Before: The Honourable Madam Justice Wedge

Reasons for Judgment
Application to Strike Third Party Notices

Counsel for the Plaintiff	Daniel A. Webster, Q.C. Ryan D.W. Dalziel James A. Duvall
Counsel for the Defendant Imperial Tobacco Canada Limited	David Harris, Q.C. Deborah A. Glendinning
Counsel for the Defendants Rothmans, Benson & Hedges Inc., and Rothmans Inc.	Kenneth N. Affleck, Q.C.
Counsel for the Defendants JTI-MacDonald Corp., R.J. Reynolds Tobacco Company, R.J. Reynolds Tobacco International, Inc.	Jeffrey J. Kay, Q.C. Robert J. McDonell
Counsel for the Defendants B.A.T. Industries p.l.c., British American Tobacco (Investments) Limited	Craig P. Dennis Michael D. Shirreff
Counsel for the Defendant Carreras Rothmans Limited	Bryan G. Baynham, Q.C.
Counsel for the Third Party	William M. Everett, Q.C. Rodney L. Hayley Paul Vickery Marko Vesely Monika A. Lozinska-Legault
Date and Place of Trial/Hearing:	March 3-6, 2008
	Vancouver, B.C.

I. Introduction

[1] The Tobacco Damages and Health Care Costs Recovery Act, S.B.C. 2000, c. 30 (the “Costs Recovery Act”) authorizes the government of British Columbia to bring an action against a manufacturer of tobacco products for the recovery of health care expenditures incurred in the treatment and care of individuals with diseases contracted through exposure to tobacco products.

[2] Shortly after the Costs Recovery Act came into force in January 2001, British Columbia commenced an action against numerous tobacco manufacturers, both Canadian and foreign (collectively, “the Defendants”).

[3] Several of the Canadian Defendants (namely Rothmans, Imperial Tobacco and JTI-MacDonald) commenced third party proceedings against the Attorney General of Canada (“Canada”) in June, 2007. A number of the foreign Defendants (namely B.A.T. Industries, Carreras, R.J. Reynolds and R.J. Reynolds International) commenced third party proceedings against Canada in November, 2007.

[4] The remaining Defendants did not bring third party proceedings.

[5] Broadly summarized, the Third Party Notices seek the following relief against Canada:

a) A declaration that the Defendants committed no “tobacco-related wrong”;

b) Alternatively, a declaration that if British Columbia incurred the cost of health care benefits as alleged, those costs were caused or contributed to by the conduct or breaches of duty of care of officials of Canada, and accordingly that the Defendants’ liability, if any, be extinguished or reduced;

c) Alternatively, a declaration that damages against Canada be measured by the extent of any liability of the Defendants to British Columbia;

d) Alternatively, an order that Canada indemnify in whole or in part the Defendants to the extent of any liability of the Defendants to British Columbia;

e) Alternatively, contribution and indemnity pursuant to the provisions of the Negligence Act, R.S.B.C. 1996, c. 333 based on Canada’s conduct as a “manufacturer” of tobacco within the meaning of the Costs Recovery Act.

II. The Present Application

[6] Canada applies under Rule 19(24)(a) of the Rules of Court for an order that the Third Party Notices be struck out as disclosing no reasonable cause of action.

[7] Canada advances the following grounds in support of its position that the third party proceedings are bound to fail:

1) Canada cannot be bound by provincial legislation and, in particular, is immune from liability under the Costs Recovery Act;

2) In the alternative, Canada and its officials are not “manufacturers” within the meaning of the Costs Recovery Act;

3) In the further alternative, Canada owes no private law duty of care to any of the Defendants or to consumers of tobacco products; and

4) There is no basis for a claim for equitable indemnity, contribution pursuant to the Negligence Act.

Preliminary Issues

[8] In the event that British Columbia lacks the legislative capacity to bind Canada under the Costs Recovery Act, the Third Party Notices must be struck without regard to the remaining issues with one exception. The Defendants argue that even if Canada is immune from liability, the third party claims for declaratory relief should be allowed to proceed for procedural reasons (British Columbia Ferry Corp. v. T & N plc (1995), 16 B.C.L.R. (3d) 115, 65 B.C.A.C. 118) [B.C. Ferry]. They say they are entitled to defend the action on the basis of Canada’s role in the tobacco industry over the past fifty years, and will be prejudiced if Canada does not remain bound as a third party by the Rules of Court.

[9] Accordingly, the issues for determination in the first instance are the following:

A. Canada’s Immunity:

(1) Is the Federal Crown immune from liability as a result of the doctrine of Crown immunity?

(2) If so, does British Columbia nevertheless have the capacity to bind the Federal Crown through legislation?

(3) Does the Costs Recovery Act create an action in tort such that the Crown Liability and Proceedings Act, R.S.C. 1985, c. C-50 (the “CLPA”) applies?

B. If Canada is immune from liability, does the immunity defeat the Defendants’ claims for declaratory relief against Canada?

Disposition

[10] I have concluded that the Third Party Notices must be struck on the following grounds:

1. It is plain and obvious that the allegations cannot succeed because Canada is immune to liability under the province’s Costs Recovery Act; and

2. Canada’s immunity precludes all proceedings against it, including third party proceedings for declaratory relief.

III. Background

The Legislation

[11] Section 2 of the Costs Recovery Act creates a “direct and distinct” cause of action against a tobacco manufacturer to recover health care costs of insured persons or a population of insured persons. The section provides, in part, as follows:

2 (1) The 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.

(2) An action under subsection (1) is brought by the government in its own right and not on the basis of a subrogated claim.

(3) In an action under subsection (1), the government may recover the cost of health care benefits whether or not there has been any recovery by other persons who have suffered damage caused or contributed to by the tobacco related wrong committed by the defendant.

(4) In an action under subsection (1), the government may recover the cost of health care benefits

(a) for particular individual insured persons, or

(b) on an aggregate basis, for a population of insured persons as a result of exposure to a type of tobacco product.

[12] Section 2(5) provides that where the government seeks to recover health care costs on an aggregate basis, it is not necessary to identify particular individuals or prove the cause of tobacco related disease in any particular individual.

[13] Section 3(1) of the Costs Recovery Act addresses recovery of health care costs on an aggregate basis. Pursuant to the section, British Columbia must prove, in respect of a type of tobacco product, the following three factors on a balance of probabilities:

(a) the defendant breached a common law, equitable or statutory duty or obligation owed to persons in British Columbia who have been exposed or might become exposed to the type of tobacco product,

(b) exposure to the type of tobacco product can cause or contribute to disease, and

(c) during all or part of the period of the breach referred to in paragraph (a), the type of tobacco product, manufactured or promoted by the defendant, was offered for sale in British Columbia.

[14] Under s. 3(4), a defendant may reduce its liability to the extent that it proves its breach of duty did not cause or contribute to the exposure to the tobacco product or to the tobacco related disease or risk of disease.

[15] Section 1(1) defines a “manufacturer” as a “person who manufactures or has manufactured a tobacco product”. The definition includes a person who, at present or in the past:

(a) causes, directly or indirectly, through arrangements with contractors, subcontractors, licensees, franchisees or others, the manufacture of a tobacco product,

...

[16] The definition of “manufacturer” does not include an individual (s. 1(2)).

[17] A “tobacco related wrong” is defined in s. 1(1) as follows:

(a) a tort committed in British Columbia by a manufacturer which causes or contributes to tobacco related disease, or

(b) in an action under section 2 (1), a breach of a common law, equitable or statutory duty or obligation owed by a manufacturer to persons in British Columbia who have been exposed or might become exposed to a tobacco product;

[18] Following the passage of the legislation, several of the Defendants challenged its constitutional validity. They argued that the legislation was beyond the legislative powers of British Columbia. The Supreme Court of Canada rejected the challenge. It concluded that the true substance of the legislation relates to matters falling within the province’s legislative competence and is therefore constitutionally valid (British Columbia v. Imperial Tobacco Canada Ltd., 2005 SCC 49, [2005] 2 S.C.R. 473.)

[19] In its reasons, the Court described s. 2(1) as the “keystone” of the Act, which creates a direct and distinct action against a tobacco manufacturer for the present value of existing and future health care costs incurred or contributed to by tobacco related wrongs. At paras. 7-8, the Court said:

... [Section] 2(1) creates a cause of action by which the government of British Columbia may recover from a tobacco manufacturer money spent treating disease in British Columbians, where such disease was caused by exposure to a tobacco product (whether entirely in British Columbia or not), and such exposure was caused by that manufacturer's tort in British Columbia, or breach of a duty owed to persons in British Columbia.

The cause of action created by s. 2(1), besides being "direct and distinct", is not a subrogated claim: s. 2(2). Nor is it barred by the Limitation Act ... Crucially, it can be pursued on an aggregate basis ‑‑ i.e., in respect of a population of persons for whom the government has made or can reasonably be expected to make expenditures: s. 2(4)(b).

[20] In the course of addressing the issue of the “pith and substance” of the Costs Recovery Act, the Court observed that in their arguments the Defendants had placed great emphasis on the issue of the locus of the breach of duty by a manufacturer (that is, whether the breach must occur within British Columbia). The Court noted at paras. 40-41 that the emphasis on the manufacturer’s breach of duty was erroneous for two reasons:

First, the 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. The Act leaves breaches of duty to be remedied by the law that gives rise to the duty. Thus, the breaches of duty to which the Act refers are of subsidiary significance to the cause of action created by it ...

Second, and in any event, the only relevant breaches under the Act are breaches of duties (or obligations) owed "to persons in British Columbia" ... Thus, even if the existence of a breach of duty were the central element of the Act's cause of action (it is not), the cause of action would remain strongly related to British Columbia.

(Emphasis added)

The Third Party Claims

[21] The Defendants allege that the role Canada has played in the tobacco industry for the past several decades lies at the heart of the wrongful conduct asserted by British Columbia against them.

[22] The allegations of fact contained in the Third Party Notices include the following:

· Canada created programs pursuant to which it developed and manufactured the tobacco used in the commercially produced cigarettes sold in British Columbia;

· Canada earned licensing fees on the tobacco strains it developed;

· Canada dictated the necessity of warnings on packages and their content;

· Canada requested, and then mandated, the measurement and disclosure of tar and nicotine deliveries;

· Canada published tables listing comparative tar and nicotine deliveries as a “useful buyer’s guide” for smokers;

· Canada was the leader in creating and marketing the “Less Hazardous Cigarettes” (that is, the “light” and “mild” cigarettes).

[23] According to the Defendants, Canada’s involvement in the tobacco industry went beyond the traditional government role of formulating policies to regulate an industry. Rather, Canada was directly responsible for every step in the implementation of the “Less Hazardous Cigarette” program. In doing so, Canada became a “manufacturer” within the meaning of the Costs Recovery Act.

[24] In short, say the Defendants, Canada was directly and significantly involved in the very conduct alleged by British Columbia in its statement of claim to constitute breaches of duty to consumers by the Defendants.

[25] Canada’s response to the allegations of fact in the Third Party Notices is that each of the allegations is aimed solely at the programs undertaken by Canada in its effort to regulate the tobacco industry. When it became apparent that there was an association between smoking cigarettes and the rising incidence of lung cancer, among other tobacco related diseases, Canada responded with policies and regulatory programs. It has taken specific steps at various times over the past several decades in furtherance of those policies and programs.

[26] Clearly, says Canada, it was not a commercial entity attempting to profit from tobacco; rather, it was acting as the nation’s health regulator attempting to find a solution to an increasingly significant public health problem. Its actions, all taken pursuant to policy, were aimed at mitigating the health impact on the public of a product created and promoted by the tobacco industry and from which that industry has made immense profits.

IV. The Test for Striking Pleadings

[27] Rule 19(24)(a) of the Rules of Court provides that the court may, at any stage of the proceedings, order that a pleading be struck out on the ground that it discloses no reasonable claim or defence.

[28] The test for striking a statement of claim is whether it is “plain and obvious” that the pleading discloses no reasonable cause of action.

[29] The facts as alleged in the pleadings, for purposes of an application to strike, must be taken to be true unless patently ridiculous or incapable of proof. Only if the action is certain to fail should a plaintiff’s statement of claim be struck out (Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959, 74 D.L.R. (4th) 321 [Hunt]).

[30] Though a court should not strike a pleading simply because the claim is novel or complex, or the state of the law uncertain, it will not refrain from striking a claim that is bound to fail (Hunt; Kripps v. Touche Ross & Co. (1992), 69 B.C.L.R. (2d) 62, 94 D.L.R. (4th) 284 (C.A.) leave to appeal to S.C.C. refused, [1993] 2 S.C.R. viii, 101 D.L.R. (4th) vii).

V. Discussion

A. Is Canada Immune from Liability under the Costs Recovery Act?

Positions of the Parties

[31] Canada submits the third party proceedings disclose no reasonable cause of action because, as a matter of law, the Federal Crown is immune from liability under the Costs Recovery Act. The issue of Crown immunity, which is fatal to the Defendants’ Third Party Notices, is one that is capable of being determined in the absence of a full factual record.

[32] The Defendants say it is by no means plain and obvious that Canada cannot be bound by provincial legislation. They argue that Canada is invoking interjurisdictional immunity, which is not uniformly supported by the case authorities. At the very least, they say, the issue is one that ought to be determined at trial with the advantage of a full factual record.

[33] The Defendants argue that even if Canada is not directly bound by the Costs Recovery Act, it is nevertheless bound in accordance with the CLPA. They say the Costs Recovery Act creates or modifies an action in tort, and the CLPA renders Canada liable for tortious conduct. For that reason, Canada is not immune from liability under the Act.

[34] British Columbia supports the Defendants’ position on the issue of Canada’s immunity. According to British Columbia, Crown immunity does not necessarily exclude the application of a provincial statute such as the Costs Recovery Act, which has been determined to be constitutionally intra vires the provincial legislature. It argues there is no constitutional principle that provincial enactments cannot bind the federal Crown. British Columbia also argues that Canada has not provided any basis on which it could be said the application of the Act to Canada would impermissibly encroach on an area of exclusively federal power.

[35] British Columbia says the real question is whether the Act should be interpreted so as not to apply to Canada even on the facts as alleged by the Defendants. The interpretive question that Canada’s motion to strike poses does not have a plain and obvious answer at this stage of the proceedings.

1. The Crown Immunity Doctrine

[36] The law is clear that absent any legislative provision to the contrary, the Crown (whether Federal or Provincial) is immune from the application of statutory law. In Rudolph Wolff & Co. v. Canada, [1990] 1 S.C.R. 695, 69 D.L.R. (4th) 392 [Wolff], the Supreme Court of Canada said the following at p. 699.

At common law there was no jurisdiction in the courts to hear an action against the Crown. The ability to bring such an action was derived solely from statute.

[37] In British Columbia, the Interpretation Act, R.S.B.C. 1996, c. 238 purports to reverse the presumption of Crown immunity. In doing so, it is clear that the provincial legislature has reversed the presumption of Crown immunity in respect of the Provincial Crown. However, in the present case the question is whether the province is capable of reversing the presumption in respect of the Federal Crown. The answer depends on whether the Federal Crown enjoys immunity from being bound by provincial legislation, a form of so-called “interjurisdictional immunity”.

2. Capacity of the Province to Bind the Federal Crown

[38] British Columbia framed the issue at hand as a question of whether interjurisdictional immunity exists in Canada, and argued that the case authority does not support its existence.

[39] I cannot agree with that characterization of the issue because the term “interjurisdictional immunity” has different meanings in different contexts. The term has been used to describe the exclusivity or “water-tightness” of federal and provincial powers under sections 91 and 92 of the Constitution Act, 1867 (see, e.g., O.P.S.E.U. v. Ontario (Attorney General), [1987] 2 S.C.R. 2, 41 D.L.R. (4th) 1). However, it has also been used to describe the purported inability of the Crown in right of one jurisdiction to bind the Crown in right of another, even with respect to matters within its legislative capacity. With regard to the latter use of the term, the Supreme Court of Canada has not addressed the issue of whether interjurisdictional immunity exists generally. Instead, it has examined the separate questions of whether the Federal Crown is immune from the legislative force of the provinces (as it did in Attorney General (Que.) and Keable v. Attorney General (Can.) et. al., [1979] 1 S.C.R. 218, 90 D.L.R. (3d) 161 [Keable]) and whether the Provincial Crown is immune from the legislative force of the Federal government (as it did in Her Majesty in Right of the Province of Alberta v. Canadian Transport Commission, [1978] 1 S.C.R. 61, 75 D.L.R. (3d) 257 [Alberta v. C.T.C.])

[40] On the issue of whether the Provincial Crown has the power to legislatively bind the Federal Crown, the answer is quite clear that it does not. In Wolff, the Supreme Court of Canada said the following at p. 700:

It is beyond question that only the Parliament of Canada could enact statutes to provide that actions could be brought against the Crown in right of Canada. It is only that body which can legislate as to the court in which those claims can be brought.

[41] British Columbia argued that the comments of the Court in Wolff were made in the context of a different issue (that is, whether provisions of the Federal Court Act, R.S.C. 1970 (2nd Supp.), c. 10 were contrary to s. 15 of the Charter) and are not conclusive of the issue in the present case. I cannot agree. While it is true that Wolff did not deal with the issue of Crown immunity or division of powers per se, I do not regard the comments of the Court as any less binding. The comments were made in the course of a discussion concerning the history of actions against the Crown and were not obiter. Further, as the very words of the Court indicate, the existence of Federal Crown immunity from provincial legislation is “beyond question”.

[42] The concept of Federal Crown immunity from provincial legislation has its origins in the common law. Its historical roots were discussed by Chief Justice Laskin in Alberta v. C.T.C. In that case, the government of Alberta challenged the authority of the C.T.C. to require the province’s compliance with regulations under the federal Aeronautics Act, R.S.C. 1970, c. A-3. The issue was whether the Provincial Crown could be bound by federal legislation. Laskin C.J. began his analysis with the following observation at p. 69:

Prima facie, the Crown, whether in right of Canada or in right of a Province, is not a "person" under the Aeronautics Act or under the Air Carrier Regulations, ... The Crown can be a "person" for the purposes of the Act and Regulations only if it can be found that it is included in the regulatory scheme by necessary implication. The common law position as to such inclusion is stated in Bombay Province v. Bombay Municipal Corporation [1947] A.C. 58, where Lord du Parcq said this (at p. 61):

... The general principle to be applied in considering whether or not the Crown is bound by general words in a statute is not in doubt. The maxim of the law in early times was that no statute bound the Crown unless the Crown was expressly named therein ... But the rule so laid down is subject to at least one exception. The Crown may be bound, as has often been said, "by necessary implication". If, that is to say, it is manifest from the very terms of the statute, that it was the intention of the Legislature that the Crown should be bound, then the result is the same as if the Crown had been expressly named....

[43] Laskin C.J. noted that the court in Bombay Province said the Crown may also be bound by necessary inference if the purpose of the legislation would be “wholly frustrated” unless the Crown were bound.

[44] The common law principle of Crown immunity has been replaced by s. 17 of the federal Interpretation Act, R.S.C. 1985, c. l-21 (which was s. 16 at the time the decision in Alberta v. C.T.C. was published) which reads as follows:

No enactment is binding on Her Majesty or affects Her Majesty or Her Majesty's rights or prerogatives in any manner, except as mentioned or referred to in the enactment.

[45] The narrow issue in Alberta v. C.T.C was whether Crown immunity extended to the Crown in right of the Province in light of the specific provisions of the legislation in question. Laskin C.J. first observed at p. 72 that the immunity of the Federal Crown to provincial legislation is a well-settled rule in Canadian law:

The point that I raise, namely whether Her Majesty or the Crown, where generally referred to in federal or provincial legislation should be taken to mean the Crown in right of Canada or of a Province, as the case may be, is influenced by the fact that a Provincial Legislature cannot in valid exercise of its legislative power, embrace the Crown in right of Canada in any compulsory regulation. This does not mean that the federal Crown may not find itself subject to provincial legislation where it seeks to take the benefit thereof ...

(Emphasis added)

[46] Laskin C.J. concluded that the impugned legislation did not “mention or refer to” the Provincial Crown and accordingly Alberta was entitled to rely on its Crown immunity.

[47] Federal Crown immunity from provincial legislation was the central issue in Keable. Keable was appointed Commissioner of an inquiry created by the province of Quebec under its provincial Public Inquiry Commission Act to investigate allegedly illegal activities of the R.C.M.P. As Commissioner, he sought to inquire into the administration and management of the police force, which operates under the authority of a federal statute. The issue was the scope of Keable’s power to do so when his mandate derived from provincial legislation.

[48] Pigeon J. (Estey and Pratte JJ. concurring), concluded that while the inquiry was properly constituted under provincial legislation to investigate criminal acts, it could not bind the Federal Crown with respect to the administration of the force. The basis for his conclusion was the rule that provincial legislation cannot bind the Federal Crown. At p. 242, Pigeon J. stated:

…. Parliament’s authority for the establishment of this force and its management as part of the Government of Canada is unquestioned. It is therefore clear that no provincial authority may intrude into its management. While members of the force enjoy no immunity from the criminal law and the jurisdiction of the proper provincial authorities to investigate and prosecute criminal acts committed by any of them as by any other person, these authorities cannot, under the guise of carrying on such investigations, pursue the inquiry into the administration and management of the force.

[49] For the same reason, the Commissioner could not compel the Solicitor General to participate in the inquiry. Pigeon J., referring to the earlier decision of the Court in Alberta v. C.T.C. said the following at p. 244:

…[A]t common law, a commission of inquiry has no power to compel the attendance of witnesses and to require the production of documents. Any jurisdiction for such purposes depends on statutory authority, and it seems clear that provincial legislation cannot be effective by itself to confer such jurisdiction as against the Crown in right of Canada. In the recent case of Her Majesty in right of Canada v. C.T.C., Laskin C.J., said with the concurrence of all but two of the other members of the Court (at. p. 72):

… a Provincial Legislature cannot, in the valid exercise of its legislative power, embrace the Crown in right of Canada in any compulsory regulation.

In Quebec North Shore Paper v. C.P. Ltd., Laskin C.J., said, speaking for the full court, (at p. 1063):

… It should be recalled that the law respecting the Crown came into Canada as part of the public or constitutional law of Great Britain, and there can be no pretence that that law is provincial law. In so far as there is a common law associated with the Crown’s position as a litigant it is federal law in relation to the Crown in right of Canada, just as it is provincial law in relation to the Crown in right of a Province, and is subject to modification in each case by the competent Parliament or Legislature.

[50] Finally, at p. 245 Pigeon J. stated:

In Gautier v. the King, Anglin J., as he then was, said at p. 194:

… Provincial legislation cannot proprio vigore take away or abridge any privilege of the Crown in right of the Dominion….

[51] In the present case, British Columbia argued that the statements in both Alberta v. C.T.C and Keable with respect to the immunity of the Federal Crown from provincial legislation were simply obiter dicta. Further, said British Columbia, in both cases the Court simply accepted as binding some questionable assertions contained in the prior decision of Gauthier v. The King (1917), 56 S.C.R. 176, 40 D.L.R. 353 [Gauthier] that were, themselves, obiter. In its written argument, British Columbia rather boldly stated that “no reasoning of any substance, let alone a provision of the constitution, was offered by the Gauthier Court to support those assertions.”

[52] I cannot accept British Columbia’s argument. First, the statement of Anglin J. in Gauthier was not obiter. The central issue was whether the Federal Crown could be bound by a provincial statute (in that case, Ontario legislation concerning commercial arbitration). On the basis of the rule that provincial legislation cannot bind the Federal Crown, the Court concluded that Ontario could not compel the Federal Government to submit to arbitration under a regime created by provincial statute.

[53] Second, the statements of the Court in the two earlier referenced decisions are not obiter. In both cases, the Court was discussing the origins of Crown immunity. In Keable, as in the present case, the very issue was whether the Federal Crown could be bound by provincial legislation.

[54] The issue has been regarded as well-settled in this province. In F.B.D.B. v. Hillcrest Motor Inn Inc. (1986), 6 B.C.L.R. (2d) 223, [1986] 6 W.W.R. 444 (S.C.), the issue was whether the bank, as agent of the Federal Crown, could be bound by the province’s Workers Compensation Act which purported to give priority to assessments levied by the Workers’ Compensation Board. There was little doubt, said Low J. (as he then was) that the legislature intended to give the assessments priority over claims of the Federal Crown. The question, however, was whether it was within the legislative capacity of the province to do so. Low J. concluded at p. 231 that the case law was “heavily weighted” against the view that provincial legislation could bind the Federal Crown:

The federal Crown prerogative is succinctly stated in Re Adams Shoe Co., 54 O.L.R. 625, 4 C.B.R. 375, [1923] 4 D.L.R. 927 at 931 (S.C.)

The law has been well settled that no provincial legislation can either bind or affect the prerogative right of the Crown in the right of the Dominion or take away its common law rights. Therefore, provincial legislation passed, which has the effect of attempting to make taxes a claim prior to the claim of the Crown in the right of the Dominion would be ultra vires.

See also Burrard Power Co. v. R., [1911] A.C. 87 (P.C.), and Gauthier v. R. [citation omitted].

[55] The decision of Low J. was upheld on appeal (F.D.B.D. v. Hillcrest Motor Inn Inc. (1988), 26 B.C.L.R. (2d) 379, 51 D.L.R. (4th) 464 (C.A.)). The Court of Appeal cited Alberta v. C.T.C. for the proposition that, “a provincial legislature cannot in valid exercise of its legislative power embrace the Crown in right of Canada in any compulsory legislation.”

[56] British Columbia and the Defendants relied on Alberta Government Telephones v. Canada (Canadian Radio-Television and Telecommunications Commission), [1989] 2 S.C.R. 225, 61 D.L.R. (4th) 193 [Alberta Government Telephones] to argue that the Supreme Court of Canada has more recently rejected the concept of interjurisdictional immunity. The decision concerned the creation by provincial statute of Alberta Government Telephones (“AGT”) in order to provide telecommunications services within the province. CNCP brought an application to the CRTC for various orders requiring AGT to provide telecommunications connections to CNCP. AGT took the position that it did not fall within the federal regulatory authority of the CRTC pursuant to the Railway Act, R.S.C. 1985, c. R-3 because it was an agent of the Provincial Crown and, as a result of Crown immunity, could not be bound by the Act.

[57] The narrow issue before the Supreme Court of Canada was whether, despite being a federal undertaking, AGT was an agent of the Provincial Crown and immune to the provisions of the Railway Act which conferred jurisdiction on the CRTC. The Court concluded that the Provincial Crown was entitled to the same immunity under s. 17 of the federal Interpretation Act as the Federal Crown. That is, the Railway Act could not bind AGT unless AGT was “mentioned or referred to” in the enactment.

[58] The Court held that while the common law rule of Crown immunity had been replaced by s. 16 of the Interpretation Act, the test as to whether the Crown had been “mentioned or referred to” remained substantially the same as the common law rule described in Bombay Province. The court said the following at p. 281:

…[T]he scope of the words “mentioned or referred to” must be given an interpretation independent of the supplanted common law. However, the qualifications in Bombay, supra, are based on sound principles of interpretation which have not entirely disappeared over time. It seems to me that the words “mentioned or referred to” in s. 16 are capable of encompassing: (1) expressly binding words (“Her Majesty is bound”); (2) a clear intention to bind which, in Bombay terminology, “is manifest from the very terms of the statute”, in other words, an intention revealed when provisions are read in the context of other textual provisions…; and, (3) an intention to bind where the purpose of the statute would be “wholly frustrated” if the government were not bound, or, in other words, if an absurdity (as opposed to simply an undesirable result) were produced. These three points should provide a guideline for when a statue has clearly conveyed an intention to bind the Crown.

[59] The Court concluded that the Railway Act did not mention or refer to the AGT. For that reason, the CRTC could not invoke its regulatory powers under the Act as against AGT.

[60] The Alberta Government Telephones case does not address the issue of whether the Federal Crown can be bound by provincial legislation. The Court was faced with the argument that there exists in Canada the doctrine of governmental immunity tied to the division of powers in sections 91 and 92 of the Constitution Act, 1867. The Court rejected the concept of an overarching intergovernmental immunity tied to the constitutional division of powers. It reiterated, however, that the Federal Crown has the power to bind the Crowns in right of the Provinces. The decision is entirely silent on the question of whether the Provinces can bind the Federal Crown, and nothing in it can be taken as addressing the question by implication.

[61] The Defendants also relied on the decision of Canadian Western Bank v. Alberta, 2007 SCC 22, [2007] 2 S.C.R. 3 [Canadian Western Bank], in which the circumstances were as follows. Alberta had enacted changes to its Insurance Act to make federally chartered banks subject to the provincial licensing scheme governing the promotion of insurance products. The Court was confronted with the assertion of the banks that, as federal undertakings, they were immune from regulation by the province of Alberta on the basis of interjurisdictional immunity.

[62] The Court observed that in most cases, it is not possible for a legislature to exercise its jurisdiction effectively over a matter “without incidentally affecting matters within the jurisdiction of another level of government” (para. 29). Most matters have both provincial and federal aspects. The “pith and substance” doctrine recognizes the interplay between federal and provincial powers, and is the conceptual framework usually invoked to determine the validity of impugned legislation.

[63] However, said the Court, in certain narrow circumstances the powers of one level of government must be protected against even incidental intrusions by the other level of government. There are some “works or undertakings, things or persons specifically of federal jurisdiction” with respect to which federal jurisdiction is meant to be exclusive (at para. 41). In those instances, “the text and logic of our federal structure justifies the application of interjurisdictional immunity to certain federal ‘activities’” (at para. 42). Thus, where there is a vital and essential federal interest in question, the doctrine will apply.

[64] On the facts of the Canadian Western Bank case, the Court concluded there was no vital or indispensable federal interest at play. The federal and provincial legislation in question was complementary rather than conflicting. There was no basis on which to invoke the doctrine of interjurisdictional immunity. Once again, the decision is silent on the issue of whether the Federal Crown can be bound by provincial legislation.

Conclusion

[65] At issue in the present case is the prerogative of the Federal Crown to determine when and in what circumstances it will incur civil liability. The case law is clear: The liability of the Federal Crown cannot be unilaterally determined by provincial legislation, nor can its common law immunity from suit be unilaterally displaced by provincial legislation. It is federal legislation alone which can have such effect.

[66] I accept as correct the position of Canada that the rules governing the liability of the Federal Crown comprise an exclusively federal body of common law overlaid by federal legislation. In the words of the Supreme Court of Canada in Wolff, “it is beyond question” that only the Parliament of Canada is capable of enacting legislation determining the liability of the Federal Crown. Where there is a federal rule prescribing that provincial statutes be taken into account in determining the rights or liabilities of the Federal Crown, then provincial statutes will apply, but only because there is a federal rule calling for their application.

3. The Cause of Action created by the Costs Recovery Act

[67] The Defendants argue that even if Canada is otherwise immune from liability, it cannot claim the protection in the present case because the Costs Recovery Act creates or modifies tortious conduct. That being the case, s. 3 of the CLPA is engaged.

[68] Section 3 of the CLPA, which modifies the common law rule concerning liability of the Federal Crown, reads in part as follows:

The Crown is liable for the damages for which, if it were a person, it would be liable…

(b) …in respect of

(i) a tort committed by a servant of the Crown…

[69] To determine whether this section is applicable to the Federal Crown in the present case, the following questions must be answered:

1. Are the actions of a servant or servants of the Federal Crown captured by the descriptions under the Costs Recovery Act?

2. Is the “direct and distinct action” contemplated by s. 2(1) of the Costs Recovery Act an action in tort?

[70] The answer to question 1 is likely in the affirmative. On the facts as pleaded in the Third Party Notices, the employees of Agriculture Canada were involved in the production, assembly or packaging of a tobacco product and are therefore, at least arguably, “manufacturers” under the Act.

[71] The Federal Crown advanced the argument that the CPLA establishes vicarious liability only on behalf of individual servants while the Costs Recovery Act precludes liability for individuals. In my view, this argument is tenuous, particularly in light of “authority [indicating] that shared liability of servants of one or more departments may be possible”: Paul Lordon, Crown Law. (Vancouver: Butterworths, 1991) at p. 341.

[72] The remaining question is whether s. 2 of the Costs Recovery Act creates or modifies an action in tort.

[73] For convenience, I will again reproduce subsections (1) and (2) of s. 2 of the Costs Recovery Act:

2 (1) The 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.

(2) An action under subsection (1) is brought by the government in its own right and not on the basis of a subrogated claim.

[74] Under s. 1, “tobacco related wrong” is defined to include both torts and breaches of obligations. The question is whether the fact that the action under s. 2(1) is dependent on the existence of a tort (or breach of obligation) renders it an action in tort. In my view, it does not.

[75] As noted earlier, the Supreme Court of Canada, in rejecting the constitutional challenge brought by the Defendants, identified the elements of the statutory cause of action created by the Costs Recovery Act. The cause of action is the right of British Columbia to seek recovery of its health care costs. The mischief at which the cause of action is aimed is not remediation of breaches of duty by the tobacco manufacturers to consumers of its products: “The Act leaves breaches of duty to be remedied by the law that gives rise to the duty”. (Imperial Tobacco at para. 40)

[76] Section 2(2) makes clear that the cause of action belongs to British Columbia in its own right; it is not a subrogated claim on behalf of consumers of tobacco products who have suffered as a result of the Defendants’ activities. There is no requirement that British Columbia establish damage to any particular consumer resulting from the Defendants’ conduct. Further, the clear wording of the section precludes any argument that a duty can be seen to exist between the government and tobacco manufacturers on the basis that the government is acting on behalf of individual insured persons.

[77] It is significant that by operation of s. 2(3) of the Costs Recovery Act, claims of British Columbia can succeed even where the Defendants have already been held liable to individual consumers in tort or for breach of duty. The damages capable of recovery under the Costs Recovery Act are purely economic. They have no relation to the extent of the actual damage suffered by individual consumers of tobacco products as a result of the alleged breaches of duty by the Defendants.

[78] The claim of an individual consumer for damages at common law regarding a tobacco related wrong would be an action based in tort. The consumer would be entitled to compensation for the actual damage he or she suffered as a result of the wrong, which is a hallmark of an action in tort. By contrast, the claim of British Columbia arises from the decision of the provincial government to pass legislation permitting it to recover its costs for providing health care services to its residents. That claim does not seek to make the consumer whole for a loss or injury sustained through any unlawful act or omission of the tobacco company.

[79] The action contemplated by s. 2(1) exists even in the absence of any legal duty owed by the tobacco manufacturer to the government. Because no legal duty exists between the plaintiff (the government) and the defendant (the tobacco manufacturer) there can be no breach of duty and no consequent damage for which the plaintiff may bring an action to be made whole.

[80] It is plain and obvious, in my view, that the Costs Recovery Act does not create or modify an action in tort.

[81] The defendants relied on the case of Knight v. Imperial Tobacco Canada Limited, 2007 BCSC 964, [2007] B.C.J. No. 1461 (QL) [Knight]. In Knight, a class action was brought by consumers against Imperial Tobacco under the Business Practices and Consumers Protection Act, S.B.C. 2004, c. 2 (the “BPCPA”) for its allegedly deceptive conduct in the development and marketing of its “light” and “mild” tobacco products. Imperial Tobacco issued a Third Party Notice against Canada, and Canada brought an application to have it struck.

[82] On the issue of Crown immunity, Satanove J. concluded that the BPCPA did not, by its terms, bind the federal Crown expressly or by implication. However, she went on to consider whether the statute created or modified a cause of action in tort. Satanove J. noted that the BPCPA imposed an obligation on developers and marketers of products to refrain from any representations, or refrain from engaging in any conduct, that had the tendency or effect of deceiving or misleading a consumer. That obligation, she concluded at para. 15, involved elements “akin to the common law torts of negligent misstatement, deceit and failure to disclose material facts”. For that reason, it was not “plain and obvious” that Crown officials, by operation of the CLPA, could not be found liable for tortious conduct under the BPCPA.

[83] Unlike the Costs Recovery Act, the BPCPA creates a right of action in the consumers of the products who are owed a duty of care by those developing and marketing the impugned products. It is the consumer who suffers the damage and who is entitled to sue for damages. The touchstone of the BPCPA is remediation of breaches of duty owed to consumers by those who develop or market the products in issue. Satanove J. concluded that the liability created by the statute resembled negligent or fraudulent misrepresentation sufficiently to create, or at least arguably to create, a cause of action in tort. The cause of action created by the legislation at issue in Knight differs significantly from that created by the Costs Recovery Act.

Conclusion

[84] The statute under consideration in Knight bears no resemblance to the one at issue in the present case. The Costs Recovery Act creates a stand-alone statutory cause of action permitting British Columbia to recover its health care costs from tobacco manufacturers who have breached their duty to consumers. It does not create or modify an action in tort.

[85] Accordingly, it is plain and obvious that the allegations contained in the Third Party Notices cannot succeed.

B. Are the Defendants’ Entitled to Claim for Procedural Declaratory Relief?

[86] The Third Party Notice of each of the Defendants seeks declaratory relief in substantially similar terms. Imperial Tobacco, for example, claims the following:

a) A declaration that [Imperial Tobacco] committed no “tobacco related wrongs”;

b) Alternatively, a declaration that if the Plaintiff incurred the cost of health care benefits as alleged in the Statement of claim, those costs were caused or contributed to by the conduct, fault, or alternatively, breaches of duty of care of officials of the Federal Government and ITCAN’s liability, if any, accordingly be extinguished or reduced;

….

[87] The Defendants, relying principally on the B.C. Ferry case, argue that even if Canada is immune from liability, it ought to remain a third party in the litigation for procedural reasons. They assert that they ought to be permitted to proceed with their third party actions against Canada in order to determine their true liability for losses caused by them as distinct from those caused by Canada. If the Third Party Notices are struck, their ability to defend against the allegations of British Columbia could be severely prejudiced. That is particularly so, say the Defendants, as it is unclear whether Canada would be immune from the Rules of Court concerning non-parties if it is not a party to the litigation.

[88] Canada argues that where a third party is immune from liability by operation of law, as in the present case, all proceedings against it, including third party proceedings for declaratory relief, are also precluded. In order to address the concern of the Defendants that Canada may be beyond the reach of the Rules of Court, Canada has agreed to be bound by them as a non-party for purposes of this case only.

Discussion

[89] As a result of Canada’s agreement to be bound by the Rules of Court, the Defendants will be entitled to seek document production under Rule 26 and witness testimony under Rules 28 and 38. They will also continue to have the right to make application under the federal Access to Information Act, R.S.C. 1985, c. A-1 to obtain Canada’s tobacco-related documents.

[90] There is nothing in the Costs Recovery Act to suggest that Canada must be a party in order to allow the court to determine the extent of the Defendants’ liability. It is settled law that a trial judge may make an assessment of fault against a non-party in order to reduce the defendant’s proportionate liability.

[91] Where a third party is immune by operation of law, all proceedings against it are precluded: Pearse v. Canpar Transport Ltd. et al., 2001 BCSC 594, 88 B.C.L.R. (3d) 312.

[92] In B.C. Ferry, the Court of Appeal emphasized at pp. 129-130 that the third party in question had been properly joined, and that “a private accord between plaintiff and third party” should not entirely negate the joinder:

It is important to keep in mind that the defendants had a perfect right to bring third party proceedings against the respondents, based on allegations of fault attributed to them in the Third Party Notices…. It would, in my view, by manifestly wrong if a private accord between plaintiff and third party could work to deprive a defendant of the ability to establish an element of proof essential to the just resolution of the action on which all parties had joined issue. …. In those circumstances, I am of the view that the third party claims for declaratory relief should be allowed to proceed.

[93] The Court of Appeal made clear at p. 129 that such claims for declaratory relief for purely procedural advantage ought to be the exception rather than the rule:

While I am of the view that the general rule against sanctioning actions brought for purely procedural relief will always be an important consideration governing the exercise of the court’s discretion to grant declaratory relief, I do not accept the proposition that it must be regarded as a controlling consideration in all cases. There will be instances, albeit rarely, where the declaratory relief should be granted notwithstanding the fact that it is needed only for such purpose.

Conclusion

[94] B.C. Ferry stands for the proposition that a third party which is properly part of an action at the time it is commenced may not, by settling its claim with the plaintiff, escape discovery under the Rules of Court if the result is significant prejudice to another, non-settling party. In the present case, Canada has been immune from liability from the time the action was commenced and, accordingly, was never a proper party in the litigation.

[95] Further, Canada has agreed to submit to the Rules of Court which will permit the Defendants access to all of the procedures necessary to assist the court in determining their liability as distinct from the liability of Canada.

VI. Summary

[96] In summary, I have concluded that all of the third party claims issued by the Defendants against Canada, including the claim for procedural declaratory relief, must be struck.

The Honourable Madam Justice C. A. Wedge

Citation:	*British Columbia v. Imperial Tobacco Canada Limited,*
	2008 BCSC 419