Court of Appeal for Ontario

Date: June 23, 2017

Docket: C61091 & C62018

Judges: Feldman, Epstein and Miller JJ.A.

Between

Grand River Enterprises Six Nations Ltd., Jerry Bradwick Montour, Kenneth Ryan Hill, Curtis Styres and Gregory Scott Smith

Plaintiffs (Respondents)

and

The Attorney General of Canada

Defendant (Appellant)

Counsel

For the Appellant: Wendy J. Linden, Christine Mohr, Victoria C. Yankou and Jacob Pollice

For the Respondents: Bryan Finlay, Q.C., Ben A. Jetten and Marie-Andrée Vermette

Heard: September 28-29, 2016

On appeal from the order of Justice Donald J. Gordon of the Superior Court of Justice, dated August 28, 2015.

Epstein J.A.:

OVERVIEW

[1] The respondents, Grand River Enterprises Six Nations Ltd. ("GRE") and four individuals who are shareholders of GRE and former members of the partnership that pre-existed GRE, have sued the appellant, the Attorney General of Canada (the "Crown"), for $1.5 billion in damages, plus equitable compensation in the same amount. They allege the Crown is liable for misfeasance in public office, negligence, breach of fiduciary duty and breach of aboriginal rights.

[2] The respondents' claims are based on two theories of liability – "forced incorporation" and "failure to enforce".

[3] Under the respondents' "forced incorporation" theory, the individual respondents allege that, as a result of Crown misconduct – misconduct that amounts to misfeasance in public office and breach of fiduciary duty – they were forced into incorporating their partnership. As a result, GRE paid taxes that the individual respondents would have been exempt from paying as "Indians" under s. 87 of the Indian Act.

[4] Under the respondents' "failure to enforce" theory, they allege that the Crown undertook to combat the problem of contraband and counterfeit tobacco products on the Six Nations of the Grand River Reserve (the "Reserve"), but failed to do so. They claim that while the Crown adopted initiatives to combat the problem of contraband tobacco, including the 1994 Anti-Smuggling Initiative (the "Initiative"), the Crown failed to follow through even after a promise was made to intensify enforcement against contraband to level the playing field between GRE and other on-Reserve tobacco manufacturers. They allege that the failure to implement or administer the Initiative, including the failure to properly enforce existing laws relating to the manufacture and sale of tobacco products, amounted to negligence, misfeasance in public office and breach of fiduciary duty, and caused the respondents to incur substantial losses.

[5] The Crown moved under r. 21 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, to strike the respondents' claims on the basis of 1) lack of jurisdiction, and 2) failure to disclose any viable cause of action. The Crown's motion was largely unsuccessful. The motion judge struck only one aspect of the claim relating to breach of aboriginal rights, with leave to amend, and granted leave to amend to add the remaining partners. Otherwise, the motion to strike was dismissed.

[6] For jurisdictional reasons, the Crown brought two separate appeals from the motion judge's decision.

[7] The appeal from the refusal to strike portions of the claim on jurisdictional grounds was brought to the Court of Appeal as of right. In this appeal, the Crown argues that, in effect, the respondents, through the "forced incorporation" claims, are seeking to recover excise duties and taxes, and that such claims are barred by s. 174 of the Excise Act, 2001, S.C. 2002, c. 22. The Crown also relies on s. 12 of the Tax Court of Canada Act, R.S.C. 1985, c. T-2, which gives the Tax Court exclusive jurisdiction to hear references and appeals under the Excise Act. The motion judge concluded that the Superior Court had jurisdiction to hear the forced incorporation claims. I will refer to this aspect of the appeal as the "forced incorporation appeal".

[8] In the second appeal, the Crown challenges the motion judge's refusal to strike the respondents' tort and breach of fiduciary duty claims for failure to enforce on the basis that they disclose no reasonable cause of action. The second appeal was joined with the first appeal after the Divisional Court granted the Crown leave to appeal from the determination that those claims could proceed and then transferred the appeal to this court. I will refer to this aspect of the appeal as the "failure to enforce appeal".

[9] For the reasons that follow, I would dismiss the forced incorporation appeal. I would allow the failure to enforce appeal in part as, in my view, the motion judge erred in failing to strike the fiduciary claims as disclosing no reasonable cause of action. In all other respects I would dismiss the failure to enforce appeal.

BACKGROUND

A. Procedural History

[10] The original statement of claim was issued in July 2008.

[11] The action was stayed for several years pending the determination of appeals brought by GRE before the Tax Court of Canada and the Federal Court of Canada. In the meantime, a second statement of claim, the Amended Statement of Claim, was issued in October 2009. The third statement of claim – the one in issue on the Crown's motion to strike – was issued in September 2013. I will refer to it as the Fresh Statement of Claim.

[12] Following the motion judge's decision, the respondents amended their claim yet again in accordance with the motion judge's reasons.

[13] The Crown has not filed a statement of defence.

B. The Pleading

[14] For the purposes of the motion to strike, the following facts, taken from the Fresh Statement of Claim, are assumed to be true:

• GRE was incorporated in April 1996. Its business, operated on the Reserve, is to manufacture and sell tobacco products.

• Each of the four individual respondents is a status Indian.

• Prior to GRE's incorporation, each individual respondent was a partner in the Grand River Enterprises partnership. The partnership was engaged in the manufacture and sale of tobacco products on the Reserve.

• In 1993 and 1994, the partnership engaged in discussions with the Minister of National Revenue, with a view to obtaining a tobacco manufacturing licence under the Excise Act. The licence was required to purchase raw tobacco from the Ontario Flue-Cured Tobacco Growers Marketing Board. It was also necessary at that time to have a licence to legally possess tobacco in bulk.

• The then Minister of National Revenue advised members of the partnership that the payment of excise duties and taxes was an essential pre-condition to obtaining an excise licence for on and off-Reserve operations. He also advised that the manufacture of tobacco products without an excise licence would contravene the Excise Act. That representation was wrong and the Minister knew it was wrong.

• In 1996, criminal prosecutions were brought against the partnership and the partners for violating excise and customs legislation. The charges were aimed at forcing the partnership to incorporate. The charges were resolved after one partner pleaded guilty to two Customs Act, R.S.C. 1985, c.1, violations and paid a fine.

• In resolving the prosecutions, the partners maintained the position that no federal taxes or duties were owed on account of the manufacture and sale of tobacco products by and to Indians on a reserve.

• Additional forms of pressure, aimed at forcing the partnership to incorporate, were brought to bear on the partnership. For instance, the RCMP raided its business premises and seized equipment, and the Crown confiscated money that the partnership had paid into the Reserve's community fund.

• In early 1996, members of the partnership resumed discussions with the Minister of National Revenue, with a view to securing an excise licence. They were advised by the Minister and her representatives that to be considered for an excise licence, the partnership must first incorporate. This was improper since there was no such requirement under the Excise Act.

• The Minister required the partnership to incorporate the tobacco manufacturing business on the Reserve in an effort to impose tax liability that would not otherwise exist, and in order to deprive the individual respondents of their rights as Indians to be free of taxation.

• Faced with the government's ultimatum, on April 29, 1996, GRE was incorporated and adopted the tobacco manufacturing business of the partnership.

• After its incorporation, GRE applied for an excise licence to manufacture tobacco products. In April 1997, one of the individual respondents and other band council members met with an official at the Department of National Revenue. At the meeting, the terms and conditions that would be imposed on GRE if it wished to obtain an excise licence were outlined.

• At the same meeting, there was a clear agreement that if GRE were to be given an excise licence on the conditions that had been outlined, the government would carry out intensified enforcement against contraband under the federal government's Initiative, and take all measures to ensure that other on-Reserve manufacturers of tobacco products would abide by the same rules as the respondents. In the alternative, there was an implied undertaking given to the same effect.

• On May 29, 1997, GRE was granted an excise licence to manufacture tobacco.

• Had the partners not incorporated GRE, the partnership would have been exempt from paying excise taxes and duties pursuant to s. 87 of the Indian Act, because the property being taxed was the partners' personal property and was situated on a reserve.

• As early as February 2003, GRE complained to the federal government about the increased availability of contraband on the Reserve. While GRE was paying $50 to $60 million a year in taxes and duties, it could see no effort on the part of any federal agency to combat the illicit trade in contraband products on the Reserve.

• GRE has on a frequent and recurring basis brought to the attention of the Ministers responsible for implementing and administering the Initiative and their representatives their failure to combat the problem of contraband on the Reserve. Even so, the Ministers have done virtually nothing to address the issue of contraband on the Reserve.

C. The Test and Standard of Review

[15] On a motion to strike for failure to disclose a reasonable cause of action, the Supreme Court has identified the test to be whether the claim has no reasonable prospect of success: R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45, at para. 17; Odhavji Estate v. Woodhouse, 2003 SCC 69, [2003] 3 S.C.R. 263, at paras 14-15; Hunt v. Carey Canada Inc., [1990] 2 S.C.R. 959, at p. 980.

[16] The courts have emphasized that motions to strike must be approached "generously", erring on the side of allowing novel but arguable claims to proceed to trial, as "actions that yesterday were deemed hopeless may tomorrow succeed": Imperial Tobacco, at para. 21.

[17] On a motion to stay or dismiss a claim for lack of jurisdiction under r. 21.01(3)(a), the question is different – whether "the Superior Court has jurisdiction, or it doesn't have jurisdiction" – and not whether the claim has a reasonable prospect of success: Canada (Attorney General) v. TeleZone Inc., 2008 ONCA 892, 94 O.R. (3d) 19, aff'd 2010 SCC 62, [2010] 3 S.C.R. 585.

[18] On a r. 21 motion where the issue is whether the pleadings disclose a reasonable cause of action or defence, the standard of review is correctness: Addison Chevrolet Buick GMS Ltd. v. General Motors of Canada Ltd., 2016 ONCA 324, 130 O.R. (3d) 161, at para. 21. The question of whether the Superior Court has jurisdiction is a legal determination that also attracts a correctness standard: TeleZone (Ont. C.A.), at para. 92.

PART ONE: THE FORCED INCORPORATION APPEALS

A. Motion Below

[19] In its notice of motion, the Crown asserted, under the heading "Jurisdiction", that no right of recovery exists in respect of excise taxes assessed pursuant to the Excise Act by virtue of s. 174.

[20] Section 174 of the Excise Act provides as follows:

Except as specifically provided under this Act, the Customs Act, the Customs Tariff or the Financial Administration Act, no person has a right to recover any money paid to Her Majesty as or on account of, or that has been taken into account by Her Majesty as, duty, interest or other amount payable under this Act.

[21] The notice of motion also references s. 12(1) of the Tax Court of Canada Act, which provides:

The Court has exclusive original jurisdiction to hear and determine references and appeals to the Court on matters arising under the Air Travellers Security Charge Act, the Canada Pension Plan, the Cultural Property Export and Import Act, Part V.1 of the Customs Act, the Employment Insurance Act, the Excise Act, 2001, Part IX of the Excise Tax Act, the Income Tax Act, the Old Age Security Act, the Petroleum and Gas Revenue Tax Act and the Softwood Lumber Products Export Charge Act, 2006 when references or appeals to the Court are provided for in those Acts.

[22] The notice of motion states that the validity of tax assessments raised against GRE had been finally determined by the Tax Court, which has exclusive jurisdiction pursuant to s. 12, and that "to the extent that [the claim] challenges the tax assessments" it is "a collateral attack and outside the jurisdiction" of the Superior Court.

[23] In his reasons, the motion judge outlined the Crown's arguments on the s. 174 issue as follows, at paras. 135-137:

The [Crown] argues a lack of jurisdiction for the plaintiffs' claim for two reasons:

(i) the plaintiffs' claim is clearly to recover taxes and duties paid but are barred from so doing pursuant to section 174, Excise Act; and

(ii) the plaintiffs' claim is a collateral attack on the tax assessments already addressed by the Tax Court of Canada.

Although the claim is drafted as a tort action, the [Crown] says it is clearly a disguised claim for a refund of taxes wrongfully assessed. Merchant Law Group v. Canada (Revenue Agency), 2009 FC 755, 2010 FCA 184, prohibits such a claim.

The Tax Court of Canada has exclusive jurisdiction to deal with tax related claims and, hence, the [Crown] submits this court does not. See: Reference Re: Goods and Services Tax, [1992] 2 S.C.R. 445; Canada v. Addison and Leyen Ltd., 2007 SCC 33, and Sorbara v. Canada (Attorney General) (2008), 93 O.R. (3d) 241 (Ont. S.C.J.), aff'd (2009) 2009 ONCA 506, 98 O.R. (3d) 673 (Ont. C.A.).

[24] The motion judge's analysis rejecting the Crown's position, at paras. 142-144, is brief:

The plaintiffs claim is drafted in tort. The factual basis, in my view, necessitates a discussion and consideration of the tax assessment of GRE. Indeed, having regard to the allegation the government failed to implement and administer the Initiative, should the plaintiffs succeed on liability the measure of damages may take into account the amount of taxes paid. After all, the other on-reserve unlicensed tobacco manufacturers pay no taxes.

Further, the tax assessment pertains to GRE, not the partnership. The argument of the [Crown] does not apply to their claim.

Accordingly, I reject the assertion only the Tax Court of Canada has jurisdiction. Having regard to the principles enunciated in Telezone and the claims as pleaded, I conclude this court has jurisdiction.

B. Appeal to this Court

(1) Nature of the Appeal

[25] The Crown identifies the sole issue on this appeal as whether the motion judge erred in failing to give effect to s. 174 of the Excise Act.

[26] Both parties agreed that this appeal strictly relates to the claims for relief based on forced incorporation, although the respondents say that it is not possible to completely bifurcate the claims between the forced incorporation and the failure to enforce issues.

[27] In oral argument, Crown counsel clarified that the Crown is not asking that any causes of action be struck on this appeal. Rather, it is the claims for relief that should be struck.

[28] The requested relief is set out at paras. 1(a) and (b) of the Fresh Statement of Claim:

1. The Plaintiffs claim as against the Defendant:

(a) damages in the amount of $1.5 billion for:

(i) misfeasance in public office;

(ii) negligence; and

(iii) breach of the aboriginal rights and the rights protected under the Indian Act of the partners of the Grand River Enterprises partnership;

(b) equitable compensation in the amount of $1.5 billion for breach of fiduciary duty and failure to act in accordance with "the honour of the Crown" in dealings with the aboriginal Plaintiffs;

[29] According to the Crown's Amended Notice of Appeal, the damages claimed in paras. 1(a)(i) and 1(b) are barred because they amount to a claim for a refund of tax.

[30] The Crown submits that paras. 1(a) and (b) must be read in the context of the Fresh Statement of Claim as a whole. It points to other paragraphs, including para. 51:

51. The Plaintiffs claim the damages they have suffered and the equitable compensation to which they are entitled. If the partners had not been forced to incorporate GRE, then no taxes would have been payable. The Plaintiffs also seek damages and equitable compensation for the losses they have suffered as a result of the sale of Contraband that the Ministers have wrongfully failed to prevent, as set out above.

[31] The Crown also points to para. 29 of the Fresh Statement of Claim:

29. All the members of the Partnership at the time of GRE's incorporation were Indians and all of GRE's shareholders and directors since its incorporation have been and are Indians. Consequently, had the partners not incorporated GRE and continued the business of the Partnership through that corporation, as they were forced to do by the Minister of National Revenue, the Partnership would at all times have been exempt from paying excise taxes and duties pursuant to section 87 of the Indian Act because the property being taxed was the partners' personal property and was situated on a reserve.

[32] The Crown asserts that if the claims for relief are read in the context of these and other paragraphs, it is clear that the damages the respondents seek to recover by way of their forced incorporation claims are the duties and taxes paid by GRE under the Excise Act.

(2) Discussion of Issues on Appeal

[33] As indicated, the issue is the effect of s. 174 and whether the Superior Court has jurisdiction to hear the forced incorporation matter.

a) Analysis

[34] Although the parties agree that the Excise Act is a complete code, they part company on the proper characterization of the respondents' claims for damages and equitable compensation as they relate to forced incorporation.

[35] The Crown submits that this is a case of artful pleading and the claims for relief are disguised claims to recover the duties and taxes paid by GRE under the Excise Act.

[36] In contrast, the respondents submit that the claims for relief are claims for damages and equitable compensation flowing from valid private law causes of action and not, as a matter of statutory interpretation, claims to "recover" amounts for the purposes of s. 174 of the Excise Act.

[37] I turn first to the statutory interpretation argument and then address the characterization of the claims.

Statutory Interpretation Argument

[38] The respondents' statutory interpretation argument relies on the use of the word "recover" in s. 174. For ease of reference, I repeat that section:

Except as specifically provided under this Act, the Customs Act, the Customs Tariff or the Financial Administration Act, no person has a right to recover any money paid to Her Majesty as or on account of, or that has been taken into account by Her Majesty as, duty, interest or other amount payable under this Act.

[39] The individual respondents argue that it cannot be said they are seeking to "recover" taxes, since a person cannot recover something that he or she did not pay in the first place. Here, it was GRE, and not the individual respondents, that paid duties and taxes under the Excise Act after GRE obtained an excise licence.

[40] The respondents submit that the statutory interpretation argument disposes of the s. 174 issue because GRE does not come into play: they accept the Crown's position that the forced incorporation claims are strictly on behalf of the individual respondents. Since only the individual respondents, as "Indians", can seek an exemption from taxation under s. 87 of the Indian Act, only they can claim that but for the "forced incorporation", no taxes would have been paid.

[41] I am not persuaded that s. 174 only precludes claims by the person who actually paid the duty or taxes.

[42] First, the respondents have not pointed to any case law to support that proposition.

[43] Second, in my view, the word "recover" must be read in the context of the entire section, which precludes any "person", which is broadly defined in the Excise Act, from seeking to recover "any money paid". This wording, in the passive voice, does not specify by whom the amount is paid.

[44] Thus, the mere fact that the amounts were paid by GRE and not the individual respondents does not bring the situation outside the ambit of s. 174.

Characterization of the Claim Argument

[45] The Crown argued that the only losses claimed in relation to forced incorporation are the duties and taxes paid by GRE and so the claim should be characterized as a claim to recover duties and taxes paid under the Excise Act. In oral argument, Crown counsel recast the characterization issue to some extent, saying that the essential nature of the respondents' claim is nothing more than a disguised dispute about whether the individual respondents are entitled to a s. 87 tax exemption, which could have and should have been decided by the Tax Court long before now.

[46] The essence of a dispute must be based on a realistic appreciation of the practical result sought by the claimant: Domtar Inc. v. Canada, 2009 FCA 218, 392 N.R. 200, at para. 28, citing Canada v. Roitman, 2006 FCA 266, 353 N.R. 75, at para. 16, leave to appeal refused, [2006] S.C.C.A. No. 353. In order to assess its essential character, the claim must be read "holistically and practically without fastening onto matters of form": Canada (Minister of National Revenue – M.N.R.) v. JP Morgan Asset Management (Canada) Inc., 2013 FCA 250, 367 D.L.R. (4th) 525, at para. 50.

[47] In arguing that s. 174 acts as a bar, the Crown relies on four cases, which it says are similar to this one: Michelin Tires (Canada) Ltd v. Canada (1998), 158 F.T.R. 101, aff'd 2001 FCA 145, 271 N.R. 183, leave to appeal refused, [2001] S.C.C.A. No. 367; British Columbia Ferry Corp. v. Canada (Minister of National Revenue – M.N.R.), 2001 FCA 146, 271 N.R. 345; Sorbara v. Canada (Attorney General) (2008), 93 O.R. (3d) 241 (S.C.), aff'd 2009 ONCA 506, 98 O.R. (3d) 673, leave to appeal refused, [2009] S.C.C.A. No. 299; Merchant Law Group v. Canada (Revenue Agency), 2009 FC 755, 311 D.L.R. (4th) 124, aff'd 2010 FCA 184, 321 DL.R. (4th) 301.

[48] I do not see these cases as dispositive. Each depends on the precise nature of the claims brought. In both Michelin and B.C. Ferry, there was a direct challenge to decisions by the Crown to deny tax refunds. In Sorbara, the plaintiffs challenged the assessment of GST based on an interpretation of the legislation. In Merchant, the plaintiffs did not seek compensatory damages for wrongful conduct; rather, they sought the recovery of GST outside the Act.

[49] Here, the respondents do not challenge the assessment of GRE's taxes. They accept that GRE is required to pay taxes and duties under the Excise Act. Their claim is that if GRE had never existed and the tobacco business had continued as a partnership, the partners would have paid no taxes. The respondents seek compensatory damages arising from valid causes of action based on alleged misconduct by the Crown.

[50] Case law has consistently held that the Tax Court cannot take misconduct into account in an appeal against assessments: Main Rehabilitation Co. v. Canada, 2004 FCA 403, 247 D.L.R. (4th) 597, at para. 7, leave to appeal refused, [2005] S.C.C.A. No. 37; Ereiser v. Canada, 2013 FCA 20, 444 N.R. 64, at paras. 31-32, leave to appeal refused, [2013] S.C.C.A. No. 167. Rather, private law claims based on Crown misconduct may be heard by a provincial Superior Court: see, for e.g., Leroux v. Canada (Revenue Agency), 2012 BCCA 63, 347 D.L.R. (4th) 122.

[51] Although the Crown accepts that matters of misconduct lie in the Superior Court, it argues that this case is not about misconduct. At its root, says the Crown, this case is about the interpretation and application of a taxing statute, and the issue of whether the partners are entitled to an exemption under s. 87 of the Indian Act. In oral argument, counsel stated that the Crown's position was not that the respondents should now go to the Tax Court, but that they could have and should have already gone to the Tax Court for a ruling on the s. 87 issue.

[52] There are two elements of the respondents' forced incorporation claims. The first is that, "but for" Crown misconduct, GRE would not have been incorporated. The second is that, "but for" the incorporation, the partners' business would not have paid taxes under s. 87 of the Indian Act.

[53] I accept the respondents' point that if they were to prove the pleaded causes of action in relation to forced incorporation, they would be entitled to damages and equitable compensation flowing from the breaches. In proving their losses, it would be up to the respondents to show that they would have been exempt from paying tax as pleaded in their Fresh Statement of Claim.

Taxes are an Element of the Damages Claim Argument

[54] Another point of contention between the parties is whether a claim falls within s. 174 where the amount of taxes paid is relevant to the assessment of damages.

[55] The motion judge appreciated that the "factual basis" of the respondents' tort claim necessitated a consideration of GRE's tax assessment, and that the amount of taxes paid might be relevant to the assessment of damages.

[56] The Crown argues that those factors are fatal, pointing to Deluca v. Canada (Attorney General), 2016 ONSC 3865, in which Dunphy J. struck from the plea of general damages "any amount that [was] indirectly calibrated from the value of the lost tax deduction": para. 25. He concluded, at para. 24, that the plaintiff could not "plead by way of tort damages as against the Crown in right of Canada the value of the very benefit he is ineligible to receive from the same Crown in right of Canada by the terms of a statute of Parliament", which in that case was the Income Tax Act.

[57] However, in Deluca, the plaintiff had pending appeals of the reassessment of his tax returns that had disallowed deductions claimed. If he were to be successful on those appeals, the entire foundation of his tort and other claims before the Superior Court would disappear. As Dunphy J. noted, at para. 19, "the merits of the pending appeals [were] not merely incidental to this claim – they [were] his claim".

[58] In contrast, in this case neither GRE nor the individual respondents challenge the assessment of GRE's taxes. Rather, the individuals claim that, but for the Crown's wrongful conduct, GRE would not have existed, the business would have continued as a partnership, and the partners would not have paid duties or taxes under the Excise Act.

[59] Crown counsel also refers to Grenon v. Canada (Revenue Agency), 2016 ABQB 260, 2016 AQBQ 260, 35 Alta. L. R. (6th) 139. In my view, Grenon is also distinguishable. Here, the respondents are not seeking to collaterally attack any decision already made by the Tax Court with regard to GRE. If there were a requirement to incorporate, then GRE had to pay duties and taxes. But if there were no need to incorporate, the individual respondents seek to put themselves back in the position that they would otherwise have been in. Rather than benefitting from the tobacco business as GRE shareholders, it is alleged they would have operated the GRE business as partners – and as partners they would have been exempt from taxation under the Excise Act. Although, as discussed above, the individual respondents will have to address the s. 87 issue in proving damages, they are not, in my view, seeking to challenge the validity of any reassessment.

[60] A number of cases support the contention that the fact that the damages claimed in an action relate in part to the quantum of taxes paid does not necessarily trigger the application of s. 174: Obonsawin v. Canada, 2004 TCC 3, 2004 G.T.C. 131; and Obonsawin (c.o.b. Native Leasing Services) v. Canada, 2006 G.T.C. 1274 (Ont. S.C.); Leroux, at paras. 22-24. These cases support the view that simply because a tax assessment may be relevant to a claim or to the assessment of damages, that does not necessarily mean that it should be characterized as a matter that goes to the Tax Court.

(3) Conclusion and Final Comments

[61] For these reasons, I would not interfere with the motion judge's conclusion that the Superior Court has jurisdiction to hear the claims for relief based on the respondents' theory of forced incorporation. As I read his reasons, there are two aspects to the motion judge's decision in regards to jurisdiction.

[62] First, he finally determined that the Superior Court has jurisdiction to hear the damages claim, as pleaded. He therefore disposed of the defence that the claim should be struck since it must go to the Tax Court, which amounts to a final order.

[63] Second, as I read para. 142 of his reasons, the motion judge is saying that, as a matter of law, the fact that the factual basis of the tort claim involves a discussion of GRE's taxes and the fact that the measure of damages may take into account the amount of taxes paid does not mean that it is plain and obvious that the claim is barred by s. 174.

[64] On this reading, although the Superior Court has jurisdiction to hear the claim for damages for forced incorporation, it is still open to the Crown to argue, based on the trial evidence, that the damages claim for forced incorporation is a disguised claim to recover duties and taxes and thus is barred by s. 174. While a Superior Court judge cannot hear a claim that is caught by s. 174, a Superior Court judge may decide whether s. 174 applies, as the motion judge below was asked to do. At this stage of the proceeding, it is not plain and obvious that s. 174 is engaged but the trial judge may, based on the evidence at trial, revisit the characterization issue.

[65] To be clear, by confirming that a trial on this issue may proceed in Superior Court, this court is finally deciding that the Superior Court has jurisdiction to hear it. However, the court has not determined whether s. 174 of the Act will be a bar to the respondents' claims. That will be decided by the trial judge once the evidence has been heard and the factual findings have been made.

[66] Although the Crown had taken the position as a procedural matter that the motion judge's decision amounted to a final decision on the interpretation and application of s. 174, the respondents agreed in oral argument that by failing to strike the claim, the motion judge left the matter open for trial. I agree that is the result.

[67] I now turn to the second appeal.

PART TWO: THE FAILURE TO ENFORCE APPEALS

[68] As noted above, this second appeal deals with the respondents' failure to enforce claims based on negligence, misfeasance and breach of fiduciary duty.

[69] The Crown submits that the motion judge erred in failing to strike the claims on the basis that it is plain and obvious that they have no reasonable chance of success. In particular, the Crown says the motion judge erred in holding that a corporation or individual can seek damages in tort or for breach of fiduciary duty for lost market share and profits when Ministers allegedly fail to properly implement policy initiatives aimed at a range of objectives, only one of which is increasing the effectiveness of enforcement measures targeting contraband tobacco. For instance, the respondents allege the Crown failed to implement the 1994 Initiative, which the Crown says was aimed at combatting the smuggling of alcohol, drugs and weapons through various measures including tax and enforcement measures.

I. MISFEASANCE IN PUBLIC OFFICE

[70] Section 7 of the Fresh Statement of Claim provides as follows:

MISFEASANCE IN PUBLIC OFFICE

43. The Ministers' continuous course of conduct (including their failure to act) as set forth above, including the requirement to incorporate, was deliberate and unlawful in the exercise of their public functions: they knowingly acted for an improper purpose as described above and knowingly exceeded their authority.

44. The Ministers knew that such conduct was unlawful and likely to injure the Plaintiffs. The conduct was deliberate in that: (a) the requirement that the aboriginal Plaintiffs incorporate and pay taxes contrary to their rights to be free of taxation was knowingly imposed; and (b) the Ministers knowingly persisted in failing to properly implement and administer the Initiative, even though their lack of action was repeatedly pointed out to them, as demonstrated above. In addition, the Ministers knew that it was unlawful because, as described below, they knowingly breached their duty of care to the Plaintiffs. The Ministers knew that all of this conduct and failures would likely injure the Plaintiffs as a result of licensed tobacco manufacturers such as the Plaintiffs suffering harm or losses in the form of lost profits, loss of market share and diminution of the value of their businesses' goodwill, including the value of trademarks and other intellectual property, again as set forth above. The Plaintiffs were in fact injured: there was no level playing field.

A. Motion Below

[71] Before the motion judge, the Crown argued that there is no statutory duty to implement any particular law enforcement measure in any particular manner. The Crown, citing Weninger Farms Ltd. v. Canada (Minister of National Revenue), 2012 ONSC 4544, relied on its discretion to investigate and prosecute.

[72] The Crown also submitted that the respondents had not sufficiently pled the element of malice. There was no particularization of the Crown's relevant state of mind. The Crown relied on Mackin v. New Brunswick, 2002 SCC 13, [2002] 1 S.C.R. 405, at para. 78, as showing that damages would not be awarded "absent conduct that is clearly wrong, in bad faith or an abuse of power". The Crown submitted that its conduct could not be said to be unlawful. Nor could the subjective element of the tort be established.

[73] The motion judge analyzed this issue as follows, at paras. 78-82:

On the facts as pleaded, in my view the plaintiffs' claim is stronger on misfeasance than negligence, particularly as there is no duty of care element.

As before, I do not see the forced incorporation as compelling but failure to enforce the Initiative is a different matter. There is, however, a narrow window of opportunity with respect to the forced incorporation issue in that there is no statutory support for the requirement of incorporation and the ultimate result may well be significant. Determination of the tax liability or exemption under section 87, Indian Act, is not a perquisite in my view.

Malice may not be fully particularized in the pleading; however a motion to strike is not the place to assess the sufficiency of the supporting evidence. Much will depend on the testimony of witnesses and documents produced. See: Miguana v. Toronto (City) Police Services Board, 2008 ONCA 799. A misfeasance claim may be permitted to survive on a motion to strike even in cases where it might be difficult to prove. See: Driskell v. Dangerfield, [2007] M.J. No. 20 (Q.B.).

The Fresh as Amended Statement of Claim contains sufficient facts and particularity with respect to misfeasance to allow the claim to proceed. Amendments may be made as further particulars are ascertained. Further, the tort of misfeasance [in] public office, in my view, is still developing and changing. As in Granite Power Corp. v. Ontario (2004), 72 O.R. (3d) 194, leave to appeal refused, [2004] S.C.C.A No. 409], this claim should not be struck at this stage "regardless of how difficult it may be to establish". A trial on this issue, given the facts as pleaded, will assist in clarifying the law as it relates to misfeasance.

In result, I conclude that it is not plain and obvious the claim will fail.

B. Appeal to this Court

[74] Despite the motion judge's comment that the tort of misfeasance in public office is still developing and changing, there is no dispute about the test for establishing misfeasance in public office. The test was summarized by the Supreme Court in its 2003 decision in Odhavji Estate, at para. 32:

[T]he tort of misfeasance in a public office is an intentional tort whose distinguishing elements are twofold: (i) deliberate unlawful conduct in the exercise of public functions; and (ii) awareness that the conduct is unlawful and likely to injure the plaintiff. Alongside deliberate unlawful conduct and the requisite knowledge, a plaintiff must also prove the other requirements common to all torts. More specifically, the plaintiff must prove that the tortious conduct was the legal cause of his or her injuries, and that the injuries suffered are compensable in tort law.

(1) Unlawful Conduct

[75] The Crown submits that, in addition to the requirements set out by the Supreme Court in the test as described, where a claim is grounded in an alleged failure of a public officer to take certain action, misfeasance cannot be made out unless there is a failure to act in the face of a clear statutory duty. According to the Crown, an omission cannot be unlawful unless it constitutes a deliberate breach of official duty and there is nothing "that requires Ministers [to] implement policies or enforce the legislation in any particular manner". Accordingly, the Crown cannot be liable for any failure to enforce the Initiative.

a) Analysis

[76] The Crown relies on para. 24 of Odhavji:

Insofar as the nature of the misconduct is concerned, the essential question to be determined is not whether the officer has unlawfully exercised a power actually possessed, but whether the alleged misconduct is deliberate and unlawful. As Lord Hobhouse wrote in Three Rivers, supra, at p. 1269:

The relevant act (or omission, in the sense described) must be unlawful. This may arise from a straightforward breach of the relevant statutory provisions or from acting in excess of the powers granted or for an improper purpose.

Lord Millett reached a similar conclusion, namely, that a failure to act can amount to misfeasance in a public office, but only in those circumstances in which the public officer is under a legal obligation to act. Lord Hobhouse stated the principle in the following terms, at p. 1269: "If there is a legal duty to act and the decision not to act amounts to an unlawful breach of that legal duty, the omission can amount to misfeasance [in a public office]." See also R. v. Dytham, [1979] Q.B. 722 (C.A.). So, in the United Kingdom, a failure to act can constitute misfeasance in a public office, but only if the failure to act constitutes a deliberate breach of official duty.

[77] As I read these paragraphs, Iacobucci J. was reviewing the law in the United Kingdom and not describing the current law in Canada.

[78] The Crown also relies on para. 37 of Odhavji, where the court applied the test for misfeasance to the facts of the case:

Although the allegation that the Chief deliberately failed to segregate the officers satisfies the requirement that the Chief intentionally breached his legal obligation to ensure compliance with the Police Services Act, the same cannot be said of his alleged failure to ensure that the defendant officers produced timely and complete notes, attended for interviews in a timely manner, and provided accurate and complete accounts of the incident. As above, inadvertence or negligence will not suffice; a mere failure to discharge the obligations of the office cannot constitute misfeasance in a public office. In light of the allegation that the Chief's failure to segregate the officers was deliberate, this is not a sufficient basis on which to strike the pleading. Suffice it to say, the failure to issue orders for the purpose of ensuring that the defendant officers cooperated with the investigation will only constitute misfeasance in a public office if the plaintiffs prove that the Chief deliberately failed to comply with the standard established by s. 41(1) (b) of the Police Services Act.

[79] In the bolded passage, Iacobucci J. was commenting on a situation where it was not alleged the Chief had acted deliberately, and so it could not be said that there was "deliberate unlawful conduct". A public officer's failure to act must be more than mere inadvertence or negligence to amount to misfeasance.

[80] The paragraphs upon which the Crown relies must be read in the context of paras. 22-23 of Odhavji, where Iacobucci J. discusses two categories of misfeasance claims:

What then are the essential ingredients of the tort, at least insofar as it is necessary to determine the issues that arise on the pleadings in this case? In Three Rivers, the House of Lords held that the tort of misfeasance in a public office can arise in one of two ways, what I shall call Category A and Category B. Category A involves conduct that is specifically intended to injure a person or class of persons. Category B involves a public officer who acts with knowledge both that she or he has no power to do the act complained of and that the act is likely to injure the plaintiff…. It is important, however, to recall that the two categories merely represent two different ways in which a public officer can commit the tort; in each instance, the plaintiff must prove each of the tort's constituent elements. It is thus necessary to consider the elements that are common to each form of the tort.

In my view, there are two such elements. First, the public officer must have engaged in deliberate and unlawful conduct in his or her capacity as a public officer. Second, the public officer must have been aware both that his or her conduct was unlawful and that it was likely to harm the plaintiff. What distinguishes one form of misfeasance in a public office from the other is the manner in which the plaintiff proves each ingredient of the tort. In Category B, the plaintiff must prove the two ingredients of the tort independently of one another. In Category A, the fact that the public officer has acted for the express purpose of harming the plaintiff is sufficient to satisfy each ingredient of the tort, owing to the fact that a public officer does not have the authority to exercise his or her powers for an improper purpose, such as deliberately harming a member of the public. In each instance, the tort involves deliberate disregard of official duty coupled with knowledge that the misconduct is likely to injure the plaintiff.

[81] On my reading of the relevant paragraphs from Odhavji, there is no requirement for a breach of a statutory duty to make out a claim for misfeasance in public office. Conduct by a public officer may be unlawful even where there is no positive duty to act, provided that the conduct was done with the intent to harm. Similarly, a refusal to exercise a power with a specific intent to injure might satisfy the test for misfeasance in public office. Here, the respondents plead that "the Ministers' continuous course of conduct (including their failure to act) … was deliberate and unlawful in the exercise of their public functions: they knowingly acted for an improper purpose as described above and knowingly exceeded their authority": para. 43 of the Fresh Statement of Claim. Thus, I reject the Crown's argument that the misfeasance claim should have been struck because the respondents did not plead a failure to act in the face of a clear statutory duty.

(2) Sufficiency of Particulars

[82] The Crown also alleges that the respondents failed to plead sufficient particulars of misfeasance in two ways – in failing to identify the Ministers responsible for the alleged misfeasance, and in failing to properly plead bad faith.

[83] The Crown points to r. 25.06(8) which requires full particulars of malice or intent:

Where fraud, misrepresentation, breach of trust, malice or intent is alleged, the pleading shall contain full particulars, but knowledge may be alleged as a fact without pleading the circumstances from which it is to be inferred.

[84] The Crown also relies on this court's decision in Gratton-Masuy Environmental Technologies Inc. v. Ontario, 2010 ONCA 501, 101 O.R. (3d) 321, in support of the following propositions:

1. An express plea of actual malice in the form of a specific intent to injure a person or class of persons is required.

2. A bald plea of malice is insufficient to defeat a r. 21 motion. The pleading must meet a "stringent standard of particularity".

3. Broadly cast allegations of bad faith, malice and bias merely on assumptions and speculations about the motivations underlying the conduct of government officials do not satisfy the rules of pleading.

Identity of Public Officers

[85] The Crown says that an essential element of a claim framed in misfeasance is a mental element, which must, by its very nature, involve a particular person or persons. Here, the Fresh Statement of Claim does not identify, by name, each of the Ministers alleged to have committed misfeasance. Rather, it states that "[t]he Ministers responsible for implementing and administering the Initiative have been the Minister of National Revenue, the Solicitor General of Canada, the Minister of Public Safety and Emergency Preparedness, the Minister of Justice": para. 35. According to the Crown, more than 34 Ministers have held those positions during the period covered by the claim.

[86] The Crown submits that if the allegation is that each of the 34 Ministers maliciously failed to enforce the law, material facts grounding those allegations must be pleaded. If it is alleged that only certain Ministers committed misfeasance, then the bare assertion that the Initiative was not "properly implemented" by the Ministers does not meet the requisite degree of particularity.

a) Analysis

[87] In my view the fact that not all Ministers are identified by name is not fatal to this claim.

[88] This court's decision in Granite Power Corp. v. Ontario (2004), 72 O.R. (3d) 194 (C.A.), leave to appeal refused, [2004] S.C.C.A No. 409, supports the argument that the failure to name specific people within an organization may not necessarily result in a misfeasance claim being struck. In Granite Power, it was simply pleaded that the "Minister and/or his offices and staff" had acted with misfeasance. This court concluded the claim should not be struck even though it suffered from "a lack of clarity and precision": para. 34. This court held that there existed "a narrow window of opportunity for Granite to make out its claim of misfeasance" and that "[r]egardless of how difficult it may be to establish, Granite should not be 'driven from the judgment seat' at that juncture of the proceeding": paras. 40, 42.

[89] Cases such as the following reflect an acknowledgment that, at the outset of litigation, a plaintiff may not be privy to information about the internal workings of an organization and which particular individual or individuals within an organization may have taken or failed to take a particular action: Capital Solar Power Corp. v. Ontario Power Authority, 2015 ONSC 2116, at paras. 13-14; Swift Current (City) v. Saskatchewan Power Corp., 2007 SKCA 27, 293 Sask. R. 6, at para. 29; and Georgian Glen Development Ltd. v. Barrie (City) (2005), 13 M.P.L.R. (4th) 194 (Ont. S.C.), at para. 11.

[90] This is such a case. The respondents have identified the group of individuals said to be responsible for misfeasance in public office by title instead of by name. Similar to Granite Power, the respondents have identified a class of persons. It is difficult to expect the respondents to be more specific at the pleadings stage. As the motion judge acknowledged, much will depend on the evidence that emerges.

(3) Allegations of Bad Faith

[91] The Crown also submits that bad faith was not properly pleaded. The only purported motive ascribed to the Ministers is found at para. 44 of the Fresh Statement of Claim: "[T]he Ministers knew that it was unlawful because, as described below, they knowingly breached their duty of care to the Plaintiffs." The Crown submits that such logic is circular, and that it is not enough to use conclusory words such as "deliberately" and "knowingly".

[92] The Crown also submits that the only paragraphs of the pleading the motion judge identified as relating to bad faith and the alleged failure to enforce deal with knowledge of harm as opposed to intent to harm. It is argued that the motion judge erred to the extent he took the pleading of knowledge of harm to be sufficient.

a) Analysis

[93] I agree with the Crown that knowledge of harm, without intent to harm, is insufficient to establish misfeasance. This court made that point in Pikangikum First Nation v. Nault, 2012 ONCA 705, 298 O.A.C. 14, at para. 77, leave to appeal refused, [2013] S.C.C.A. No. 10:

The tort of misfeasance in public office is difficult to establish. The plaintiff must prove more than mere negligence, mismanagement or poor judgment. To succeed, the plaintiff must demonstrate that the defendant knowingly acted illegally and in bad faith chose a course of action specifically to injure the plaintiff.

[94] A similar point was made in Odhavji, at para. 28:

The requirement that the defendant must have been aware that his or her conduct was unlawful reflects the well-established principle that misfeasance in a public office requires an element of "bad faith" or "dishonesty". In a democracy, public officers must retain the authority to make decisions that, where appropriate, are adverse to the interests of certain citizens. Knowledge of harm is thus an insufficient basis on which to conclude that the defendant has acted in bad faith or dishonestly. A public officer may in good faith make a decision that she or he knows to be adverse to interests of certain members of the public. In order for the conduct to fall within the scope of the tort, the officer must deliberately engage in conduct that he or she knows to be inconsistent with the obligations of the office.

[95] Thus the issue is whether, on a generous reading of the Fresh Statement of Claim as a whole, the respondents have failed to adequately plead bad faith.

[96] The Crown bifurcates forced incorporation and the failure to enforce and argues that "[t]he only paragraphs of the pleading identified by the motion judge regarding malice in respect of the failure to enforce relate to knowledge (namely, that the inaction was harming the plaintiffs' business)": Although the motion judge's list of facts relevant to bad faith and improper purpose starts at para. 68 (m) and goes to (y), the Crown says that only (u) to (w) are relevant:

(u) starting in February 2003, GRE has on a frequent and recurring basis brought to the attention of the Ministers and their representatives their failures in combating the problem of contraband on Reserve, and complained about the increased availability of contraband on Reserve – paras. 36, 39;

(v) notwithstanding these communications, and while GRE was paying $50 to $60 million in a year in taxes and duties, the Ministers have done virtually nothing to address the issue of contraband on the Reserve – paras. 38, 39, 40, 41;

(w) the Ministers knew that the sales of GRE's products in Ontario were restricted to reserves where contraband products were most readily available and knew the particular vulnerability that these restrictions on GRE's sales markets caused to GRE – para. 45;

[97] I agree that these paragraphs deal with knowledge of harm, which on its own is insufficient to establish bad faith. However, in my view, these paragraphs should not be read in isolation. The respondents appear to allege that it is the cumulative effect of the Crown's course of conduct, starting with the alleged forced incorporation that amounts to bad faith. It is through the entire course of conduct that the respondents have been singled out. The claim is that the alleged failure to enforce is problematic because GRE, having incorporated, has to pay taxes, and other on-Reserve tobacco suppliers have avoided doing so. Accordingly, it is arguable that a pre-existing malice or bad faith at the forced incorporation stage could be said to underlie the later failure to enforce.

[98] In conclusion, I am not satisfied that the motion judge, looking at the pleading as a whole, erred in concluding that bad faith was sufficiently particularized at this early stage of the proceeding.

(4) Conclusion

[99] I see no reason to interfere with the motion judge's conclusion that the respondents' misfeasance in public office claim, based on the alleged failure to enforce, should be allowed to proceed to trial.

II. NEGLIGENCE

[100] Section 8 of the Fresh Statement of Claim provides as follows:

THE MINISTERS BREACHED THEIR DUTY OF CARE

45. Further, the Initiative has not been properly implemented or administered by the Ministers. This includes the failure to properly enforce existing laws relating to the manufacture and sale of tobacco products and trademark and intellectual property rights on the Reserve. The full particulars of the failure to properly implement or administer the Initiative, including enforcing the law, are known to the Defendants and will be provided after the examinations for discovery. Execution of the Initiative is an operational matter which requires the Ministers to act reasonably and with due care in the execution of the Initiative. The Ministers beached this duty of care in that their implementation and administration of the Initiative fell below the applicable standard of care. It was and is a foreseeable consequence of the Ministers' failure to reasonably and properly execute the Initiative that GRE would suffer financial harm and loss. Indeed, GRE's financial losses are made all the more severe since sales of its products in its chief market Ontario are restricted to reserves where Contraband products are most readily available. This limitation on GRE's sales markets, and the particular vulnerability that such restrictions cause to GRE, were at all material times known to the Ministers.

46. The Defendant cannot rely on any policy decision to negate the duty of care owed to the Plaintiffs because the Ministers' continued reliance on the 1994 Initiative was improper. This is because the Initiative has been shown to be inadequate and ineffective since at least June 2002, or, in the alternative, has not been appropriately implemented or administered. As a result, the continued reliance on this failed program demonstrates a lack of good faith on the part of the Ministers and is completely irrational and unreasonable.

47. In addition, the Minister's duty of care was heightened because of the fiduciary duty owed by the Crown and the "honour of the Crown" as set forth below.

48. The failure to properly implement and administer the Initiative has now been admitted. On May 7, 2008, the Minister of Public Safety and Emergency Preparedness with the Assistant Commissioner of the RCMP announced the launching of a new strategy: the RCMP's Contraband Tobacco Enforcement Strategy. While acknowledging the existence of the earlier National Action Plan to Combat Smuggling and Comprehensive Tobacco Control Strategy, the Commissioner of the RCMP described the new Strategy as "the first step in what will be a strategically driven process to tackle the growing illicit contraband tobacco market in Canada".

A. Motion Below

[101] In its notice of motion, the Crown claimed that the respondents' negligence claim ought to be struck as disclosing no reasonable cause of action. The Crown asserted that it owed no private law duty of care to the respondents with respect to the deployment of law enforcement resources. These are public law functions, the duties in relation to which are owed to the public. The Crown owes no duty to protect the respondents' commercial interests.

[102] The Crown also took the position that even if a prima facie duty of care could be found, policy reasons militated against imposing a private law duty in these circumstances.

[103] The motion judge disagreed. He concluded that the negligence claim should not be struck for the following reasons, at paras. 58-66:

Since Cooper, it has become increasingly difficult for plaintiffs to establish a relationship of proximity and avoid policy reasons militating against recognition of the duty of care.

Assuming the facts pleaded to be true, as I must at this early stage, the discussions and interactions of the parties lead to the possibility of finding a special relationship did exist. The alleged agreement regarding the requirements to obtaining a license under the Excise Act and the enforcement of the Initiative support such a conclusion. If so, a prima facie duty of care would be established.

Proximity, however, is difficult to establish having regard to the weighing of competing interests by Government and its duties to the public as a whole.

Granite Power and Imperial Tobacco indicate the detail in the analysis. In this case, the interactions, in my view, are more persuasive given, in particular, the resulting agreement.

The forced incorporation complaint, in my view, is not a strong one. The partnership was represented by counsel and had remedies it could have then pursued. Failure to enforce the Initiative, however, is different. The interest of the plaintiffs in the enforcement of the legislation coincides with the interests of the public at large. The discretion regarding investigation and prosecution is a doubtful application, at least at this stage, as abdication, essentially as pleaded, is not the exercise of discretion.

Policy considerations are a greater challenge for the plaintiffs. I am unaware of any comparable case that succeeded on this part of the test. Imperial Tobacco is demonstrative of the difficulty in success.

In support of the plaintiffs is the lack of conflict with a statutory duty. I am not persuaded there is any concern for indeterminate liability as the fact situation is unique. What is at issue is enforcement of the legislation, whether as a result of the Initiative or otherwise. This is not, in my view, a matter of policy.

What obviously is in dispute is the discretion to enforce versus the refusal to enforce. The latter is pleaded, in essence, which begs the question as to whether the Government can effectively amend legislation by avoidance. Presumably, the public has the same interest as the plaintiffs in the enforcement of legislation on the basis of equal treatment.

While the facts as pleaded are more strong in terms of the misfeasance claim, it would be premature to dismiss the plaintiffs' negligence claim. The plaintiffs face an uphill struggle but it is not plain and obvious the claim discloses no reasonable cause of action. Indeed, I conclude the issues raised in this claim are of such importance a trial is required.

B. Appeal to this Court

(1) Legal Principles

[104] As the respondents assert a novel duty of care, the two-part Cooper/Anns test applies. It is described at para. 30 of Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537, in the following terms:

At the first stage of the Anns test, two questions arise: (1) was the harm that occurred the reasonably foreseeable consequence of the defendant's act? and (2) are there reasons, notwithstanding the proximity between the parties established in the first part of this test, that tort liability should not be recognized here? The proximity analysis involved at the first stage of the Anns test focuses on factors arising from the relationship between the plaintiff and the defendant. These factors include questions of policy, in the broad sense of that word. If foreseeability and proximity are established at the first stage, a prima facie duty of care arises. At the second stage of the Anns test, the question still remains whether there are residual policy considerations outside the relationship of the parties that may negative the imposition of a duty of care.

(2) Proximity

i. Specific Interactions

[105] As noted in Imperial Tobacco, at para. 43, two situations may be distinguished when determining whether a government actor owes a prima facie duty of care: (1) the situation where the alleged duty of care is said to arise explicitly or by implication from the statutory scheme; and (2) the situation where the duty of care is said to arise from interactions between the claimant and the government, and is not negated by statute.

[106] This case falls within the second category. The motion judge found that "[a]ssuming the facts pleaded to be true … the discussions and interactions of the parties lead to the possibility of finding a special relationship did exist": para. 59.

[107] The Crown submits that the record of meetings and contacts is insufficient to establish proximity. The Crown relies on this court's decision in Granite Power.

(a) Analysis

[108] I agree with the respondents that it is not plain and obvious that the claim cannot succeed based on Granite Power.

[109] Granite Power involved a small private utility that had enjoyed a monopoly in the supply, distribution and sale of electricity to the inhabitants of Gananoque. In the late 1990s, the government announced a policy to open Ontario's electricity market to competition. The shift in government policy was a matter of concern to Granite, and eventually Granite sued the government, claiming negligence and misfeasance.

[110] Granite pleaded that from 1997 to 2002, it wrote to the Minister of Energy, Science and Technology on numerous occasions seeking clarification as to the effect of the new policy, and that meetings were arranged with Ministry personnel. Granite claimed it did not know where it stood because of "mixed messages" (para. 13) from the Minister and his staff. It claimed that it was harmed as a result. Eventually Granite was advised that it had been granted an exemption, but Granite claimed that this was "too little, too late" (para. 16).

[111] Granite pleaded that a duty of care arose under the relevant legislation and a "web of relationships". The Court set out the relevant part of the pleadings, at para. 18:

Granite says that under the Electricity Act 1998 and the Ontario Energy Board Act, 1998, there was determined a sufficiently close relationship between Granite and the Minister and/or his offices and staff such that it was in the reasonable contemplation of the Minister and/or his staff that carelessness on his or their part might injure and cause damage to Granite. Granite says that the Minister and/or his offices and staff owed a duty to Granite not to act carelessly in the implementation and administration of the legislation as it affected Granite, and that this duty was breached. Granite has been and continues to be injured thereby. Granite says that there was a web of relationships developed that the Minister and/or his offices and staff could not ignore, and that the web of relationships imposed on the Minister a duty of care.

[112] This court held that the defendants did not owe a duty of care to Granite, and struck its negligence claim. The court held, at para. 24, that "[m]anifestly, under the legislative scheme, the Minister did not owe a duty of care exclusively to Granite" but rather "owed a duty of care to the public as a whole". It also noted that "Granite's efforts to have the Minister protect its interests by recommending that it be fully exempted from the open-market regime are clearly understandable" but were not sufficient "to saddle the Minister with a duty of care that did not otherwise exist": para. 23.

[113] This case is different than Granite Power in two material ways. First, the respondents do not rely on the legislative scheme as a basis for imposing a duty of care. Second, although Granite sought the Minister's assistance, it was not alleged that the Minister agreed or undertook to take any particular action on Granite's behalf. Rather, it was alleged that Granite received mixed messages. In contrast, the respondents in this case plead that there was a "clear agreement" or "implied undertaking" to enforce the Initiative so as to level the playing field: Fresh Statement of Claim, para. 28.

[114] The opposite result from Granite was reached in a case the respondents rely on: Paradis Honey Ltd. v. Canada (Attorney General), 2015 FCA 89, 382 D.L.R. (4th) 720, leave to appeal refused, [2015] S.C.C.A. No. 227. In that case the plaintiffs' negligence claim was allowed to proceed to trial. The case involved a proposed class action by a group of commercial beekeepers who challenged the ban on the importation of honey bees from the United States. The beekeepers pleaded that the government owed a duty of care based on the statutory scheme in question, representations made to the beekeeping industry, consultations with the beekeeping industry about the bee import policy, and the government's knowledge of the hardship the ban would impose on beekeepers.

[115] The Federal Court of Appeal concluded that, given the pleaded interactions, the negligence claim should not be struck for want of proximity. Stratas J.A., writing for the majority stated, at paras. 90-91:

The beekeepers plead that in specific interactions, Canada assured them that imports affecting their economic interests would be banned only as long as there was scientific evidence of risk: see paragraph 26 of the statement of claim, as particularized by the proposed amended statement of claim. Absent that evidence of risk and but for the blanket guideline, Canada had to issue importation permits under section 160 of the Health of Animals Regulations, above. In light of these considerations, the relationship between Canada and the beekeepers is sufficiently close and direct to make it fair and reasonable that Canada be subject to a duty to respect the beekeepers' interests, at least to the extent of making rational, evidence-based decisions following proper legislative criteria: Cooper, above at paragraphs 32-36; Hill, above at paragraph 29; Sauer v. Canada (Attorney General), 2007 ONCA 454, 225 O.A.C. 143 (Ont. C.A.).

Put another way, the relationship between the beekeepers and Canada, as pleaded, is one of well-defined rights and entitlements based on specific legislative criteria, alongside specific interactions and assurances between the two. It is not one where someone is seeking a general benefit that may or may not be granted depending on a subjective weighing and assessment of policy factors.

[116] Similarly, in this case, it is alleged that the respondents were assured by a government representative that action would be taken to enforce the Initiative, in order to level the playing field between GRE and other on-Reserve tobacco manufacturers.

[117] As the Supreme Court warned in Imperial Tobacco, at para. 47, "where the asserted basis for proximity is grounded in specific conduct and interactions, ruling a claim out at the proximity stage may be difficult". A generous approach should be taken:

So long as there is a reasonable prospect that the asserted interactions could, if true, result in a finding of sufficient proximity, and the statute does not exclude that possibility, the matter must be allowed to proceed to trial, subject to any policy considerations that may negate the prima facie duty of care at the second stage of the analysis.

[118] In my view, this is a case in which a generous approach is called for.

ii. Role of Ministers

[119] The Crown also argues that as the Ministers' duties do not engage them in the day-to-day conduct of law enforcement, there can be no private law duty to "properly implement or administer" the Initiative. On this point, the Crown relies on Odhavji Estate. The Crown also relies on Weninger Farms in support of the proposition that there is no private law duty to enforce federal excise legislation.

(a) Analysis

[120] I agree with the respondents that the two cases relied on by the Crown do not make it plain and obvious that the Ministers do not owe any private law duty of care.

[121] In Odhavji, it was alleged that the Solicitor General had breached a private law obligation to institute policies and procedures for the purpose of ensuring the police cooperated with the Special Investigation Unit ("SIU"). The Supreme Court concluded that the negligence claim against the Solicitor General ought to be struck because there was "insufficient proximity between the parties": para. 69. It noted that the Solicitor General was not directly involved in the day-to-day conduct of members of the police force and the lack of direct involvement was "compounded by the fact that the responsible minister [was] not under a statutory obligation to ensure that police officers cooperate[d] with the SIU": para. 71. The plaintiffs did not allege that there was any other basis for establishing proximity.

[122] In this case, it is alleged that there were interactions between the respondents and at least some specific Ministers, creating a sufficiently proximate relationship between the parties.

[123] I also note that in Odhavji the court left open the possibility that, despite the Solicitor General's lack of any direct involvement in the day-to-day conduct of police officers, the Minister could have the statutory obligation to address "widespread or systemic misconduct of a particularly serious nature": para. 71. Here, it is alleged that there was a systemic failure to act.

[124] Weninger involved tobacco growers who claimed that the federal and provincial governments allowed the sale of contraband tobacco products in contravention of federal and provincial legislation. They sued for misfeasance and negligence. Canada and Ontario brought r. 21 motions.

[125] The motion judge concluded that there was no proximity between the Minister of National Revenue and the plaintiffs. He noted that the statement of claim made no mention of any dealings between the plaintiffs and the federal or provincial governments. That meant the only possible basis for imposing a duty of care was the statutory scheme. The motion judge held that the legislation was clearly aimed at the general public and there was no private duty of care.

[126] In discussing the misfeasance claim, the motion judge noted that the plaintiffs' reliance on s. 8 of the Excise Act was misguided as it did not obligate the Minister to enforce every section of the statute.

[127] Here, the Crown argues that "[t]here is no basis to come to a different conclusion … as the identical considerations apply" and that "[i]n addition to section 8, the powers conferred on Ministers … by the various statutes, provide for the discretion to enforce or not enforce the law in the public interest".

[128] I would not place reliance on Weninger as the Crown urges. First, of course, as a decision of a judge of the Superior Court, it is not binding on this court. Furthermore, in that case, the only alleged basis for imposing a duty of care was the statutory scheme. In contrast, in this case it is alleged that proximity arises from specific interactions, not the statutory framework.

iii. No Private Duty to Enforce the Law

[129] The Crown argues that discretionary public duties to enforce the law cannot give rise to a private law duty sufficient to ground an action in negligence and that, accordingly, courts have consistently rejected attempts to seek compensation for insufficient or inadequate enforcement of the law.

[130] The Crown refers to para. 40 of Odhavji – and, in particular, the underlined passage – in support of that proposition:

In the defendant officers' submission, the essence of the plaintiffs' claim is that they were deprived of a thorough, competent and credible investigation. And owing to the fact that no individual has a private right to a thorough, competent and credible criminal investigation, the plaintiffs have suffered no compensable damages. If this were an accurate assessment of the plaintiffs' claim, I would agree. Individual citizens might desire a thorough investigation, or even that the investigation result in a certain outcome, but they are not entitled to compensation in the absence of a thorough investigation or if the desired outcome fails to materialize. This, however, is not an accurate assessment of the plaintiffs' submission. In their statement of claim, the plaintiffs also allege that they have suffered physically, psychologically and emotionally, in the form of mental distress, anger, depression and anxiety as a direct result of the defendant officers' failure to cooperate with the SIU.

(a) Analysis

[131] The above paragraph was not discussing a private law duty of care. It is part of Iacobucci J.'s discussion of the misfeasance claims. It addresses "whether the damages that the plaintiffs claim to have suffered as a consequence of the [alleged] misconduct are compensable": para. 39. In the particular case, Iacobucci J. was satisfied that "[a]t the pleadings stage, it is sufficient that the statement of claim allege[d] that the plaintiffs have suffered mental distress, anger, depression and anxiety as a consequence of the alleged misconduct": para. 41. Thus, the misfeasance claims against the officers, based on an alleged failure to cooperate with the SIU, were allowed to proceed.

[132] The Crown also relies on several other cases in support of the proposition that there is no private law duty to victims to investigate crime, which I shall summarize.

[133] In Norris v. Gatien (2001), 56 O.R. (3d) 441 (C.A.), leave to appeal refused, [2002] S.C.C.A. No. 54, an OPP officer struck and killed a cyclist. The cyclist's family sued the police officer who investigated the accident for negligent investigation. It was alleged that he "owed a duty to enforce the criminal law" and that he neglected to do so by failing to properly collect evidence, including failing to administer a breathalyser test. The plaintiffs claimed that, as a result of the negligence, they suffered emotional distress.

[134] This court upheld the motion judge's decision striking the claim as the plaintiffs "had no legal interest in the investigation or prosecution of [the OPP officer]; that investigation and prosecution were matters of public law and public interest": para. 18. It was not enough that the plaintiffs might derive some personal satisfaction from the verdict. Satisfaction would have been a "purely personal matter" and would have had "no reality in law": para. 18.

[135] In Wellington v. Ontario, 2011 ONCA 274, 105 O.R. (3d) 81, leave to appeal refused, [2011] S.C.C.A. No. 258, Duane Wellington was shot and killed by police. His family sued the Deputy Director of the SIU for negligent investigation. On an appeal from a motion to strike, the question for this court was "do victims of crime committed by police officers have the right to sue the Special Investigation Unit (SIU) for negligent investigation?": para. 1.

[136] The court concluded that the SIU did not owe a duty of care based on the Police Services Act, R.S.O. 1990, c. P-15. It held that when the SIU investigates allegations of criminal misconduct by the police, its duties are overwhelmingly public in nature and that "[e]very member of society has an interest in the thorough and effective investigation of police misconduct and in the apprehension and prosecution of any police officer who commits a crime": para. 43. Nor did the fact the victim's mother had been interviewed as part of the investigation give rise to a duty of care. Sharpe J.A. stated that "the SIU does not and should not conduct criminal investigations to advance the private interest of any individual citizen": para. 45. Recognizing a duty of care in favour of victims and their families could, he said, interfere with the SIU heeding its primary duty to the public at large.

[137] The case of Holmes v. White, 2014 ONSC 5809, 329 O.A.C 81 (Div. Ct.), did not involve a tort claim. Rather, the applicant brought an application for judicial review, seeking an order in the nature of mandamus to compel three police forces to undertake criminal investigations. He sought the assistance of the police to investigate the conduct of the Canadian National Police Service, which had pursued criminal charges against him. His application for judicial review was quashed on the basis that mandamus was not an available remedy. In affirming that decision, the Divisional Court noted that "the police do not owe either a public law or private law duty to any individual to investigate crime": para. 16.

[138] In my view, it is not plain and obvious that the negligence claim should be struck on the basis of Norris, Wellington or Holmes, given differences between this case and those cases. First, in this case the respondents are not suing the authorities for failure to investigate any particular case. Their claims, brought against Ministers, deal with a systemic failure to enforce legislation, and they allege that specific interactions gave rise to the alleged duty of care. Second, the respondents allege that they have suffered tangible financial losses.

iv. Conflict

[139] According to the authors of Canadian Tort Law, "[o]ne leading reason for denying proximity is the existence of a conflict of interest for the defendant in considering the risk to the plaintiff": Allen M. Linden & Bruce Feldthusen, Canadian Tort Law, 10th ed. (Toronto: LexisNexis Canada Inc., 2015), at ¶9.60, citing Syl Apps Secure Treatment Centre v. B.D., 2007 SCC 38, [2007] 3 S.C.R. 83. "Where an alleged duty of care is found to conflict with an overarching statutory or public duty, this may constitute a compelling policy reason for refusing to find proximity". Such a conflict will arise where "the imposition of the proposed duty of care would prevent the defendant from effectively discharging its statutory duties": Syl Apps, at para. 28.

[140] The motion judge summarily rejected the Crown's conflict argument at para. 64, where he agreed with the respondents that there was a lack of conflict with a statutory duty.

[141] On appeal, the Crown takes issue with this conclusion, alleging that imposing a private law duty would give rise to two types of conflicts – a conflict between public law and private law duties, and a conflict between the private law duty and police/prosecutorial discretion.

Conflict – Public v. Private Duties

[142] The Crown submits that a private law duty of care would directly conflict with the ability of Ministers and law enforcement agencies to effectively discharge their statutory duties in the public interest. Policy goals would be compromised if a private duty were imposed. These goals include ensuring public safety and fostering Crown-Aboriginal relations. In short, the Crown submits that the motion judge failed to appreciate the complexity of considerations informing government policy and specific enforcement decisions.

(a) Analysis

[143] Conflicting duties have been the deciding factor in some cases. For instance, in discussing proximity in Syl Apps, at para. 41, Abella J. found that the potential for conflicts was decisive:

The deciding factor for me, as in Cooper and Edwards, is the potential for conflicting duties: imposing a duty of care on the relationship between the family of a child in care and that child's court-ordered service providers creates a genuine potential for "serious and significant" conflict with the service providers' transcendent statutory duty to promote the best interests, protection and well-being of the children in their care.

[144] But public duties need not always conflict with private duties. For instance, in Imperial Tobacco, at para. 50, the court noted the complementary nature of the duties in that case:

At the same time, the governing statutes do not foreclose the possibility of recognizing a duty of care to the tobacco companies. Recognizing a duty of care on the government when it makes representations to the tobacco companies about the health attributes of tobacco strains would not conflict with its general duty to protect the health of the public.

[145] Similarly, in Hill v. Hamilton-Wentworth Regional Police Services Board, 2007 SCC 41, [2007] 3 S.C.R. 129, the court recognized, at para. 40, that a duty of care to suspects in conducting an investigation would not conflict with public duties imposed on the police:

It is argued that recognition of liability for negligent investigation would produce a conflict between the duty of care that a police officer owes to a suspect and the police's officer duty to the public to prevent crime, that negates the duty of care. I do not agree. First, it seems to me doubtful that recognizing a duty of care to suspects will place police officers under incompatible obligations. Second, on the test set forth in Cooper and subsequent cases, conflict or potential conflict does not in itself negate a prima facie duty of care; the conflict must be between the novel duty proposed and an "overarching public duty", and it must pose a real potential for negative policy consequences. Any potential conflict that could be established here would not meet these conditions.

[146] Moreover, "a duty of care in tort law should not be denied on speculative grounds": para. 43. McLachlin C.J. described the potential for negative policy repercussions in that case as "dubious", at para. 43:

Requiring police officers to take reasonable care toward suspects in the investigation of crimes may have positive policy ramifications. Reasonable care will reduce the risk of wrongful convictions and increase the probability that the guilty will be charged and convicted. By contrast, the potential for negative repercussions is dubious. Acting with reasonable care to suspects has not been shown to inhibit police investigation….

[147] In my view, it is not plain and obvious at this stage of the proceedings that there is "a real potential for negative consequences" between the Crown's public duties and the alleged private duty to properly enforce the Initiative. Without the benefit of an evidentiary record, it is speculative to say that there is a conflict.

Conflict – Police/Prosecutorial Discretion

[148] At para. 62, the motion judge stated that "[t]he discretion regarding investigation and prosecution is a doubtful application, at least at this stage, as abdication, essentially as pleaded, is not the exercise of discretion."

[149] The Crown argues that imposing a private law duty would be inconsistent with police and prosecutorial discretion. In particular, the Crown says that the principle of police discretion precludes the relevant Ministers from even attempting to direct the RCMP, which is responsible for taking enforcement action against contraband. Police must have broad discretion to decide whether or not to investigate a matter, conduct searches, lay charges, and proceed with charges or enter a stay. They say that maintaining police discretion is especially important in the on-Reserve context.

[150] The Crown also takes issue with the motion judge's statement that "[p]resumably, the public has the same interest as the plaintiffs in the enforcement of legislation on the basis of equal treatment": para. 65. The Crown says that this statement is at odds with the notion of police and prosecutorial discretion, which may result in two individuals who have committed the same offence being treated differently.

(a) Analysis

[151] I am not persuaded that the motion judge erred in his characterization of the pleading or his conclusion that it is not plain and obvious that, as pleaded, a private duty on the Ministers would conflict with police or prosecutorial discretion. Although the Fresh Statement of Claim references a particular situation where the RCMP and the Canada Border Services Agency failed to act, I read these paragraphs as merely illustrative of what is alleged to be a broader systemic problem. In the motion judge's words, there was effectively an abdication of discretion.

[152] Reading the pleading generously as a whole, I do not think that the characterization of the Crown's conduct as an abdication is an unfair characterization. For instance, para. 39 states that notwithstanding many communications, "the Ministers have done virtually nothing to address the issue of Contraband on the Reserve." It must be remembered that we do not yet have a statement of defence. We do not know the Crown's response to any of the respondents' allegations. At trial, evidence will show whether there was a failure to act and, if so, the reason for such a failure. In the meantime, I consider it premature to strike the respondents' claim on the basis of an alleged conflict with police and prosecutorial discretion.

(3) Residual Policy Factors

[153] The second stage of the Anns/Cooper test is "not concerned with the relationship between the parties, but with the effect of recognizing a duty of care on other legal obligations, the legal system and society more generally": Cooper, at para. 37, cited with approval in Odhavji, at para. 51.

[154] The motion judge acknowledged that policy considerations could pose a hurdle for the respondents but concluded that it was premature to strike the negligence claim based on residual policy concerns at this early stage.

[155] The Crown advances two residual policy reasons as to why a duty of care should not be recognized: (1) the actions challenged in this case constitute core policy decisions; and (2) doing so would result in indeterminate liability.

i. Core Policy

[156] The Crown again makes the point that Ministers are not responsible for carrying out enforcement action under relevant statutes and that their role in relation to policing and prosecution is confined to seeing that law enforcement agencies and prosecutors operate within established policy. Moreover, determinations on issues such as the rate of taxation, the amount of funds to spend, and the number and kind of officers to deploy and where, are policy decisions.

[157] I agree that determinations on such issues are core policy issues. However, the respondents do not allege that the resources (e.g. budget and personnel) allocated to the Initiative were inadequate. Rather, what is pleaded is that the Initiative was not properly implemented or administered, and that the Ministers have done virtually nothing to ensure that the issue of contraband is addressed. This may or may not be denied in the statement of defence. It may be that there was a policy decision not to make enforcement a priority. On the other hand, it may be that if there was inaction, the inaction was for an improper reason in which case the inaction would not constitute a policy decision that is immune from review. Core policy decisions are protected from suit, "provided they are neither irrational nor taken in bad faith": Imperial Tobacco, at para. 90.

[158] In Imperial Tobacco, the Supreme Court acknowledged that "[t]he 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": para. 72. While the court tried to clarify what was meant by a policy decision, it acknowledged that "[d]ifficult cases may be expected to arise from time to time where it is not easy to decide whether the degree of 'policy' involved suffices for protection from negligence liability": para. 90. The court warned, at para. 70, that a court should be hesitant to strike a claim where a matter may turn out not to be a matter of policy:

Unless it is plain and obvious that on those facts the action has no reasonable chance of success, the motion to strike must be refused. To put it another way, if there is a reasonable chance that the matter as pleaded may in fact turn out not to be a matter of policy, then the application to strike must be dismissed. Doubts as to what may be proved in the evidence should be resolved in favour of proceeding to trial. The question for us is therefore whether, assuming the facts pleaded to be true, it is plain and obvious that any duty of care in negligent misrepresentation would be defeated on the ground that the conduct grounding the alleged misrepresentation is a matter of government policy and hence not capable of giving rise to liability in tort.

[159] In my view, in this case there is a reasonable chance that the matter as pleaded may turn out not to be a matter of policy. It would therefore be premature to strike the claim on the basis that the Ministers' actions or inaction reflect policy choices.

ii. Indeterminate Liability

[160] The motion judge was "not persuaded that there is any concern for indeterminate liability as the fact situation is unique": para. 64.

[161] The Crown submits that he erred because the Crown's liability is theoretically limitless, as was the case in Weninger where the motion judge held that "the potential exposure of government to lawsuits [would be] endless" if a duty of care were to be recognized in that case: para. 68.

[162] In my view, the Crown's argument ignores differences between the negligence claim in Weninger and the claim in this case. In Weninger, the plaintiffs alleged that the defendants owed a duty of care not only to the plaintiffs but also to other tobacco producers:

[T]he Canada Crown Servants and the Ontario Crown servants each owe a duty of care to the Plaintiffs and others dependent upon the lawful production, marketing and sale of tobacco and tobacco products to ensure that all tobacco marketed in Ontario is marketed in accordance with and pursuant to the provisions of the Excise Act, the Excise Tax Act, 2001, the Excise Tax Act, the Retail Sales Tax Act and the Tobacco Tax Act.

[163] As the motion judge in Weninger noted, "[t]obacco producers are not a 'narrow' and clearly-defined group'": para. 65. And the duty was not said to be confined to a particular group on the basis of specific interactions. Rather, as the motion judge noted, the "claim does not mention any dealings between the plaintiffs and the federal or provincial government": para. 59.

[164] Here, the respondents' claim is narrower. It is alleged that the respondents were owed a duty based on specific interactions. Instead of claiming that all tobacco producers have been hurt, the respondents claim that they have been singled out.

[165] Thus, in my view, a concern about indeterminate liability is not a basis for striking the claim at this stage of the proceeding.

(4) Conclusion

[166] For these reasons, I am of the view that the motion judge did not err in concluding that the negligence claim should be permitted to proceed to trial. It is not plain and obvious the negligence claim should be struck on the basis of a lack of proximity at the first stage of the Anns/Cooper test, or on the basis of residual policy reasons at the second stage.

III. FIDUCIARY DUTY

[167] Section 9 of the Fresh Statement of Claim reads as follows:

THE CROWN BREACHED ITS FIDUCIARY DUTY

49. The Crown owes a fiduciary duty to the former partners of the Partnership as Indians. By means of the unlawful scheme set forth above of the Minister of National Revenue to deprive the aboriginal Plaintiffs of their rights under section 87 of the Indian Act and their aboriginal rights, the Crown assumed and exercised discretionary control over the ability of the aboriginal Plaintiffs to earn their livelihood on the Reserve and to employ other aboriginal persons.

50. The requirement that the Partnership incorporate in order to obtain an Excise Licence and the later refusal of the Ministers to properly implement and administer the Initiative were breaches of the Crown's fiduciary duty to the Plaintiffs and a failure to abide by the standard of honourable dealings mandated by the "honour of the Crown". As stated earlier, the Minister required the Partnership to incorporate their manufacturing business located on the Reserve in order to deprive the aboriginal Plaintiffs of their rights as Indians to be free from taxation and thereby impose liability for the payment of excise taxes and duties that would not otherwise have existed. These acts and omissions have caused loss and harm to the Plaintiffs and have had the consequence of GRE being deprived of its ability to operate as a partnership and to burden it with the payment of excise taxes and duties. The Crown had the fiduciary duty to ensure that the Plaintiffs were not put at a disadvantage vis-à-vis other Indians manufacturing tobacco on reserves. As a consequence of the Ministers' refusals to properly implement and administer the Initiative, GRE has been forced to compete in on reserve sales with unlicensed Contraband manufacturers on reserves which pay no such taxes and duties.

[168] Paragraphs 49 and 50 blend a number of different concepts – the existence of a fiduciary duty, the nature of any such duty, and the breach of any such duty. As to the existence of a duty, para. 49 asserts that the Crown owes a fiduciary duty to the individual partners as Indians. Neither para. 49 nor para. 50 assert that the Crown owes a fiduciary duty to GRE, the corporation. However, para. 50 asserts that the Crown breached its fiduciary duty to "the Plaintiffs", which includes GRE. In other words, while it is not expressly pleaded that the Crown owes a fiduciary duty to GRE, it is pleaded that the Crown breached its fiduciary duty to the individual plaintiffs and GRE.

[169] Although these paragraphs deal with both forced incorporation and the failure to enforce, the Crown's appeal in this respect deals only with the failure to enforce.

A. Motion Below

[170] The motion judge's reasons on the fiduciary issue are found at paras. 101-131 of his reasons. The motion judge reviewed the relevant portions of the pleading and set out the two tests for establishing a fiduciary duty in the aboriginal context: para. 102. He noted that "the law pertaining to aboriginal rights is still evolving", which was a factor that must be taken into account: para. 103. He explained that a "fiduciary relationship has long been recognized as between the Crown and aboriginal peoples" but "not every aspect of the relationship gives rise to a fiduciary duty": para. 104. After discussing the tests for establishing a fiduciary duty, the motion judge described the positions of the parties at some length. Finally, starting at para. 126, the motion judge set out his analysis of the issues as follows:

Having regard to the ongoing development of aboriginal law, I am satisfied the Fresh as Amended Statement of Claim satisfactorily addresses the necessary elements for breach of fiduciary duty. Amendments may become necessary at a later date, even at trial, as the evidentiary record is developed.

The plaintiffs' argument on the second test is stronger than on the first, in my view, based on the pleaded facts. Discretionary control, with reference to the forced incorporation, is not a compelling submission as it relates to GRE. However, the position may become more clear after discoveries.

The pleaded agreement regarding enforcement of the Initiative, with respect to the second test, and the other pleaded facts, gives an air of reality to the argument an undertaking was made by the Crown. It is logical and consistent with the Crown's obligation of equal treatment and in the interests of the public to see legislation enforced with respect to all on-reserve manufacturers of tobacco projects, not just some of them.

Assuming the pleaded facts to be true, the partners were beneficiaries and they have suffered financial harm.

The honour of the Crown principle helps to inform regarding the relationships between the parties, in general, and their negotiations, in particular. Clearly, there was consultation by the government with the partners concerning the request for an Excise license. What is not clear is how those negotiations were handled and whether such were done with utmost good faith and due diligence. There are a multitude of unanswered questions that result from existing caselaw and the pleaded facts in this case. Since this aspect of aboriginal law is still in the early stages of development, it is possible another duty may be recognized for how government deals with aboriginal people who are claiming unfair treatment.

In result, I conclude it is not plain and obvious that the claim for breach of fiduciary duty will fail.

B. Appeal to this Court

(1) Legal Principles

[171] The Supreme Court has clarified that in the aboriginal context a fiduciary duty may arise in two ways: Manitoba Metis Federation Inc. v. Canada (Attorney General), 2013 SCC 14, [2013] 1 S.C.R. 623. At paras. 49-50, McLachlin C.J. and Karakatsanis J. described the two tests as follows:

In the Aboriginal context, a fiduciary duty may arise as a result of the "Crown [assuming] discretionary control over specific Aboriginal interests": Haida Nation v. British Columbia (Minister of Forests), 2004 SCC 73, [2004] 3 S.C.R. 511, at para. 18. The focus is on the particular interest that is the subject matter of the dispute: Wewaykum Indian Band v. Canada, 2002 SCC 79, [2002] 4 S.C.R. 245, at para. 83. The content of the Crown's fiduciary duty towards Aboriginal peoples varies with the nature and importance of the interest sought to be protected: Wewaykum, at para. 86.

A fiduciary duty may also arise from an undertaking, if the following conditions are met:

(1) an undertaking by the alleged fiduciary to act in the best interests of the alleged beneficiary or beneficiaries; (2) a defined person or class of persons vulnerable to a fiduciary's control (the beneficiary or beneficiaries); and (3) a legal or substantial practical interest of the beneficiary or beneficiaries that stands to be adversely affected by the alleged fiduciary's exercise of discretion or control.

(Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24, [2011] 2 S.C.R. 261, at para. 36)

[172] As explained by McLachlin C.J. in Elder Advocates, it will be rare that a Crown actor will owe a fiduciary duty. As she noted at para. 37, "[t]he special characteristics of governmental responsibilities and functions mean that governments will owe fiduciary duties only in limited and special circumstances".

[173] After discussing "the special nature of the governmental context" and how it "impacts on the requirements of a fiduciary relationship" (para. 41), McLachlin C.J. concluded her discussion with the following admonition, at para. 54 of Elder Advocates:

It thus emerges that a rigorous application of the general requirements for fiduciary duty will of necessity limit the range of cases in which a fiduciary duty on the government is found. Claims against the government that fail to satisfy the legal requirements of a fiduciary duty should not be allowed to proceed in the speculative hope that they may ultimately succeed. The truism that the categories of fiduciary duty are not closed (as Dickson J. noted in Guerin, at p. 384) does not justify allowing hopeless claims to proceed to trial: see M. V. Ellis, Fiduciary Duties in Canada (loose-leaf), at pp. 19-3 and 19-24.10. Plaintiffs suing for breach of fiduciary duty must be prepared to have their claims tested at the pleadings stage, as for any cause of action.

[174] Thus, the court should apply a rigorous approach in assessing the respondents' fiduciary claims at the pleadings stage.

(2) Principles Applied

i. Ad Hoc Fiduciary Duty

[175] Under the second test set out above – the test for establishing an ad hoc fiduciary duty – the plaintiff must show that the alleged fiduciary made an undertaking to act in the best interests of the plaintiff. Here, the respondents plead that there was an agreement or implied undertaking given to them. For instance, at para. 28, it is pleaded that the government undertook to level the playing field between GRE and other tobacco manufacturers:

[T]here was a clear agreement that if GRE was given an Excise Licence …, the Government would carry out intensified enforcement under the Initiative against Contraband…, and take all measures to ensure that other on reserve manufacturers of tobacco products were actually operating under the same rules under which the Plaintiffs were being required to continue operations on the Reserve: in short, that there would be a level playing field. In the alternative, there was an implied undertaking given on behalf of the Minister to the same effect": para. 28.

[176] Paragraph 58 of the Fresh Statement of Claim also makes reference to "the clear agreement … or in the alternative … the implied undertaking given on behalf of the Minister that the Crown would properly implement and administer the Initiative, thereby combating Contraband on reserves and not putting GRE at a disadvantage" (emphasis added).

[177] Similarly, para. 50 says that the Crown had a duty to ensure that the "Plaintiffs were not put at a disadvantage vis-à-vis other Indians manufacturing tobacco on reserves."

[178] The Crown submits that, even assuming that there was such an agreement or implied undertaking, it still does not amount to an undertaking that would give rise to a fiduciary duty.

[179] I agree.

[180] As McLachlin C.J. explained at para. 30 of Elder Advocates, to establish an ad hoc fiduciary duty, "the evidence must show that the alleged fiduciary gave an undertaking of responsibility to act in the best interests of a beneficiary". Not any undertaking will suffice. The party asserting the duty "must be able to point to a forsaking by the alleged fiduciary of the interests of all others in favour of those of the beneficiary, in relation to the specific legal interest at stake": para. 31. The nature of the duty is said to be "one of utmost loyalty to the beneficiary": para. 43.

[181] McLachlin C.J. warned that the nature of that duty – to put the beneficiary's interests first – is at odds with the role of the Crown, and so "the requirement of an undertaking to act in the alleged beneficiary's interest will typically be lacking where what is at issue is the exercise of a government power or discretion": para. 42. She made a similar point, at para. 44:

Compelling a fiduciary to put the best interests of the beneficiary before their own is thus essential to the relationship. Imposing such a burden on the Crown is inherently at odds with its duty to act in the best interests of society as a whole, and its obligation to spread limited resources among competing groups with equally valid claims to its assistance: Sagharian (Litigation Guardian of) v. Ontario (Minister of Education), 2008 ONCA 411, 172 C.R.R. (2d) 105, at paras. 47-49. The circumstances in which this will occur are few. The Crown's broad responsibility to act in the public interest means that situations where it is shown to owe a duty of loyalty to a particular person or group will be rare: see Harris v. Canada, 2001 FCT 1408, [2002] 2 F.C. 484, at para. 178.

[182] Manitoba Metis illustrates that, even in the aboriginal context, there is a requirement for an undertaking of loyalty to establish an ad hoc fiduciary duty. The plaintiffs in that case said an undertaking arose from the wording of the relevant legislation. In concluding that there was no undertaking that would give rise to a fiduciary duty, the court emphasized that there must be an "undertaking of loyalty to act in the beneficiaries' best interests in the nature of a private law duty": para. 61. In that case, the legislation in question did not amount to an undertaking to act in the plaintiffs' best interests "in priority to other legitimate concerns": para. 62.

[183] In this case, assuming that the facts as pleaded are true, I have difficulty seeing how the alleged agreement or implied undertaking amounts to an "undertaking of loyalty to act in the beneficiaries' best interests" or that there was "forsaking … of the interests of all others in favour of those of the beneficiary". While there was, according to the Fresh Statement of Claim, an undertaking, it was an undertaking to treat everyone equally – to level the playing field – not to prefer the interests of the respondents over the interests of other on-Reserve tobacco manufacturers.

[184] The Crown suggests that the motion judge "appears to have accepted the plaintiffs' arguments that an undertaking was made by the Crown, and that the undertaking need not be one of loyalty". I would agree that the motion judge seems to have ignored the requirement that the undertaking be one of utmost loyalty.

[185] In setting out the test for establishing an ad hoc fiduciary duty at para. 102 of his reasons, the motion judge failed to mention that there must be "an undertaking by the alleged fiduciary to act in the best interests of the alleged beneficiary or beneficiaries": Manitoba Metis, at para. 50 (emphasis added). Rather, he simply asked "[w]as there an undertaking that gave rise to a fiduciary duty"? In summarizing the position of the respondents, the motion judge noted their argument that there was no need for an express pleading that the Crown was forsaking the interests of the public: para. 124. However, later in his analysis section, the motion judge simply noted the "pleaded agreement regarding enforcement of the Initiative, with respect to the second test, and the other pleaded facts, gives an air of reality to the argument an undertaking was made by the Crown": para. 128.

[186] I agree with the respondents that there is no need for an express pleading that the Crown was forsaking the interests of the public. It would be enough if it could be implied. However, here it is alleged that there was an undertaking to level the playing field, which is contrary to the notion of preferring the interests of the respondents over the interests of others.

[187] That disposes of the ad hoc fiduciary duty claim. There is no need to proceed further on this issue. However, for the sake of completeness I will comment briefly on the last prong of the test for establishing an ad hoc fiduciary duty, which is also at issue on the appeal.

[188] The Crown argues that there can be no ad hoc fiduciary duty imposed on the Crown because, as pleaded, neither the nature of the interests in question nor the nature of the discretionary control satisfy the third prong of the test.

[189] As will be recalled, under the third prong of the test for establishing an ad hoc fiduciary duty, there must be "a legal or substantial practical interest of the beneficiary or beneficiaries that stands to be adversely affected by the alleged fiduciary's exercise of discretion or control": Elder Advocates, at para. 36; Manitoba Metis, at para. 14.

[190] As McLachlin C.J. explained in Elder Advocates, it may be difficult to establish that the government power affects a legal or significant practical interest. She described what type of interest must be affected for the third prong of the test to be met, at para. 51:

The interest affected must be a specific private law interest to which the person has a pre-existing distinct and complete legal entitlement. Examples of sufficient interests include property rights, interests akin to property rights, and the type of fundamental human or personal interest that is implicated when the state assumes guardianship of a child or incompetent person. The entitlement must not be contingent on future government action…. In other circumstances, a statute that creates a complete legal entitlement might also give rise to a fiduciary duty on the part of government in relation to administering the interest.

[191] She also described the degree of control necessary to meet the test, at para. 53:

[T]he degree of control exerted by the government over the interest in question must be equivalent or analogous to direct administration of that interest before a fiduciary relationship can be said to arise. The type of legal control over an interest that arises from the ordinary exercise of statutory powers does not suffice. Otherwise, fiduciary obligations would arise in most day to day government functions making general action for the public good difficult or almost impossible.

[192] In this case, the respondents plead at para. 49 of the Fresh Statement of Claim that the Crown, by means of the Crown's "unlawful scheme", exercised "discretionary control over the ability of the aboriginal Plaintiffs to earn their livelihood on the Reserve and to employ other aboriginal persons". There is no other mention of discretionary control in paras. 49 or 50.

[193] The motion judge had concerns about the issue of discretionary control. He noted, as set out above that "[d]iscretionary control, with reference to the forced incorporation, is not a compelling submission as it relates to GRE. However, the position may become more clear after discoveries."

[194] In my view, it is difficult to see how a failure to enforce public laws is anything more than "[t]he type of legal control over an interest that arises from the ordinary exercise of statutory powers": Elder Advocates, at para. 53. In other words, agreeing to enforce laws against third parties is not analogous to the direct administration of a specific private law interest to which the person has a pre-existing distinct and complete legal entitlement.

[195] The parties also dispute the nature of the interests at stake – whether the interests at stake are GRE's commercial interests or the individual respondents' aboriginal interests. I discuss that issue below.

ii. Fiduciary Duty under the Wewaykum Test

[196] As noted above, to establish a fiduciary duty under what the parties refer to as the "Wewaykum test", a plaintiff must prove that the Crown assumed discretionary control over a specific or cognizable aboriginal interest: Manitoba Métis, at paras. 49, 51.

[197] In Wewaykum, the court observed that "where it exists, [the fiduciary duty] is called into existence to facilitate supervision of the high degree of discretionary control gradually assumed by the Crown over the lives of aboriginal peoples": para. 79. However, not all obligations between the Crown and aboriginal peoples are fiduciary in nature: para. 83. Each situation must be assessed on its particular facts.

[198] The court also in noted in Wewaykum that the existence of a public law duty does not necessarily exclude the creation of a fiduciary relationship, provided there is a "cognizable" aboriginal interest and the Crown undertakes discretionary control of the interest in a way that invokes responsibility "in the nature of a private law duty": para. 85.

[199] In Manitoba Metis, the court applied the Wewaykum test, striking the fiduciary claim on the basis that the Métis did not have a "specific or cognizable Aboriginal interest" giving rise to a fiduciary duty. In that case, there was little dispute that the Crown undertook discretionary control of the administration of lands set aside for the Métis people under the Manitoba Act. Rather, the issue was the nature of the Métis' interest in the land. The Supreme Court held that "[t]he fact that the Métis are Aboriginal and had an interest in the land is not sufficient to establish an Aboriginal interest in land": para. 53. The interest was not "distinctly Aboriginal" because, as a collective, the Métis did not have a specific aboriginal interest in the land. "While individual Métis held interests in land, those interests arose from their personal history, not their shared Métis identity": para. 56.

(a) Analysis

[200] Here, the motion judge did not identify the nature of the "cognizable" aboriginal interest in his analysis, although in his summary of the parties' positions he stated, at para. 121, that "the plaintiffs identify the specific aboriginal interest as the partners' aboriginal right to trade tobacco commercially and their right under s. 87, Indian Act, to be exempt from taxation".

[201] In my view, the problem with the breach of fiduciary duty claim based on the failure to enforce theory is that the claim relates to GRE, not the individual respondents who are said to have aboriginal rights. Reading the pleading as a whole, the breach of the individual respondents' right to be exempt from taxation is said to be as a result of the forced incorporation, not the failure to enforce. The breach of the individual respondents' right to trade in tobacco is also said to be as a result of forced incorporation. To the extent there is said to be harm flowing from the failure to enforce, it is harm flowing to GRE, which was required to compete against contraband tobacco manufacturers. As for GRE, it is not expressly pleaded that a fiduciary duty was owed to GRE or that the corporation has any aboriginal interests. Thus, as pleaded, it is plain and obvious that, in failing to enforce excise legislation, the Crown did not assume discretionary control over specific aboriginal interests, even if one assumes that failing to enforce legislation vis-à-vis third parties amounts to assuming discretionary control over the individual respondents' aboriginal interests, and assuming the alleged interests amount to cognizable aboriginal interests.

[202] In my view, the fact that aboriginal law is an evolving area is not sufficient to save this claim. The words of this court in Lafrance Estate v. Canada (Attorney General), (2003), 64 O.R. (3d) 1, at paras. 32-33, remain apt:

Further, as Binnie J.'s review of the law in Wewaykum Indian Band reveals, fiduciary law in Canada, particularly in respect of the Crown's relationship with aboriginal peoples, is a very dynamic area of Canadian law. The nature and extent of the particular obligations that may arise out of this relationship are matters that remain largely unsettled in the jurisprudence.

This state of the law does not mean, of course, that any claim for breach of fiduciary duty arising out of the relationship between the Crown and the aboriginal peoples of Canada must necessarily survive the pleading stage. The same test under Rule 21 applies to this kind of action. It does mean, however, that more claims of this nature may be, as of yet, unprecedented but nonetheless tenable at law within the meaning of Rule 21.

(3) Conclusion

[203] As noted by McLachlin C.J. in Elder Advocates, it will be rare that a Crown actor will owe a fiduciary duty. In her words "[c]laims against the government that fail to satisfy the legal requirements of a fiduciary duty should not be allowed to proceed in the speculative hope that they may ultimately succeed": para. 54.

[204] In this case, I am of the view that it is plain and obvious that the fiduciary claims, as pleaded, do not satisfy either test for establishing a fiduciary duty and, with respect, the motion judge erred in concluding otherwise.

DISPOSITION

[205] On the basis of these reasons, I would allow the appeal in part and strike out the respondents' breach of fiduciary duty claims based on the failure to enforce. In all other respects I would dismiss the appeal.

[206] At the conclusion of the hearing, counsel indicated that, upon being advised of this court's disposition of the appeals, they anticipated being able to resolve costs. If this is not possible, I would order the parties to make submissions as to costs within 20 days of the release of these reasons.

Released: June 23, 2017 ("KF")

"Gloria Epstein J.A."

"I agree. K. Feldman J.A."

"I agree. B.W. Miller J.A."