnegligently misrepresented the attributes of low-tar cigarettes. The tobacco companies allege that they are entitled to damages againstCanada 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, 82B.C.L.R. (4th) 362). In the Court of Appeal, the majority, per Tysoe J.A., allowed the negligent misrepresentation claim betweenCanada and the tobacco companies to proceed (2009 BCCA 540, 98 B.C.L.R. (4th) 201). Hall J.A., dissenting, would have struck all thethird-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 negligentmisrepresentation, negligent design and failure to warn, and in equitable indemnity. To reduce duplication, I treat the issues common toboth cases together. [16] There are also issues and arguments that are distinct in the two cases.

Uniquely in the Costs Recovery case, Canadaargues that all the contribution claims based on the Negligence Act and Canada’s alleged duties of care to smokers should be struckbecause even if these alleged duties were breached, Canada would not be liable to the sole plaintiff British Columbia. The statutoryclaims 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 tosmokers 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 theCRA 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 bestruck 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 nonethelessentitled to declaratory relief against Canada so that it will remain a party to both actions and be subject to discovery procedures under theSupreme 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 isplain 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., (SCC), [1990] 2 S.C.R. 959, atp. 980. Another way of putting the test is that the claim has no reasonable prospect of success. Where a reasonable prospect of successexists, the matter should be allowed to proceed to trial: see, generally, Syl Apps Secure Treatment Centre v.

B.D., 2007 SCC 38, [2007] 3S.C.R. 83; Odhavji Estate; Hunt; Attorney General of Canada v. Inuit Tapirisat of Canada, (SCC), [1980] 2 S.C.R. 735. [18] Although all agree on the test, the arguments before us revealed different conceptions about how it should beapplied. 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 measureessential to effective and fair litigation.

It unclutters the proceedings, weeding out the hopeless claims and ensuring that those that havesome 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 thathave 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 tojudges and juries, whose attention is focused where it should be — on claims that have a reasonable chance of success. The efficiencygained 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 thoseissues 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, (FOREP),[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 snailin 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 negligentmisstatement would have been regarded as incapable of success.

The history of our law reveals that often new developments in the lawfirst surface on motions to strike or similar preliminary motions, like the one at issue in Donoghue v. Stevenson. Therefore, on a motionto strike, it is not determinative that the law has not yet recognized the particular claim. The court must rather ask whether, assumingthe facts pleaded are true, there is a reasonable prospect that the claim will succeed.

The approach must be generous and err on the sideof 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 aretrue, unless they are manifestly incapable of being proven: Operation Dismantle Inc. v. The Queen, (SCC), [1985] 1S.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 SupremeCourt Civil Rules). It is incumbent on the claimant to clearly plead the facts upon which it relies in making its claim.

A claimant is notentitled 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 thefacts 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 thefirm basis upon which the possibility of success of the claim must be evaluated.

If they are not pleaded, the exercise cannot be properlyconducted. [23] Before us, Imperial and the other tobacco companies argued that the motion to strike should take into account, notonly the facts pleaded, but the possibility that as the case progressed, the evidence would reveal more about Canada’s conduct and rolein 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 ormight 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 evidenceappearing at a future date is the issue of speculation. The judge on a motion to strike asks if the claim has any reasonable prospect ofsuccess. In the world of abstract speculation, there is a mathematical chance that any number of things might happen. That is not whatthe test on a motion to strike seeks to determine.

Rather, it operates on the assumption that the claim will proceed through the courtsystem 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 developfrom) statutes and precedent. The question is whether, considered in the context of the law and the litigation process, the claim has noreasonable 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 tosmokers must be struck. Under the Negligence Act, Canada submits, contribution may only be awarded if the third party would be liableto 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 wassuccessful in the Court of Appeal. [28] The tobacco companies argue that direct liability to the plaintiff is not a requirement for being held liable incontribution. They argue that contribution in the Negligence Act turns on fault, not liability.

The object of the Negligence Act is to allowdefendants to recover from other parties that were also at fault for the damage that resulted to the plaintiff, and barring a claim againstCanada 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 theNegligence Act if it is directly liable to the plaintiff. In Giffels Associates Ltd. v. Eastern Construction Co., (SCC),[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 toappreciate how a claim for contribution can be made under s. 2(1) by one person against another in respect of loss resulting to a thirdperson 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 arisefrom an alleged duty of care to consumers must be struck.

Even if Canada breached duties to smokers, this would have no effect onwhether it was liable to British Columbia, the plaintiff in that case. This holding has no bearing on the consumer claim in the Knightcase 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 basedon Canada’s alleged duties of care to the tobacco companies in both cases before the Court, and Canada’s alleged duties to consumers inthe 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 Knightcase, Imperial alleges that Canada negligently misrepresented the health attributes of low-tar cigarettes to consumers, and is thereforeliable for contribution and indemnity on the basis of the Negligence Act if the class members are successful in this suit.

Second, in bothcases before the Court, Imperial and the other tobacco companies allege that Canada made negligent misrepresentations to the tobaccocompanies, 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 thatCanada represented to consumers and to tobacco companies that light or mild cigarettes were less harmful, and that these representationswere not accurate. We must also accept that consumers and the tobacco companies relied on Canada’s representations and acted on themto their detriment. [35] The law first recognized a tort action for negligent misrepresentation in Hedley Byrne. Prior to this, parties wereconfined to contractual remedies for misrepresentations.

Hedley Byrne represented a break with this tradition, allowing a claim foreconomic 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 disclosedsufficient 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 thesettled parameters of the tort of negligent misrepresentation, and therefore a prima facie duty of care is established.

The majority in theCourt 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 tobaccocompanies 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 Childsv. Desormeaux, 2006 SCC 18, [2006] 1 S.C.R. 643, at para. 15.

However, it is important to note that liability for negligentmisrepresentation depends on the nature of the relationship between the plaintiff and defendant, as discussed more fully below. Thequestion is not whether negligent misrepresentation is a recognized tort, but whether there is a reasonable prospect that the relationshipalleged 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.

Thelaw of negligent misrepresentation has thus far not recognized liability in the kinds of relationships at issue in these cases. The error ofthe tobacco companies lies in assuming that the relationships disclosed by the pleadings between Canada and the tobacco companies onthe one hand and between Canada and consumers on the other are like other relationships that have been held to give rise to liability fornegligent misrepresentation. In fact, they differ in important ways.

It is sufficient at this point to note that the tobacco companies havenot been able to point to any case where a government has been held liable in negligent misrepresentation for statements made to anindustry. To determine whether such a cause of action has a reasonable prospect of success, we must therefore consider whether thegeneral 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 totake reasonable care might foreseeably cause loss or harm to the plaintiff. If this is established, a prima facie duty of care arises and theanalysis proceeds to the second stage, which asks whether there are policy reasons why this prima facie duty of care should not berecognized: 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 anddirect, or “proximate”, relationship between Canada and consumers (in the Knight case) and between Canada and tobacco companies (inboth cases) to support a duty of care with respect to government statements about light and mild cigarettes.

They also argue that Canadacould reasonably have foreseen that consumers and the tobacco industry would rely on Canada’s statements about the health advantagesof light cigarettes, and that such reliance was reasonable. Canada responds that it was acting exclusively in a regulatory capacity when itmade statements to the public and to the industry, which does not give rise to sufficient proximity to ground the alleged duty of care.

Inthe Costs Recovery case, Canada also alleges that it could not have reasonably foreseen that the B.C. legislature would enact the CRAand 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 arelationship 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 sufficientcloseness, 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 negligentmisrepresentation: see, generally, Canadian National Railway Co. v. Norsk Pacific Steamship Co., (SCC), [1992] 1S.C.R. 1021; Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., (SCC), [1997] 3 S.C.R. 1210.

In aclaim of negligent misrepresentation, both these requirements for a prima facie duty of care are established if there was a “specialrelationship” between the parties: Hercules Managements Ltd. v. Ernst & Young, (SCC), [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 defendantought reasonably to foresee that the plaintiff will rely on his or her representation; and (2) reliance by the plaintiff would be reasonable inthe circumstances of the case (ibid.).

Where such a relationship is established, the defendant may be liable for losses suffered by theplaintiff 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 primafacie duty of care. Two situations may be distinguished. The first is the situation where the alleged duty of care is said to arise explicitlyor by implication from the statutory scheme.

The second is the situation where the duty of care is alleged to arise from interactionsbetween 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 toa 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. Somestatutes 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 toinfer that the legislature intended to create private law tort duties to claimants. This may be even more difficult if the recognition of aprivate 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 policyreason 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, atpara. 39). [45] The second situation is where the proximity essential to the private duty of care is alleged to arise from a series ofspecific interactions between the government and the claimant.

The argument in these cases is that the government has, through itsconduct, entered into a special relationship with the plaintiff sufficient to establish the necessary proximity for a duty of care. In thesecases, the governing statutes are still relevant to the analysis. For instance, if a finding of proximity would conflict with the state’sgeneral public duty established by the statute, the court may hold that no proximity arises: Syl Apps; see also Heaslip Estate v. MansfieldSki 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 thespecific 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 thegovernment’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, thereis any reasonable prospect of successfully establishing proximity, on the basis of a statute or otherwise.

On one hand, where the solebasis asserted for proximity is the statute, conflicting public duties may rule out any possibility of proximity being established as a matterof statutory

interpretation: Syl Apps. On the other, where the asserted basis for proximity is grounded in specific conduct andinteractions, ruling a claim out at the proximity stage may be difficult.

So long as there is a reasonable prospect that the assertedinteractions could, if true, result in a finding of sufficient proximity, and the statute does not exclude that possibility, the matter must beallowed to proceed to trial, subject to any policy considerations that may negate the prima facie duty of care at the second stage of theanalysis. [48] As mentioned above, there are two relationships at issue in these claims: the relationship between Canada andconsumers (the Knight case), and the relationship between Canada and tobacco companies (both cases).

The question at this stage iswhether 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 aprima 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 Canadaand the consumers of light cigarettes. The relationship between the two was limited to Canada’s statements to the general public thatlow-tar cigarettes are less hazardous.

There were no specific interactions between Canada and the class members. Consequently, afinding 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. TheDepartment of Health Act, S.C. 1996, c. 8, establishes that the duties of the Minister of Health relate to “the promotion and preservationof 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 toparticular individuals. To borrow the words of Sharpe J.A. of the Ontario Court of Appeal in Eliopoulos Estate v.

Ontario (Minister ofHealth and Long-Term Care) (2006), (ON CA), 276 D.L.R. (4th) 411, “I fail to see how it could be possible toconvert any of the Minister’s public law discretionary powers, to be exercised in the general public interest, into private law duties owedto specific individuals”: para. 17. At the same time, the governing statutes do not foreclose the possibility of recognizing a duty of careto the tobacco companies.

Recognizing a duty of care on the government when it makes representations to the tobacco companies aboutthe 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 theCourt, the tobacco companies contend that a duty of care on Canada arose from the transactions between them and Canada over theyears.

They allege that Canada went beyond its role as regulator of industry players and entered into a relationship of advising andassisting 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 specialrelationship under the law of negligent misrepresentation as set out in Hercules Managements.

As noted above, a special relationshipwill 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 ofinteractions 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-partystatement of claim of Imperial in the Costs Recovery case, A.R., vol. II, at p. 66).

In addition, it is alleged that Agriculture Canadacarried 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 thispolicy, promoted this variety of cigarette and developed strains of low-tar tobacco. Canada argues that statements made pursuant to thispolicy cannot ground tort liability. It relies on the statement of Cory J. in Just v.

British Columbia, (SCC), [1989] 2S.C.R. 1228, that “[t]rue policy decisions should be exempt from tortious claims so that governments are not restricted in makingdecisions 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 actsimplementing policy, and therefore, are subject to tort liability.

They submit that Canada’s argument fails to account for the “facts” aspleaded 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 pursuantto 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, holdingthat “evidence is required to determine which of the actions and statements of Canada in this case were policy decisions and which wereoperational decisions” (para. 52).

Hall J.A. dissented; in his view, it was clear that all of Canada’s initiatives were matters ofgovernment policy: [Canada] had a responsibility, as pleaded in the Third Party Notice, to protect the health of the Canadian public including smokers. Anyinitiatives it took to develop less hazardous strains of tobacco, or to publish the tar and nicotine yields of different cigarette brands weredirected to this end.

While the development of new strains of tobacco involved Agriculture Canada, in my view the government engagedin such activities as a regulator of the tobacco industry seeking to protect the health interests of the Canadian public.

Policyconsiderations 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 dutyof care for negligent misrepresentation established at stage one of the analysis, it is necessary to first consider several preliminarymatters. (

i) Conduct at Issue [67] The first preliminary matter is the conduct at issue for purposes of this discussion. The third-party notices describetwo distinct types of conduct — one that is related to the allegation of negligent misrepresentation and one that is not. The first type ofconduct relates to representations by Canada that low-tar and light cigarettes were less harmful to health than other cigarettes. Thesecond type of conduct relates to Agriculture Canada’s role in developing and growing a strain of low-tar tobacco and collectingroyalties on the product.

In argument, the tobacco companies merged the two types of conduct, emphasizing aspects that cast Canada inthe role of a business operator in the tobacco industry. However, in considering negligent misrepresentation, only the first type ofconduct — 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 questionof whether the third-party claims for negligent misrepresentation should be struck.

The majority of the Court of Appeal concluded thatevidence 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-tartobacco, it should not be regarded as a government regulator or policy maker, but rather a business operator. Evidence was required, theyurged, 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 — thedevelopment 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 ofcare to the tobacco companies to take reasonable care to accurately represent the qualities of low-tar tobacco. Whether Canada producedstrains 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, notdependent on evidence. The facts pleaded must be assumed to be true. Unless it is plain and obvious that on those facts the action hasno reasonable chance of success, the motion to strike must be refused.

To put it another way, if there is a reasonable chance that thematter 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 whatmay be proved in the evidence should be resolved in favour of proceeding to trial.

The question for us is therefore whether, assumingthe facts pleaded to be true, it is plain and obvious that any duty of care in negligent misrepresentation would be defeated on the groundthat the conduct grounding the alleged misrepresentation is a matter of government policy and hence not capable of giving rise toliability in tort. [71] Before we can answer this question, we must consider a third preliminary issue: what constitutes a policy decisionimmune 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 decisionsare not justiciable and cannot give rise to tort liability. There is also general agreement that governments may attract liability in tortwhere government agents are negligent in carrying out prescribed duties. The problem is to devise a workable test to distinguish thesesituations. [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 wasfirst adopted in Home Office v. Dorset Yacht Co., [1970] 2 W.L.R. 1140 (H.L.). This approach holds that public authorities should beexempt from liability if they are acting within their discretion, u

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