SUPREME COURT OF CANADA

Citation: R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45

Date: 20110729 Docket: 33559, 33563

Between:

Her Majesty The Queen in Right of Canada Appellant / Respondent on cross-appeal

and

Imperial Tobacco Canada Limited Respondent / Appellant on cross-appeal

• and -

Attorney General of Ontario and Attorney General of British Columbia Interveners

And Between:

Attorney General of Canada Appellant / Respondent on cross-appeal

and

Her Majesty The Queen in Right of British Columbia Respondent

Imperial Tobacco Canada Limited, Rothmans, Benson & Hedges Inc., Rothmans Inc., JTI-MacDonald Corp., R.J. Reynolds Tobacco Company, R.J. Reynolds Tobacco International Inc., B.A.T. Industries p.l.c., British American Tobacco (Investments) Limited, Carreras Rothmans Limited, Philip Morris USA Inc. and Philip Morris International Inc. Respondents / Appellants on cross-appeal

• and -

Attorney General of Ontario, Attorney General of British Columbia and Her Majesty The Queen in Right of the Province of New Brunswick Interveners

Coram: McLachlin C.J. and Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell JJ.

Reasons for Judgment: (paras. 1 to 151)

McLachlin C.J. (Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell JJ. concurring)

R. v. Imperial Tobacco Canada Ltd., 2011 SCC 42, [2011] 3 S.C.R. 45

Her Majesty The Queen in Right of Canada Appellant/Respondent on cross‑appeal

v.

Imperial Tobacco Canada Limited Respondent/Appellant on cross‑appeal

and

Attorney General of Ontario and Attorney General of British Columbia Interveners

‑ and ‑

Attorney General of Canada Appellant/Respondent on cross‑appeal

v.

Her Majesty The Queen in Right of British Columbia Respondent

and

Imperial Tobacco Canada Limited, Rothmans, Benson & Hedges Inc., Rothmans Inc., JTI‑MacDonald Corp., R.J. Reynolds Tobacco Company, R.J. Reynolds Tobacco International Inc., B.A.T. Industries p.l.c., British American Tobacco (Investments) Limited, Carreras Rothmans Limited, Philip Morris USA Inc. and Philip Morris International Inc. Respondents/Appellants on cross‑appeal

and

Attorney General of Ontario, Attorney General of British Columbia and Her Majesty The Queen in Right of the Province of New Brunswick Interveners

Indexed as: R. v. Imperial Tobacco Canada Ltd.

2011 SCC 42

File Nos.: 33559, 33563.

2011: February 24; 2011: July 29.

Present: McLachlin C.J. and Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell JJ.

on appeal from the court of appeal for british columbia

Civil procedure — Third‑party claims — Motion to strike — Tobacco manufacturers being sued by provincial government to recover health care costs of tobacco‑related illnesses, and by consumers of “light” or “mild” cigarettes for damages and punitive damages — Tobacco companies issuing third‑party notices to federal government claiming contribution and indemnity — Whether plain and obvious that third‑party claims disclose no reasonable cause of action.

Torts — Negligent misrepresentation — Failure to warn — Negligent design — Duty of care — Proximity — Tobacco manufacturers being sued by provincial government and consumers and issuing third‑party notices to federal government claiming contribution and indemnity — Federal government claiming representations constituted government policy immune from judicial review — Whether facts as pleaded establish prima facie duty of care — If so, whether conflicting policy considerations negate such duty.

Torts — Provincial statutory scheme establishing rights of action against tobacco manufacturers and suppliers — Whether federal government liable as a “manufacturer” under the Tobacco Damages and Health Care Costs Recovery Act, S.B.C. 2000, c. 30, or a “supplier” under the Business Practices and Consumer Protection Act, S.B.C. 2004, c. 2, and the Trade Practice Act, R.S.B.C. 1996, c. 457.

The appeal concerns two cases before the courts in British Columbia. In the Costs Recovery case, the Government of British Columbia is seeking to recover, pursuant to the Tobacco Damages and Health Care Costs Recovery Act (“CRA”), the cost of paying for the medical treatment of individuals suffering from tobacco‑related illnesses from a group of tobacco companies, including Imperial. British Columbia alleges that by 1950, the tobacco companies knew or ought to have known that cigarettes were harmful to one’s health, and that they failed to properly warn the public about the risks associated with smoking their product. In the Knight case, a class action was brought against Imperial alone on behalf of class members who purchased “light” or “mild” cigarettes, seeking a refund of the cost of the cigarettes and punitive damages. The class alleges that the levels of tar and nicotine listed on Imperial’s packages for light and mild cigarettes did not reflect the actual deliveries of toxic emissions to smokers, and alleges that the smoke produced by light cigarettes was just as harmful as that produced by regular cigarettes.

In both cases, the tobacco companies issued third‑party notices to the Government of Canada, alleging that if the tobacco companies are held liable to the plaintiffs, they are entitled to compensation from Canada for negligent misrepresentation, negligent design and failure to warn, as well as at equity. They also allege that Canada would itself be liable as a “manufacturer” under the CRA or a “supplier” under the Business Practices and Consumer Protection Act and the Trade Practice Act, and that they are entitled to contribution and indemnity from Canada pursuant to the Negligence Act. Canada brought motions to strike the third‑party notices, arguing that it was plain and obvious that the third‑party claims failed to disclose a reasonable cause of action. In both cases, the chambers judges struck all of the third‑party notices. The British Columbia Court of Appeal allowed the tobacco companies’ appeals in part. A majority held that the negligent misrepresentation claims arising from Canada’s alleged duty of care to the tobacco companies in both the Costs Recovery case and the Knight case should proceed to trial. A majority in the Knight case further held that the negligent misrepresentation claim based on Canada’s alleged duty of care to consumers should proceed, as should the negligent design claim. The court unanimously struck the remainder of the tobacco companies’ claims.

Held: The appeals should be allowed and the claims should be struck out. The tobacco companies’ cross‑appeals should be dismissed.

On a motion to strike, a claim will only be struck if it is plain and obvious, assuming the facts pleaded to be true, that the pleading discloses no reasonable cause of action. The approach must be generous, and err on the side of permitting a novel but arguable claim to proceed to trial. However, the judge cannot consider what evidence adduced in the future might or might not show. Here, it is plain and obvious that none of the tobacco companies’ claims against Canada have a reasonable chance of success.

Canada’s Alleged Duties of Care to Smokers in the Costs Recovery Case

In the Costs Recovery case, the private law claims against Canada for contribution and indemnity based on alleged breaches of a duty of care to smokers must be struck. A third party may only be liable for contribution under the Negligence Act if it is directly liable to the plaintiff, in this case, British Columbia. Here, even if Canada breached duties to smokers, this would have no effect on whether it was liable to British Columbia.

The Claims for Negligent Misrepresentation

There are two relationships at issue in these claims: one between Canada and consumers and one between Canada and tobacco companies. In the Knight case, Imperial alleges that Canada negligently represented the health attributes of low‑tar cigarettes to consumers. In both the Knight case and the Costs Recovery case, the tobacco companies allege that Canada made negligent misrepresentations to the tobacco companies.

The facts as pleaded do not bring Canada’s relationship with consumers and the tobacco companies within a settled category of negligent misrepresentation. Accordingly, to determine whether the alleged causes of action have a reasonable prospect of success, the general requirements for liability in tort must be met. At the first stage, the question is whether the facts disclose a relationship of proximity in which failure to take reasonable care might foreseeably cause loss or harm to the plaintiff. In a claim of negligent misrepresentation, both of these requirements for a prima facie duty of care are established if there was a “special relationship” between the parties. A special relationship will be established where: (1) the defendant ought reasonably to foresee that the plaintiff will rely on his or her representation; and (2) reliance by the plaintiff would be reasonable in the circumstances of the case. If proximity is established, a prima facie duty of care arises and the analysis proceeds to the second stage, which asks whether there are policy reasons why this prima facie duty of care should not be recognized.

Here, on the facts as pleaded, Canada did not owe a prima facie duty of care to consumers. The relationship between the two was limited to Canada’s statements to the general public that low‑tar cigarettes are less hazardous. There were no specific interactions between Canada and the class members. Consequently, a finding of proximity in this relationship must arise from the governing statutes. However, the relevant statutes establish only general duties to the public, and no private law duties to consumers. In light of the lack of proximity, this claim in the Knight case should be struck at the first stage of the analysis.

As for the tobacco companies, the facts pleaded allege a history of interactions between Canada and the tobacco companies capable of establishing a special relationship of proximity giving rise to a prima facie duty of care. The allegations are that Canada assumed the role of adviser to a finite number of manufacturers and that there were commercial relationships entered into between Canada and the companies based in part on the advice given to the companies by government officials, going far beyond the sort of statements made by Canada to the public at large. Furthermore, Canada’s regulatory powers over the manufacturers coupled with its specific advice and its commercial involvement could be seen as supporting a conclusion that Canada ought reasonably to have foreseen that the tobacco companies would rely on the representations and that such reliance would be reasonable in the pleaded circumstance.

Canada’s alleged negligent misrepresentations do not give rise to tort liability, however, because of conflicting policy considerations. The alleged representations constitute protected expressions of government policy. Core government policy decisions protected from suit are decisions as to a course or principle of action that are based on public policy considerations, such as economic, social and political factors, provided they are neither irrational nor taken in bad faith. The representations in this case were part and parcel of a government policy, adopted at the highest level in the Canadian government and developed out of concern for the health of Canadians and the individual and institutional costs associated with tobacco‑related disease, to encourage people who continued to smoke to switch to low‑tar cigarettes.

The claims for negligent misrepresentation should also fail because they would expose Canada to indeterminate liability. Recognizing a duty of care for representations to the tobacco companies would effectively amount to a duty to consumers. While the quantum of damages owed by Canada to the companies in both cases would depend on the number of smokers and the number of cigarettes sold, Canada had no control over the number of people who smoked light cigarettes.

The Claims for Failure to Warn

The tobacco companies make two allegations for failure to warn: (1) that Canada directed the tobacco companies not to provide warnings on cigarette packages about the health hazards of cigarettes and (2) that Canada failed to warn the tobacco companies about the dangers posed by the strains of tobacco it designed and licensed. These two claims should be struck. The crux of the first claim is essentially the same as the negligent misrepresentation claim, and should be rejected for the same policy reasons. The Minister of Health’s recommendations on warning labels were integral to the government’s policy of encouraging smokers to switch to low‑tar cigarettes. As such, they cannot ground a claim in failure to warn. The same is true of the second claim. While the tort of failure to warn requires evidence of a positive duty towards the plaintiff, nothing in the third‑party notices suggests that Canada was under such a positive duty here. A plea of negligence, without more, will not suffice to raise a duty to warn. In any event, such a claim would fail for the policy reasons applicable to the negligent misrepresentation claim.

The Claims for Negligent Design

The tobacco companies have brought two types of negligent design claims against Canada. They submit that Canada breached its duty of care to the tobacco companies when it negligently designed its strains of low‑tar tobacco. In the Knight case, Imperial submits that Canada breached its duty of care to consumers of light and mild cigarettes. The two negligent design claims establish a prima facie duty of care. With respect to Canada’s design of low‑tar tobacco strains, the proximity alleged with the tobacco companies is not based on a statutory duty, but on commercial interactions between Canada and the tobacco companies. In the Knight case also, it is at least arguable that Canada was acting in a commercial capacity towards the consumers of light and mild cigarettes when it designed its strains of tobacco. However, the decision to develop low‑tar strains of tobacco on the belief that the resulting cigarettes would be less harmful to health is a decision that constitutes a course or principle of action based on Canada’s health policy and based on social and economic factors. As a core government policy decision, it cannot ground a claim for negligent design. These claims should accordingly be struck.

Liability as a “Manufacturer” and a “Supplier”

The tobacco companies’ contribution claim in the Costs Recovery case that Canada could qualify as a “manufacturer” under the CRA should be struck. It is plain and obvious that the federal government does not qualify as a manufacturer of tobacco under that Act. When the Act is read in context and all of its provisions are taken into account, it is apparent that the British Columbia legislature did not intend Canada to be liable as a manufacturer. This is confirmed by the text of the statute, the intent of the legislature in adopting the Act, and the broader context of the relationship between the province and the federal government. Holding Canada accountable under the CRA would defeat the legislature’s intention of transferring the health‑care costs resulting from tobacco‑related wrongs from taxpayers to the tobacco industry. Similarly, the tobacco companies cannot rely on the recently adopted Health Care Costs Recovery Act in an action for contribution under the CRA. Finally, Canada could not be liable for contribution under the Negligence Act or at common law since it is not directly liable to British Columbia.

Imperial’s claim in the Knight case that Canada could qualify as a “supplier” under the Trade Practice Act and the Business Practices and Consumer Protection Act which replaced it should also be struck. Canada’s purpose for developing and promoting tobacco as described in the third‑party notice suggests that it was not acting “in the course of business” or “in the course of the person’s business” as those phrases are used in those statutes. Those phrases must be understood as limited to activities undertaken for a commercial purpose. Here, it is plain and obvious from the facts pleaded that Canada did not promote the use of low‑tar cigarettes for a commercial purpose, but for a health purpose. Canada is therefore not a supplier and is not liable under those statutes.

Claims for Equitable Indemnity and Procedural Considerations

The tobacco companies’ claims of equitable indemnity should be struck. Equitable indemnity is a narrow doctrine, confined to situations of an express or implied understanding that a principal will indemnify its agent for acting on the directions given. When Canada directed the tobacco industry about how it should conduct itself, it was doing so in its capacity as a government regulator that was concerned about the health of Canadians. Under such circumstances, it is unreasonable to infer that Canada was implicitly promising to indemnify the industry for acting on its request.

Finally, the claims for declaratory relief should be struck. The tobacco companies’ ability to mount defences would not be severely prejudiced if Canada was no longer a third party in the litigation.

Cases Cited

Applied: Odhavji Estate v. Woodhouse, 2003 SCC 69, [2003] 3 S.C.R. 263; Hunt v. Carey Canada Inc., 1990 CanLII 90 (SCC), [1990] 2 S.C.R. 959; Anns v. Merton London Borough Council, [1978] A.C. 728; Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537; Hercules Managements Ltd. v. Ernst & Young, 1997 CanLII 345 (SCC), [1997] 2 S.C.R. 165; referred to: Syl Apps Secure Treatment Centre v. B.D., 2007 SCC 38, [2007] 3 S.C.R. 83; Attorney General of Canada v. Inuit Tapirisat of Canada, 1980 CanLII 21 (SCC), [1980] 2 S.C.R. 735; Donoghue v. Stevenson, 1932 CanLII 536 (FOREP), [1932] A.C. 562; Hedley Byrne & Co. v. Heller & Partners, Ltd., [1963] 2 All E.R. 575; Operation Dismantle Inc. v. The Queen, 1985 CanLII 74 (SCC), [1985] 1 S.C.R. 441; Giffels Associates Ltd. v. Eastern Construction Co., 1978 CanLII 39 (SCC), [1978] 2 S.C.R. 1346; Childs v. Desormeaux, 2006 SCC 18, [2006] 1 S.C.R. 643; Hill v. Hamilton‑Wentworth Regional Police Services Board, 2007 SCC 41, [2007] 3 S.C.R. 129; Canadian National Railway Co. v. Norsk Pacific Steamship Co., 1992 CanLII 105 (SCC), [1992] 1 S.C.R. 1021; Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., 1997 CanLII 307 (SCC), [1997] 3 S.C.R. 1210; Fullowka v. Pinkerton’s of Canada Ltd., 2010 SCC 5, [2010] 1 S.C.R. 132; Heaslip Estate v. Mansfield Ski Club Inc., 2009 ONCA 594, 96 O.R. (3d) 401; Eliopoulos Estate v. Ontario (Minister of Health and Long‑Term Care) (2006), 2006 CanLII 37121 (ON CA), 276 D.L.R. (4th) 411; Just v. British Columbia, 1989 CanLII 16 (SCC), [1989] 2 S.C.R. 1228; Home Office v. Dorset Yacht Co., [1970] 2 W.L.R. 1140; Brown v. British Columbia (Minister of Transportation and Highways), 1994 CanLII 121 (SCC), [1994] 1 S.C.R. 420; Swinamer v. Nova Scotia (Attorney General), 1994 CanLII 122 (SCC), [1994] 1 S.C.R. 445; Lewis (Guardian ad litem of) v. British Columbia, 1997 CanLII 304 (SCC), [1997] 3 S.C.R. 1145; X v. Bedfordshire County Council, [1995] 3 All E.R. 353; Stovin v. Wise, [1996] A.C. 923; Barrett v. Enfield London Borough Council, [2001] 2 A.C. 550; Sutherland Shire Council v. Heyman (1985), 1988 ABCA 234, 157 C.L.R. 424; Pyrenees Shire Council v. Day, [1998] HCA 3, 192 C.L.R. 330; Office of Personnel Management v. Richmond, 496 U.S. 414 (1990); United States v. Neustadt, 366 U.S. 696 (1961); Dalehite v. United States, 346 U.S. 15 (1953); United States v. Gaubert, 499 U.S. 315 (1991); Berkovitz v. United States, 486 U.S. 531 (1988); United States v. S.A. Empresa de Viacao Aerea Rio Grandense (Varig Airlines), 467 U.S. 797 (1984); Design Services Ltd. v. Canada, 2008 SCC 22, [2008] 1 S.C.R. 737; Day v. Central Okanagan (Regional District), 2000 BCSC 1134, 79 B.C.L.R. (3d) 36; Elias v. Headache and Pain Management Clinic, 2008 CanLII 53133; British Columbia v. Imperial Tobacco Canada Ltd., 2005 SCC 49, [2005] 2 S.C.R. 473; Blackwater v. Plint, 2005 SCC 58, [2005] 3 S.C.R. 3; Parmley v. Parmley, 1945 CanLII 13 (SCC), [1945] S.C.R. 635.

Statutes and Regulations Cited

Business Practices and Consumer Protection Act, S.B.C. 2004, c. 2, s. 1(1) “supplier”.

Department of Agriculture and Agri-Food Act, R.S.C. 1985, c. A‑9, s. 4.

Department of Health Act, S.C. 1996, c. 8, s. 4(1).

Federal Tort Claims Act, 28 U.S.C. §§2680(a), (h).

Health Care Costs Recovery Act, S.B.C. 2008, c. 27, ss. 8(1), 24(3)(b).

Negligence Act, R.S.B.C. 1996, c. 333.

Supreme Court Civil Rules, B.C. Reg. 168/2009, r. 9‑5.

Supreme Court Rules, B.C. Reg. 221/90, rr. 19(24), (27).

Tobacco Act, S.C. 1997, c. 13, s. 4.

Tobacco Damages and Health Care Costs Recovery Act, S.B.C. 2000, c. 30, ss. 1(1) “manufacture”, “manufacturer”, 2, 3(3)(b).

Tobacco Products Control Act, R.S.C. 1985, c. 14 (4th Supp.), s. 3 [rep. 1997, c. 13, s. 64].

Trade Practice Act, R.S.B.C. 1996, c. 457, s. 1 “supplier”.

Authors Cited

British Columbia. Official Report of Debates of the Legislative Assembly (Hansard), vol. 20, 4th Sess., 36th Parl., June 7, 2000, p. 16314.

New Oxford Dictionary of English. Oxford: Clarendon Press, 1998, “policy”.

APPEAL and CROSS‑APPEAL from a judgment of the British Columbia Court of Appeal (Hall, Saunders, Lowry, Tysoe and Smith JJ.A.), 2009 BCCA 541, 99 B.C.L.R. (4th) 93, 313 D.L.R. (4th) 695, [2010] 2 W.W.R. 9, 280 B.C.A.C. 160, 474 W.A.C. 160, [2009] B.C.J. No. 2445 (QL), 2009 CarswellBC 3300, reversing in part a decision of Satanove J. striking out third‑party notices, 2007 BCSC 964, 76 B.C.L.R. (4th) 100, [2008] 4 W.W.R. 156, [2007] B.C.J. No. 1461 (QL), 2007 CarswellBC 1806 (sub nom. Knight v. Imperial Tobacco Canada Ltd.). Appeal allowed and cross‑appeal dismissed.

APPEAL and CROSS‑APPEAL from a judgment of the British Columbia Court of Appeal (Hall, Saunders, Lowry, Tysoe and Smith JJ.A.), 2009 BCCA 540, 98 B.C.L.R. (4th) 201, 313 D.L.R. (4th) 651, [2010] 2 W.W.R. 385, 280 B.C.A.C. 100, 474 W.A.C. 100, [2009] B.C.J. No. 2444 (QL), 2009 CarswellBC 3307, reversing in part a decision of Wedge J. striking out third‑party notices, 2008 BCSC 419, 82 B.C.L.R. (4th) 362, 292 D.L.R. (4th) 353, [2008] 12 W.W.R. 241, [2008] B.C.J. No. 609 (QL), 2008 CarswellBC 687 (sub nom. British Columbia v. Imperial Tobacco Canada Ltd.). Appeal allowed and cross‑appeal dismissed.

John S. Tyhurst, Paul Vickery and Travis Henderson, for the appellant/respondent on cross‑appeal Her Majesty the Queen in Right of Canada (33559).

Paul Vickery, John S. Tyhurst and Travis Henderson, for the appellant/respondent on cross‑appeal the Attorney General of Canada (33563).

Deborah Glendining and Nada Khirdaji, for the respondent/appellant on cross‑appeal Imperial Tobacco Canada Limited (33559).

Ryan D. W. Dalziel and Daniel A. Webster, Q.C., for the respondent Her Majesty the Queen in Right of British Columbia (33563).

John J. L. Hunter, Q.C., and Brent B. Olthuis, for the respondent/appellant on cross‑appeal Imperial Tobacco Canada Limited (33563).

Written submissions only by Kenneth N. Affleck, Q.C., for the respondents/appellants on cross‑appeal Rothmans, Benson & Hedges Inc. and Rothmans Inc. (33563).

Written submissions only by Jeffrey J. Kay, Q.C., for the respondents/appellants on cross‑appeal JTI‑MacDonald Corp., R.J. Reynolds Tobacco Company and R.J. Reynolds Tobacco International Inc. (33563).

Written submissions only by Craig P. Dennis and Michael D. Shirreff, for the respondents/appellants on cross‑appeal B.A.T. Industries p.l.c. and British American Tobacco (Investments) Limited (33563).

Written submissions only by Christopher M. Rusnak, for the respondent/appellant on cross‑appeal Carreras Rothmans Limited (33563).

Written submissions only by D. Ross Clark, for the respondent/appellant on cross‑appeal Philip Morris U.S.A. Inc. (33563).

Simon V. Potter, Michael A. Feder and Angela M. Juba, for the respondent/appellant on cross‑appeal Philip Morris International Inc. (33563).

Malliha Wilson and Lynne McArdle, for the intervener the Attorney General of Ontario (33559‑33563).

Jeffrey S. Leon, Robyn M. Ryan Bell and Michael A. Eizenga, for the intervener Her Majesty the Queen in Right of the Province of New Brunswick (33563).

Nancy Brown, for the intervener the Attorney General of British Columbia (33559‑33563).

The judgment of the Court was delivered by

The Chief Justice —

TABLE OF CONTENTS

Paragraph

I. Introduction....................................................................................................... 1

II. Underlying Claims and Judicial History............................................................... 6

A. The Knight Case.............................................................................................. 6

B. The Costs Recovery Case.............................................................................. 11

III. Issues Before the Court................................................................................... 15

IV. Analysis........................................................................................................... 17

A. The Test for Striking Out Claims................................................................... 17

B. Canada’s Alleged Duties of Care to Smokers in the Costs Recovery Case............................................................................................................... 27

C. The Claims for Negligent Misrepresentation................................................. 32

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

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

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

(i) Conduct at Issue.............................................................................................. 67

(ii) Relevance of Evidence..................................................................................... 68

(iii) What Constitutes a Policy Decision Immune From Judicial Review?.................. 72

(iv) Conclusion on the Policy Argument.................................................................. 92

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

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

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

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

(2) Failure to Warn Imperial About Health Hazards............................................. 106

E. Negligent Design.......................................................................................... 110

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

(2) Stage-Two Policy Considerations.................................................................. 116

F. The Direct Claims Under the Costs Recovery Acts..................................... 117

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

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

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

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

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

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

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

(4) Could Canada Be Liable for Common Law Contribution?.............................. 138

G. Liability Under the Trade Practice Act and the Business Practices and Consumer Protection Act............................................................................ 140

H. The Claim for Equitable Indemnity............................................................. 146

I. Procedural Considerations.......................................................................... 149

V. Conclusion.................................................................................................... 151

I. Introduction

[1] Imperial Tobacco Canada Ltd. (“Imperial”) is a defendant in two cases before the courts in British Columbia, British Columbia v. Imperial Tobacco Canada Ltd., Docket: S010421, and Knight v. Imperial Tobacco Canada Ltd., Docket: L031300. In the first case, the Government of British Columbia is seeking to recover the cost of paying for the medical treatment of individuals suffering from tobacco-related illnesses from a group of 14 tobacco companies, including Imperial (“Costs Recovery case”). The second case is a class action brought against Imperial alone by Mr. Knight on behalf of class members who purchased “light” or “mild” cigarettes, seeking a refund of the cost of the cigarettes and punitive damages (“Knight case”).

[2] In both cases, the tobacco companies issued third-party notices to the Government of Canada, alleging that if the tobacco companies are held liable to the plaintiffs, they are entitled to compensation from Canada for negligent misrepresentation, negligent design, and failure to warn, as well as at equity. They also allege that Canada would itself be liable under the statutory schemes at issue in the two cases. In the Costs Recovery case, it is alleged that Canada would be liable under the Tobacco Damages and Health Care Costs Recovery Act, S.B.C. 2000, c. 30 (“CRA”), as a “manufacturer”. In the Knight case, it is alleged that Canada would be liable as a “supplier” under the Business Practices and Consumer Protection Act, S.B.C. 2004, c. 2 (“BPCPA”), and its predecessor, the Trade Practice Act, R.S.B.C. 1996, c. 457 (“TPA”).

[3] In both cases, Canada brought motions to strike the third party notices under r. 19(24) of the Supreme Court Rules, B.C. Reg. 221/90 (replaced by the Supreme Court Civil Rules, B.C. Reg. 168/2009, r. 9-5), arguing that it was plain and obvious that the third-party claims failed to disclose a reasonable cause of action. In both cases, the chambers judges agreed with Canada, and struck all of the third-party notices. The British Columbia Court of Appeal allowed the tobacco companies’ appeals in part. A majority of 3-2 held that the negligent misrepresentation claims arising from Canada’s alleged duty of care to the tobacco companies in both the Costs Recovery case and the Knight case should proceed to trial. A majority in the Knight case further held that the negligent misrepresentation claim based on Canada’s alleged duty of care to consumers should proceed, as should the negligent design claims in the Knight case. The court unanimously struck the remainder of the tobacco companies’ claims.

[4] The Government of Canada appeals the finding that the claims for negligent misrepresentation and the claim for negligent design should be allowed to go to trial. The tobacco companies cross-appeal the striking of the other claims.

[5] For the reasons that follow, I conclude that all the claims of Imperial and the other tobacco companies brought against the Government of Canada are bound to fail, and should be struck. I would allow the appeals of the Government of Canada in both cases and dismiss the cross-appeals.

II. Underlying Claims and Judicial History

A. The Knight Case

[6] In the Knight case, consumers in British Columbia have brought a class action against Imperial under the BPCPA and its predecessor, the TPA. The class consists of consumers of light or mild cigarettes. It alleges that Imperial engaged in deceptive practices when it promoted low-tar cigarettes as less hazardous to the health of consumers. The class alleges that the levels of tar and nicotine listed on Imperial’s packages for light and mild cigarettes did not reflect the actual deliveries of toxic emissions to smokers, and alleges that the smoke produced by light cigarettes was just as harmful as that produced by regular cigarettes. The class seeks reimbursement of the cost of the cigarettes purchased, and punitive damages.

[7] Imperial issued a third-party notice against Canada. It alleges that Health Canada advised tobacco companies and the public that low-tar cigarettes were less hazardous than regular cigarettes. Imperial alleges that while Health Canada was initially opposed to the use of health warnings on cigarette packaging, it changed its policy in 1967. It instructed smokers to switch to low-tar cigarettes if they were unwilling to quit smoking altogether, and it asked tobacco companies to voluntarily list the tar and nicotine levels on their advertisements to encourage consumers to purchase low-tar brands. Contrary to expectations, it now appears that low-tar cigarettes are potentially more harmful to smokers.

[8] Imperial also alleges that Agriculture Canada researched, developed, manufactured, and licensed several strains of low-tar tobacco, and collected royalties from the companies, including Imperial, that used these strains. By 1982, Imperial pleads, the tobacco strains developed by Agriculture Canada were “almost the only tobacco varieties available to Canadian tobacco manufacturers” (Knight case, amended third-party notice of Imperial, at para. 97).

[9] Imperial makes five allegations against Canada:

(1) Canada is itself liable under the BPCPA and the TPA as a “supplier” of tobacco products that engaged in deceptive practices, and Imperial is entitled to contribution and indemnity from Canada pursuant to the provisions of the Negligence Act, R.S.B.C. 1996, c. 333.

(2) Canada breached private law duties to consumers by negligently misrepresenting the health attributes of low-tar cigarettes, by failing to warn them against the hazards of low-tar cigarettes, and by failing to design its tobacco strain with due care. Consequently, Imperial alleges that it is entitled to contribution and indemnity from Canada under the Negligence Act.

(3) Canada breached its private law duties to Imperial by negligently misrepresenting the health attributes of low-tar cigarettes, by failing to warn Imperial about the hazards of low-tar cigarettes, and by failing to design its tobacco strain with due care. Imperial alleges that it is entitled to damages against Canada to the extent of any liability Imperial may have to the class members.

(4) In the alternative, Canada is obliged to indemnify Imperial under the doctrine of equitable indemnity.

(5) If Canada is not liable to Imperial under any of the above claims, Imperial is entitled to declaratory relief against Canada so that it will remain a party to the action and be subject to discovery procedures under the Supreme Court Rules.

[10] Canada brought an application to strike the third-party claims. It was successful before Satanove J. in the Supreme Court of British Columbia (2007 BCSC 964, 76 B.C.L.R. (4th) 100). The chambers judge struck all of the claims against Canada. Imperial was partially successful in the Court of Appeal (2009 BCCA 541, 99 B.C.L.R. (4th) 93). The Court of Appeal unanimously struck the statutory claim, the claim of negligent design between Canada and Imperial, and the equitable indemnity claim. However, the majority, per Tysoe J.A., held that the two negligent misrepresentation claims and the negligent design claim between Canada and consumers should be allowed to proceed. The majority reasons did not address the failure to warn claim. Hall J.A., dissenting, would have struck all the third-party claims.

B. The Costs Recovery Case

[11] The Government of British Columbia has brought a claim under the CRA to recover the expense of treating tobacco-related illnesses caused by “tobacco related wrong[s]”. Under the CRA, manufacturers of tobacco products are liable to the province directly. The claim was brought against 14 tobacco companies. British Columbia alleges that by 1950, these tobacco companies knew or ought to have known that cigarettes were harmful to one’s health, and that they failed to properly warn the public about the risks associated with smoking their product.

[12] Various defendants in the Costs Recovery case, including Imperial, brought third-party notices against Canada for its alleged role in the tobacco industry. I refer to them collectively as the “tobacco companies”. The allegations in this claim are strikingly similar to those in the Knight case. The tobacco companies plead that Health Canada advised them and the public that low-tar cigarettes were less hazardous and instructed smokers that they should quit smoking or purchase low-tar cigarettes. The tobacco companies allege that Canada was initially opposed to the use of warning labels on cigarette packaging, but ultimately instructed the industry that warning labels should be used and what they should say. The tobacco companies also plead that Agriculture Canada researched, developed, manufactured and licensed the strains of low-tar tobacco which they used for their cigarettes in exchange for royalties.

[13] The tobacco companies brought the following claims against Canada:

(1) Canada is itself liable under the CRA as a “manufacturer” of tobacco products, and the tobacco companies are entitled to contribution and indemnity from Canada pursuant to the Negligence Act.

(2) Canada breached private law duties to consumers for failure to warn, negligent design, and negligent misrepresentation, and the tobacco companies are entitled to contribution and indemnity from Canada to the extent of any liability they may have to British Columbia under the CRA.

(3) Canada breached its private law duties owed to the tobacco companies for failure to warn and negligent design, and negligently misrepresented the attributes of low-tar cigarettes. The tobacco companies allege that they are entitled to damages against Canada to the extent of any liability they may have to British Columbia under the CRA.

(4) In the alternative, Canada is obliged to indemnify the tobacco companies under the doctrine of equitable indemnity.

(5) If Canada is not liable to the tobacco companies under any of the above claims, they are entitled to declaratory relief.

[14] Canada was successful before the chambers judge, Wedge J., who struck all of the claims (2008 BCSC 419, 82 B.C.L.R. (4th) 362). In the Court of Appeal, the majority, per Tysoe J.A., allowed the negligent misrepresentation claim between Canada and the tobacco companies to proceed (2009 BCCA 540, 98 B.C.L.R. (4th) 201). Hall J.A., dissenting, would have struck all the third-party claims.

III. Issues Before the Court

[15] There is significant overlap between the issues on appeal in the Costs Recovery case and the Knight case, particularly in relation to the common law claims. Both cases discuss whether Canada could be liable at common law in negligent misrepresentation, negligent design and failure to warn, and in equitable indemnity. To reduce duplication, I treat the issues common to both cases together.

[16] There are also issues and arguments that are distinct in the two cases. Uniquely in the Costs Recovery case, Canada argues that all the contribution claims based on the Negligence Act and Canada’s alleged duties of care to smokers should be struck because even if these alleged duties were breached, Canada would not be liable to the sole plaintiff British Columbia. The statutory claims are also distinct in the two cases. The issues may therefore be stated as follows:

1. What is the test for striking out claims for failure to disclose a reasonable cause of action?

2. Should the claims for contribution and indemnity based on the Negligence Act and alleged breaches of duties of care to smokers be struck in the Costs Recovery case?

3. Should the tobacco companies’ negligent misrepresentation claims be struck out?

4. Should the tobacco companies’ claims of failure to warn be struck out?

5. Should the tobacco companies’ claims of negligent design be struck out?

6. Should the tobacco companies’ claim in the Costs Recovery case that Canada could qualify as a “manufacturer” under the CRA be struck out?

7. Should Imperial’s claim in the Knight case that Canada could qualify as a “supplier” under the TPA and the BPCPA be struck out?

8. Should the tobacco companies’ claims of equitable indemnity be struck out?

9. If Canada is not liable to the tobacco companies under any of the third-party claims, are the tobacco companies nonetheless entitled to declaratory relief against Canada so that it will remain a party to both actions and be subject to discovery procedures under the Supreme Court Rules?

IV. Analysis

A. The Test for Striking Out Claims

[17] The parties agree on the test applicable on a motion to strike for not disclosing a reasonable cause of action under r. 19(24)(a) of the B.C. Supreme Court Rules. This Court has reiterated the test on many occasions. A claim will only be struck if it is plain and obvious, assuming the facts pleaded to be true, that the pleading discloses no reasonable cause of action: Odhavji Estate v. Woodhouse, 2003 SCC 69, [2003] 3 S.C.R. 263, at para. 15; Hunt v. Carey Canada Inc., 1990 CanLII 90 (SCC), [1990] 2 S.C.R. 959, at p. 980. Another way of putting the test is that the claim has no reasonable prospect of success. Where a reasonable prospect of success exists, the matter should be allowed to proceed to trial: see, generally, Syl Apps Secure Treatment Centre v. B.D., 2007 SCC 38, [2007] 3 S.C.R. 83; Odhavji Estate; Hunt; Attorney General of Canada v. Inuit Tapirisat of Canada, 1980 CanLII 21 (SCC), [1980] 2 S.C.R. 735.

[18] Although all agree on the test, the arguments before us revealed different conceptions about how it should be applied. It may therefore be useful to review the purpose of the test and its application.

[19] The power to strike out claims that have no reasonable prospect of success is a valuable housekeeping measure essential to effective and fair litigation. It unclutters the proceedings, weeding out the hopeless claims and ensuring that those that have some chance of success go on to trial.

[20] This promotes two goods — efficiency in the conduct of the litigation and correct results. Striking out claims that have no reasonable prospect of success promotes litigation efficiency, reducing time and cost. The litigants can focus on serious claims, without devoting days and sometimes weeks of evidence and argument to claims that are in any event hopeless. The same applies to judges and juries, whose attention is focused where it should be — on claims that have a reasonable chance of success. The efficiency gained by weeding out unmeritorious claims in turn contributes to better justice. The more the evidence and arguments are trained on the real issues, the more likely it is that the trial process will successfully come to grips with the parties’ respective positions on those issues and the merits of the case.

[21] Valuable as it is, the motion to strike is a tool that must be used with care. The law is not static and unchanging. Actions that yesterday were deemed hopeless may tomorrow succeed. Before Donoghue v. Stevenson, 1932 CanLII 536 (FOREP), [1932] A.C. 562 (H.L.) introduced a general duty of care to one’s neighbour premised on foreseeability, few would have predicted that, absent a contractual relationship, a bottling company could be held liable for physical injury and emotional trauma resulting from a snail in a bottle of ginger beer. Before Hedley Byrne & Co. v. Heller & Partners, Ltd., [1963] 2 All E.R. 575 (H.L.), a tort action for negligent misstatement would have been regarded as incapable of success. The history of our law reveals that often new developments in the law first surface on motions to strike or similar preliminary motions, like the one at issue in Donoghue v. Stevenson. Therefore, on a motion to strike, it is not determinative that the law has not yet recognized the particular claim. The court must rather ask whether, assuming the facts pleaded are true, there is a reasonable prospect that the claim will succeed. The approach must be generous and err on the side of permitting a novel but arguable claim to proceed to trial.

[22] A motion to strike for failure to disclose a reasonable cause of action proceeds on the basis that the facts pleaded are true, unless they are manifestly incapable of being proven: Operation Dismantle Inc. v. The Queen, 1985 CanLII 74 (SCC), [1985] 1 S.C.R. 441, at p. 455. No evidence is admissible on such a motion: r. 19(27) of the Supreme Court Rules (now r. 9-5(2) of the Supreme Court Civil Rules). It is incumbent on the claimant to clearly plead the facts upon which it relies in making its claim. A claimant is not entitled to rely on the possibility that new facts may turn up as the case progresses. The claimant may not be in a position to prove the facts pleaded at the time of the motion. It may only hope to be able to prove them. But plead them it must. The facts pleaded are the firm basis upon which the possibility of success of the claim must be evaluated. If they are not pleaded, the exercise cannot be properly conducted.

[23] Before us, Imperial and the other tobacco companies argued that the motion to strike should take into account, not only the facts pleaded, but the possibility that as the case progressed, the evidence would reveal more about Canada’s conduct and role in promoting the use of low-tar cigarettes. This fundamentally misunderstands what a motion to strike is about. It is not about evidence, but the pleadings. The facts pleaded are taken as true. Whether the evidence substantiates the pleaded facts, now or at some future date, is irrelevant to the motion to strike. The judge on the motion to strike cannot consider what evidence adduced in the future might or might not show. To require the judge to do so would be to gut the motion to strike of its logic and ultimately render it useless.

[24] This is not unfair to the claimant. The presumption that the facts pleaded are true operates in the claimant’s favour. The claimant chooses what facts to plead, with a view to the cause of action it is asserting. If new developments raise new possibilities — as they sometimes do — the remedy is to amend the pleadings to plead new facts at that time.

[25] Related to the issue of whether the motion should be refused because of the possibility of unknown evidence appearing at a future date is the issue of speculation. The judge on a motion to strike asks if the claim has any reasonable prospect of success. In the world of abstract speculation, there is a mathematical chance that any number of things might happen. That is not what the test on a motion to strike seeks to determine. Rather, it operates on the assumption that the claim will proceed through the court system in the usual way — in an adversarial system where judges are under a duty to apply the law as set out in (and as it may develop from) statutes and precedent. The question is whether, considered in the context of the law and the litigation process, the claim has no reasonable chance of succeeding.

[26] With this framework in mind, I proceed to consider the tobacco companies’ claims.

B. Canada’s Alleged Duties of Care to Smokers in the Costs Recovery Case

[27] In the Costs Recovery case, Canada argues that all the claims for contribution based on its alleged duties of care to smokers must be struck. Under the Negligence Act, Canada submits, contribution may only be awarded if the third party would be liable to the plaintiff directly. It argues that even if Canada breached duties to smokers, such breaches cannot ground the tobacco companies’ claims for contribution if they are found liable to British Columbia, the sole plaintiff in the Costs Recovery case. This argument was successful in the Court of Appeal.

[28] The tobacco companies argue that direct liability to the plaintiff is not a requirement for being held liable in contribution. They argue that contribution in the Negligence Act turns on fault, not liability. The object of the Negligence Act is to allow defendants to recover from other parties that were also at fault for the damage that resulted to the plaintiff, and barring a claim against Canada would defeat this purpose, they argue.

[29] I agree with Canada and the Court of Appeal that a third party may only be liable for contribution under the Negligence Act if it is directly liable to the plaintiff. In Giffels Associates Ltd. v. Eastern Construction Co., 1978 CanLII 39 (SCC), [1978] 2 S.C.R. 1346, dealing with a statutory provision similar to that in British Columbia, Laskin C.J. stated:

. . . I am of the view that it is a precondition of the right to resort to contribution that there be liability to the plaintiff. I am unable to appreciate how a claim for contribution can be made under s. 2(1) by one person against another in respect of loss resulting to a third person unless each of the former two came under a liability to the third person to answer for his loss. [Emphasis added; p. 1354.]

[30] Accordingly, it is plain and obvious that the private law claims against Canada in the Costs Recovery case that arise from an alleged duty of care to consumers must be struck. Even if Canada breached duties to smokers, this would have no effect on whether it was liable to British Columbia, the plaintiff in that case. This holding has no bearing on the consumer claim in the Knight case since consumers of light or mild cigarettes are the plaintiffs in the underlying action.

[31] The discussion of the private law claims in the remainder of these reasons will refer exclusively to the claims based on Canada’s alleged duties of care to the tobacco companies in both cases before the Court, and Canada’s alleged duties to consumers in the Knight case.

C. The Claims for Negligent Misrepresentation

[32] There are two types of negligent misrepresentation claims that remain at issue on this appeal. First, in the Knight case, Imperial alleges that Canada negligently misrepresented the health attributes of low-tar cigarettes to consumers, and is therefore liable for contribution and indemnity on the basis of the Negligence Act if the class members are successful in this suit. Second, in both cases before the Court, Imperial and the other tobacco companies allege that Canada made negligent misrepresentations to the tobacco companies, and that Canada is liable for any losses that the tobacco companies incur to the plaintiffs in either case.

[33] Canada applies to have the claims struck on the ground that they have no reasonable prospect of success.

[34] For the purposes of the motion to strike, we must accept as true the facts pleaded. We must therefore accept that Canada represented to consumers and to tobacco companies that light or mild cigarettes were less harmful, and that these representations were not accurate. We must also accept that consumers and the tobacco companies relied on Canada’s representations and acted on them to their detriment.

[35] The law first recognized a tort action for negligent misrepresentation in Hedley Byrne. Prior to this, parties were confined to contractual remedies for misrepresentations. Hedley Byrne represented a break with this tradition, allowing a claim for economic loss in tort for misrepresentations made in the absence of a contract between the parties. In the decades that have followed, liability for negligent misrepresentation has been imposed in a variety of situations where the relationship between the parties disclosed sufficient proximity and foreseeability, and policy considerations did not negate liability.

[36] Imperial and the other tobacco companies argue that the facts pleaded against Canada bring their claims within the settled parameters of the tort of negligent misrepresentation, and therefore a prima facie duty of care is established. The majority in the Court of Appeal accepted this argument in both decisions below (Knight case, at paras. 45 and 66; Costs Recovery case, at para. 70).

[37] The first question is whether the facts as pleaded bring Canada’s relationships with consumers and the tobacco companies within a settled category that gives rise to a duty of care. If they do, a prima facie duty of care will be established: see Childs v. Desormeaux, 2006 SCC 18, [2006] 1 S.C.R. 643, at para. 15. However, it is important to note that liability for negligent misrepresentation depends on the nature of the relationship between the plaintiff and defendant, as discussed more fully below. The question is not whether negligent misrepresentation is a recognized tort, but whether there is a reasonable prospect that the relationship alleged in the pleadings will give rise to liability for negligent misrepresentation.

[38] In my view, the facts pleaded do not bring either claim within a settled category of negligent misrepresentation. The law of negligent misrepresentation has thus far not recognized liability in the kinds of relationships at issue in these cases. The error of the tobacco companies lies in assuming that the relationships disclosed by the pleadings between Canada and the tobacco companies on the one hand and between Canada and consumers on the other are like other relationships that have been held to give rise to liability for negligent misrepresentation. In fact, they differ in important ways. It is sufficient at this point to note that the tobacco companies have not been able to point to any case where a government has been held liable in negligent misrepresentation for statements made to an industry. To determine whether such a cause of action has a reasonable prospect of success, we must therefore consider whether the general requirements for liability in tort are met, on the test set out by the House of Lords in Anns v. Merton London Borough Council, [1978] A.C. 728, and somewhat reformulated but consistently applied by this Court, most notably in Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537.

[39] At the first stage of this test, the question is whether the facts disclose a relationship of proximity in which failure to take reasonable care might foreseeably cause loss or harm to the plaintiff. If this is established, a prima facie duty of care arises and the analysis proceeds to the second stage, which asks whether there are policy reasons why this prima facie duty of care should not be recognized: Hill v. Hamilton-Wentworth Regional Police Services Board, 2007 SCC 41, [2007] 3 S.C.R. 129.

(1) Stage One: Proximity and Foreseeability

[40] On the first branch of the test, the tobacco companies argue that the facts pleaded establish a sufficiently close and direct, or “proximate”, relationship between Canada and consumers (in the Knight case) and between Canada and tobacco companies (in both cases) to support a duty of care with respect to government statements about light and mild cigarettes. They also argue that Canada could reasonably have foreseen that consumers and the tobacco industry would rely on Canada’s statements about the health advantages of light cigarettes, and that such reliance was reasonable. Canada responds that it was acting exclusively in a regulatory capacity when it made statements to the public and to the industry, which does not give rise to sufficient proximity to ground the alleged duty of care. In the Costs Recovery case, Canada also alleges that it could not have reasonably foreseen that the B.C. legislature would enact the CRA and therefore cannot be liable for the potential losses of the tobacco companies under that Act.

[41] Proximity and foreseeability are two aspects of one inquiry — the inquiry into whether the facts disclose a relationship that gives rise to a prima facie duty of care at common law. Foreseeability is the touchstone of negligence law. However, not every foreseeable outcome will attract a commensurate duty of care. Foreseeability must be grounded in a relationship of sufficient closeness, or proximity, to make it just and reasonable to impose an obligation on one party to take reasonable care not to injure the other.

[42] Proximity and foreseeability are heightened concerns in claims for economic loss, such as negligent misrepresentation: see, generally, Canadian National Railway Co. v. Norsk Pacific Steamship Co., 1992 CanLII 105 (SCC), [1992] 1 S.C.R. 1021; Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd., 1997 CanLII 307 (SCC), [1997] 3 S.C.R. 1210. In a claim of negligent misrepresentation, both these requirements for a prima facie duty of care are established if there was a “special relationship” between the parties: Hercules Managements Ltd. v. Ernst & Young, 1997 CanLII 345 (SCC), [1997] 2 S.C.R. 165, at para. 24. In Hercules Managements, the Court, per La Forest J., held that a special relationship will be established where: (1) the defendant ought reasonably to foresee that the plaintiff will rely on his or her representation; and (2) reliance by the plaintiff would be reasonable in the circumstances of the case (ibid.). Where such a relationship is established, the defendant may be liable for losses suffered by the plaintiff as a result of a negligent misstatement.

[43] A complicating factor is the role that legislation should play when determining if a government actor owed a prima facie duty of care. Two situations may be distinguished. The first is the situation where the alleged duty of care is said to arise explicitly or by implication from the statutory scheme. The second is the situation where the duty of care is alleged to arise from interactions between the claimant and the government, and is not negated by the statute.

[44] The argument in the first kind of case is that the statute itself creates a private relationship of proximity giving rise to a prima facie duty of care. It may be difficult to find that a statute creates sufficient proximity to give rise to a duty of care. Some statutes may impose duties on state actors with respect to particular claimants. However, more often, statutes are aimed at public goods, like regulating an industry (Cooper), or removing children from harmful environments (Syl Apps). In such cases, it may be difficult to infer that the legislature intended to create private law tort duties to claimants. This may be even more difficult if the recognition of a private law duty would conflict with the public authority’s duty to the public: see, e.g., Cooper and Syl Apps. As stated in Syl Apps, “[w]here an alleged duty of care is found to conflict with an overarching statutory or public duty, this may constitute a compelling policy reason for refusing to find proximity” (at para. 28; see also Fullowka v. Pinkerton’s of Canada Ltd., 2010 SCC 5, [2010] 1 S.C.R. 132, at para. 39).

[45] The second situation is where the proximity essential to the private duty of care is alleged to arise from a series of specific interactions between the government and the claimant. The argument in these cases is that the government has, through its conduct, entered into a special relationship with the plaintiff sufficient to establish the necessary proximity for a duty of care. In these cases, the governing statutes are still relevant to the analysis. For instance, if a finding of proximity would conflict with the state’s general public duty established by the statute, the court may hold that no proximity arises: Syl Apps; see also Heaslip Estate v. Mansfield Ski Club Inc., 2009 ONCA 594, 96 O.R. (3d) 401. However, the factor that gives rise to a duty of care in these types of cases is the specific interactions between the government actor and the claimant.

[46] Finally, it is possible to envision a claim where proximity is based both on interactions between the parties and the government’s statutory duties.

[47] Since this is a motion to strike, the question before us is simply whether, assuming the facts pleaded to be true, there is any reasonable prospect of successfully establishing proximity, on the basis of a statute or otherwise. On one hand, where the sole basis asserted for proximity is the statute, conflicting public duties may rule out any possibility of proximity being established as a matter of statutory interpretation: Syl Apps. On the other, where the asserted basis for proximity is grounded in specific conduct and interactions, ruling a claim out at the proximity stage may be difficult. So long as there is a reasonable prospect that the asserted interactions could, if true, result in a finding of sufficient proximity, and the statute does not exclude that possibility, the matter must be allowed to proceed to trial, subject to any policy considerations that may negate the prima facie duty of care at the second stage of the analysis.

[48] As mentioned above, there are two relationships at issue in these claims: the relationship between Canada and consumers (the Knight case), and the relationship between Canada and tobacco companies (both cases). The question at this stage is whether there is a prima facie duty of care in either or both these relationships. In my view, on the facts pleaded, Canada did not owe a prima facie duty of care to consumers, but did owe a prima facie duty to the tobacco companies.

[49] The facts pleaded in Imperial’s third-party notice in the Knight case establish no direct relationship between Canada and the consumers of light cigarettes. The relationship between the two was limited to Canada’s statements to the general public that low-tar cigarettes are less hazardous. There were no specific interactions between Canada and the class members. Consequently, a finding of proximity in this relationship must arise from the governing statutes: Cooper, at para. 43.

[50] The relevant statutes establish only general duties to the public, and no private law duties to consumers. The Department of Health Act, S.C. 1996, c. 8, establishes that the duties of the Minister of Health relate to “the promotion and preservation of the health of the people of Canada”: s. 4(1). Similarly, the Department of Agriculture and Agri-Food Act, R.S.C. 1985, c. A-9, s. 4, the Tobacco Act, S.C. 1997, c. 13, s. 4, and the Tobacco Products Control Act, R.S.C. 1985, c. 14 (4th Supp.), s. 3 [rep. 1997, c. 13, s. 64], only establish duties to the general public. These general duties to the public do not give rise to a private law duty of care to particular individuals. To borrow the words of Sharpe J.A. of the Ontario Court of Appeal in Eliopoulos Estate v. Ontario (Minister of Health and Long-Term Care) (2006), 2006 CanLII 37121 (ON CA), 276 D.L.R. (4th) 411, “I fail to see how it could be possible to convert any of the Minister’s public law discretionary powers, to be exercised in the general public interest, into private law duties owed to specific individuals”: para. 17. At the same time, the governing statutes do not foreclose the possibility of recognizing a duty of care to the tobacco companies. Recognizing a duty of care on the government when it makes representations to the tobacco companies about the health attributes of tobacco strains would not conflict with its general duty to protect the health of the public.

[51] Turning to the relationship between Canada and the tobacco companies, at issue in both of the cases before the Court, the tobacco companies contend that a duty of care on Canada arose from the transactions between them and Canada over the years. They allege that Canada went beyond its role as regulator of industry players and entered into a relationship of advising and assisting the companies in reducing harm to their consumers. They hope to show that Canada gave erroneous information and advice, knowing that the companies would rely on it, which they did.

[52] The question is whether these pleadings bring the tobacco companies within the requirements for a special relationship under the law of negligent misrepresentation as set out in Hercules Managements. As noted above, a special relationship will be established where (1) the defendant ought reasonably to foresee that the plaintiff will rely on his or her representation, and (2) such reliance would, in the particular circumstances of the case, be reasonable. In the cases at bar, the facts pleaded allege a history of interactions between Canada and the tobacco companies capable of fulfilling these conditions.

[53] What is alleged against Canada is that Health Canada assumed duties separate and apart from its governing statute, including research into and design of tobacco and tobacco products and the promotion of tobacco and tobacco products (third-party statement of claim of Imperial in the Costs Recovery case, A.R., vol. II, at p. 66). In addition, it is alleged that Agriculture Canada carried out a programme of cooperation with and support for tobacco growers and cigarette manufacturers including advising cigarette manufacturers of the desirable content of nicotine in tobacco to be used in the manufacture of tobacco products. It is alleged that officials, drawing on their knowledge and expertise in smoking and health matters, provided both advice and directions to the manufacturers including advice that the tobacco strains designed and developed by officials of Agriculture Canada and sold or licensed to the manufacturers for use in their tobacco products would not increase health risks to consumers or otherwise be harmful to them (ibid., at pp. 109-10). Thus, what is alleged is not simply that broad powers of regulation were brought to bear on the tobacco industry, but that Canada assumed the role of adviser to a finite number of manufacturers and that there were commercial relationships entered into between Canada and the companies based in part on the advice given to the companies by government officials.

[54] What is alleged with respect to Canada’s interactions with the manufacturers goes far beyond the sort of statements made by Canada to the public at large. Canada is alleged to have had specific interactions with the manufacturers in contrast to the absence of such specific interactions between Canada and the class members. Whereas the claims in relation to consumers must be founded on a statutory framework establishing very general duties to the public, the claims alleged in relation to the manufacturers are not alleged to arise primarily from such general regulatory duties and powers but from roles undertaken specifically in relation to the manufacturers by Canada apart from its statutory duties, namely its roles as designer, developer, promoter and licensor of tobacco strains. With respect to the issue of reasonable reliance, Canada’s regulatory powers over the manufacturers, coupled with its specific advice and its commercial involvement, could be seen as supporting a conclusion that reliance was reasonable in the pleaded circumstance.

[55] The indicia of proximity offered in Hercules Managements for a special relationship (direct financial interest; professional skill or knowledge; advice provided in the course of business, deliberately or in response to a specific request) may not be particularly apt in the context of alleged negligent misrepresentations by government. I note, however, that the representations are alleged to have been made in the course of Health Canada’s regulatory and other activities, not in the course of casual interaction. They were made specifically to the manufacturers who were subject to Health Canada’s regulatory powers and by officials alleged to have special skill, judgment and knowledge.

[56] Before leaving this issue, two final arguments must be considered. First, in the Costs Recovery case, Canada submits that there is no prima facie duty of care between Canada and the tobacco companies because the potential damages that the tobacco companies may incur under the CRA were not foreseeable. It argues that “[i]t was not reasonably foreseeable by Canada that a provincial government might create a wholly new type of civil obligation to reimburse costs incurred by a provincial health care scheme in respect of defined tobacco related wrongs, with unlimited retroactive and prospective reach” (A.F., at para. 36).

[57] In my view, Canada’s argument was correctly rejected by the majority of the Court of Appeal. It is not necessary that Canada should have foreseen the precise statutory vehicle that would result in the tobacco companies’ liability. All that is required is that it could have foreseen that its negligent misrepresentations would result in a harm of some sort to the tobacco companies: Hercules Managements, at paras. 25-26 and 42. On the facts pleaded, it cannot be ruled out that the tobacco companies may succeed in proving that Canada foresaw that the tobacco industry would incur this type of penalty for selling a more hazardous product. As held by Tysoe J.A., it is not necessary that Canada foresee that the liability would extend to health care costs specifically, or that provinces would create statutory causes of action to recover these costs. Rather, “[i]t is sufficient that Canada could have reasonably foreseen in a general way that the appellants would suffer harm if the light and mild cigarettes were more hazardous to the health of smokers than regular cigarettes” (Costs Recovery case, at para. 78).

[58] Second, Canada argues that the relationship in this case does not meet the requirement of reasonable reliance because Canada was not acting in a commercial capacity, but rather as a regulator of an industry. It was therefore not reasonable for the tobacco companies to have relied on Canada as an advisor, it submits. This view was adopted by Hall J.A. in dissent, holding that “it could never have been the perception of the appellants that Canada was taking responsibility for their interests” (Costs Recovery case, at para. 51).

[59] In my view, this argument misconceives the reliance necessary for negligent misrepresentation under the test in Hercules Managements. When the jurisprudence refers to “reasonable reliance” in the context of negligent misrepresentation, it asks whether it was reasonable for the listener to rely on the speaker’s statement as accurate, not whether it was reasonable to believe that the speaker is guaranteeing the accuracy of its statement. It is not plain and obvious that it was unreasonable for the tobacco companies to rely on Canada’s statements about the advantages of light or mild cigarettes. In my view, Canada’s argument that it was acting as a regulator does not relate to reasonable reliance, although it exposes policy concerns that should be considered at stage two of the Anns/Cooper test: Hercules Managements, at para. 41.

[60] In sum, I conclude that the claims between the tobacco companies and Canada should not be struck out at the first stage of the analysis. The pleadings, assuming them to be true, disclose a prima facie duty of care in negligent misrepresentation. However, the facts as pleaded in the Knight case do not show a relationship between Canada and consumers that would give rise to a duty of care. That claim should accordingly be struck at this stage of the analysis.

(2) Stage Two: Conflicting Policy Considerations

[61] Canada submits that there can be no duty of care in the cases at bar because of stage-two policy considerations. It relies on four policy concerns: (1) that the alleged misrepresentations were policy decisions of the government; (2) that recognizing a duty of care would give rise to indeterminate liability to an indeterminate class; (3) that recognizing a duty of care would create an unintended insurance scheme; and (4) that allowing Imperial’s claim would transfer responsibility for tobacco products to the government from the manufacturer, and the manufacturer “is best positioned to address liability for economic loss” (A.F., at para. 72).

[62] For the reasons that follow, I accept Canada’s submission that its alleged negligent misrepresentations to the tobacco industry in both cases should not give rise to tort liability because of stage-two policy considerations. First, the alleged statements are protected expressions of government policy. Second, recognizing a duty of care would expose Canada to indeterminate liability.

(a) Government Policy Decisions

[63] Canada contends that it had a policy of encouraging smokers to consume low-tar cigarettes, and pursuant to this policy, promoted this variety of cigarette and developed strains of low-tar tobacco. Canada argues that statements made pursuant to this policy cannot ground tort liability. It relies on the statement of Cory J. in Just v. British Columbia, 1989 CanLII 16 (SCC), [1989] 2 S.C.R. 1228, that “[t]rue policy decisions should be exempt from tortious claims so that governments are not restricted in making decisions based upon social, political or economic factors” (p. 1240).

[64] The tobacco companies, for their part, contend that Canada’s actions were not matters of policy, but operational acts implementing policy, and therefore, are subject to tort liability. They submit that Canada’s argument fails to account for the “facts” as pleaded in the third-party notices, namely that Canada was acting in an operational capacity, and as a participant in the tobacco industry. The tobacco companies also argue that more evidence is required to determine if the government’s actions were operational or pursuant to policy, and that the matter should therefore be permitted to go to trial.

[65] In the Knight case, the majority in the Court of Appeal, per Tysoe J.A., agreed with Imperial’s submissions, holding that “evidence is required to determine which of the actions and statements of Canada in this case were policy decisions and which were operational decisions” (para. 52). Hall J.A. dissented; in his view, it was clear that all of Canada’s initiatives were matters of government policy:

[Canada] had a responsibility, as pleaded in the Third Party Notice, to protect the health of the Canadian public including smokers. Any initiatives it took to develop less hazardous strains of tobacco, or to publish the tar and nicotine yields of different cigarette brands were directed to this end. While the development of new strains of tobacco involved Agriculture Canada, in my view the government engaged in such activities as a regulator of the tobacco industry seeking to protect the health interests of the Canadian public. Policy considerations underlaid all of these various activities undertaken by departments of the federal government. [para. 100]

[66] In order to resolve the issue of whether the alleged “policy” nature of Canada’s conduct negates the prima facie duty of care for negligent misrepresentation established at stage one of the analysis, it is necessary to first consider several preliminary matters.

(i) Conduct at Issue

[67] The first preliminary matter is the conduct at issue for purposes of this discussion. The third-party notices describe two distinct types of conduct — one that is related to the allegation of negligent misrepresentation and one that is not. The first type of conduct relates to representations by Canada that low-tar and light cigarettes were less harmful to health than other cigarettes. The second type of conduct relates to Agriculture Canada’s role in developing and growing a strain of low-tar tobacco and collecting royalties on the product. In argument, the tobacco companies merged the two types of conduct, emphasizing aspects that cast Canada in the role of a business operator in the tobacco industry. However, in considering negligent misrepresentation, only the first type of conduct — conduct relevant to statements and representations made by Canada — is at issue.

(ii) Relevance of Evidence

[68] This brings us to the second and related preliminary matter — the helpfulness of evidence in resolving the question of whether the third-party claims for negligent misrepresentation should be struck. The majority of the Court of Appeal concluded that evidence was required to establish whether Canada’s alleged misrepresentations were made pursuant to a government policy. Likewise, the tobacco companies in this Court argued strenuously that insofar as Canada was developing, growing, and profiting from low-tar tobacco, it should not be regarded as a government regulator or policy maker, but rather a business operator. Evidence was required, they urged, to determine the extent to which this was business activity.

[69] There are two problems with this argument. The first is that, as mentioned, it relies mainly on conduct — the development and marketing of a strain of low-tar tobacco — that is not directly related to the allegation of negligent misrepresentation. The only question at this point of the analysis is whether policy considerations weigh against finding that Canada was under a duty of care to the tobacco companies to take reasonable care to accurately represent the qualities of low-tar tobacco. Whether Canada produced strains of low-tar tobacco is not directly relevant to that inquiry. The question is whether, insofar as it made statements on this matter, policy considerations militate against holding it liable for those statements.

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

[71] Before we can answer this question, we must consider a third preliminary issue: what constitutes a policy decision immune from review by the courts?

(iii) What Constitutes a Policy Decision Immune From Judicial Review?

[72] The question of what constitutes a policy decision that is generally protected from negligence liability is a vexed one, upon which much judicial ink has been spilled. There is general agreement in the common law world that government policy decisions are not justiciable and cannot give rise to tort liability. There is also general agreement that governments may attract liability in tort where government agents are negligent in carrying out prescribed duties. The problem is to devise a workable test to distinguish these situations.

[73] The jurisprudence reveals two approaches to the problem, one emphasizing discretion, the other, policy, each with variations. The first approach focuses on the discretionary nature of the impugned conduct. The “discretionary decision” approach was first adopted in Home Office v. Dorset Yacht Co., [1970] 2 W.L.R. 1140 (H.L.). This approach holds that public authorities should be exempt from liability if they are acting within their discretion, unless the challenged decision is irrational.

[74] The second approach emphasizes the “policy” nature of protected state conduct. Policy decisions are conceived of as a subset of discretionary decisions, typically characterized as raising social, economic and political considerations. These are sometimes called “true” or “core” policy decisions. They are exempt from judicial consideration and cannot give rise to liability in tort, provided they are neither irrational nor taken in bad faith. A variant of this is the policy/operational test, in which “true” policy decisions are distinguished from “operational” decisions, which seek to implement or carry out settled policy. To date, the policy/operational approach is the dominant approach in Canada: Just; Brown v. British Columbia (Minister of Transportation and Highways), 1994 CanLII 121 (SCC), [1994] 1 S.C.R. 420; Swinamer v. Nova Scotia (Attorney General), 1994 CanLII 122 (SCC), [1994] 1 S.C.R. 445; Lewis (Guardian ad litem of) v. British Columbia, 1997 CanLII 304 (SCC), [1997] 3 S.C.R. 1145.

[75] To complicate matters, the concepts of discretion and policy overlap and are sometimes used interchangeably. Thus Lord Wilberforce in Anns defined policy as a synonym for discretion (p. 754).

[76] There is wide consensus that the law of negligence must account for the unique role of government agencies: Just. On the one hand, it is important for public authorities to be liable in general for their negligent conduct in light of the pervasive role that they play in all aspects of society. Exempting all government actions from liability would result in intolerable outcomes. On the other hand, “the Crown is not a person and must be free to govern and make true policy decisions without becoming subject to tort liability as a result of those decisions”: Just, at p. 1239. The challenge, to repeat, is to fashion a just and workable legal test.

[77] The main difficulty with the “discretion” approach is that it has the potential to create an overbroad exemption for the conduct of government actors. Many decisions can be characterized as to some extent discretionary. For this reason, this approach has sometimes been refined or replaced by tests that narrow the scope of the discretion that confers immunity.

[78] The main difficulty with the policy/operational approach is that courts have found it notoriously difficult to decide whether a particular government decision falls on the policy or operational side of the line. Even low-level state employees may enjoy some discretion related to how much money is in the budget or which of a range of tasks is most important at a particular time. Is the decision of a social worker when to visit a troubled home, or the decision of a snow-plow operator when to sand an icy road, a policy decision or an operational decision? Depending on the circumstances, it may be argued to be either or both. The policy/operational distinction, while capturing an important element of why some government conduct should generally be shielded from liability, does not work very well as a legal test.

[79] The elusiveness of a workable test to define policy decisions protected from judicial review is captured by the history of the issue in various courts. I begin with the House of Lords. The House initially adopted the view that all discretionary decisions of government are immune, unless they are irrational: Dorset Yacht. It then moved on to a two-stage test that asked first whether the decision was discretionary and, if so, rational; and asked second whether it was a core policy decision, in which case it was entirely exempt from judicial scrutiny: X v. Bedfordshire County Council, [1995] 3 All E.R. 353. Within a year of adopting this two-stage test, the House abandoned it with a ringing declamation of the policy/operational distinction as unworkable in difficult cases, a point said to be evidenced by the Canadian jurisprudence: Stovin v. Wise, [1996] A.C. 923 (H.L.), per Lord Hoffmann. In its most recent foray into the subject, the House of Lords affirmed that both the policy/operational distinction and the discretionary decision approach are valuable tools for discerning which government decisions attract tort liability, but held that the final test is a “justiciability” test: Barrett v. Enfield London Borough Council, [2001] 2 A.C. 550. The ultimate question on this test is whether the court is institutionally capable of deciding on the question, or “whether the court should accept that it has no role to play” (p. 571). Thus at the end of the long judicial voyage the traveller arrives at a test that essentially restates the question. When should the court hold that a government decision is protected from negligence liability? When the court concludes that the matter is one for the government and not the courts.

[80] Australian judges in successive cases have divided between a discretionary/irrationality model and a “true policy” model. In Sutherland Shire Council v. Heyman (1985), 1988 ABCA 234, 157 C.L.R. 424 (H.C.), two of the justices (Gibbs C.J. and Wilson J.) adopted the Dorset Yacht rule that all discretionary decisions are immune, provided they are rational (p. 442). They endorsed the policy/operational distinction as a logical test for discerning which decisions should be protected, and adopted Lord Wilberforce’s definition of policy as a synonym for discretion. Mason J., by contrast, held that only core policy decisions, which he viewed as a narrower subset of discretionary decisions, were protected (p. 500). Deane J. agreed with Mason J. for somewhat different reasons. Brennan J. did not comment on which test should be adopted, leaving the test an open question. The Australian High Court again divided in Pyrenees Shire Council v. Day, [1998] HCA 3, 192 C.L.R. 330, with three justices holding that a discretionary government action will only attract liability if it is irrational and two justices endorsing different versions of the policy/operational distinction.

[81] In the United States, the liability of the federal government is governed by the Federal Tort Claims Act of 1946, 28 U.S.C. (“FTCA”), which waived sovereign immunity for torts, but created an exemption for discretionary decisions. Section 2680(a) excludes liability in tort for

[a]ny claim based upon an act or omission of an employee of the Government, exercising due care, in the execution of a statute or regulation, whether or not such statute or regulation be valid, or based upon the exercise or performance or the failure to exercise or perform a discretionary function or duty on the part of a federal agency or an employee of the Government, whether or not the discretion involved be abused.

Significantly, s. 2680(h) of the FTCA exempts the federal government from any claim of misrepresentation, either intentional or negligent: Office of Personnel Management v. Richmond, 496 U.S. 414 (1990), at p. 430; United States v. Neustadt, 366 U.S. 696 (1961).

[82] Without detailing the complex history of the American jurisprudence on the issue, it suffices to say that the cases have narrowed the concept of discretion in the FTCA by reference to the concept of policy. Some cases develop this analysis by distinguishing between policy and operational decisions: e.g., Dalehite v. United States, 346 U.S. 15 (1953). The Supreme Court of the United States has since distanced itself from the approach of defining a true policy decision negatively as “not operational”, in favour of an approach that asks whether the impugned state conduct was based on public policy considerations. In United States v. Gaubert, 499 U.S. 315 (1991), White J. faulted the Court of Appeals for relying on “a nonexistent dichotomy between discretionary functions and operational activities” (p. 326). He held that the “discretionary function exception” of the FTCA “protects only governmental actions and decisions based on considerations of public policy” (at p. 323, citing Berkovitz v. United States, 486 U.S. 531 (1988), at p. 537 (emphasis added)), such as those involving social, economic and political considerations: see also United States v. S.A. Empresa de Viacao Aerea Rio Grandense (Varig Airlines), 467 U.S. 797 (1984).

[83] In Gaubert, only Scalia J. found lingering appeal in defining policy decisions as “not operational”, but only in the narrow sense that people at the operational level will seldom make policy decisions. He stated that “there is something to the planning vs. operational dichotomy — though . . . not precisely what the Court of Appeals believed” (p. 335). That “something” is that “[o]rdinarily, an employee working at the operational level is not responsible for policy decisions, even though policy considerations may be highly relevant to his actions”. For Scalia J., a government decision is a protected policy decision if it “ought to be informed by considerations of social, economic, or political policy and is made by an officer whose official responsibilities include assessment of those considerations”.

[84] A review of the jurisprudence provokes the following observations. The first is that a test based simply on the exercise of government discretion is generally now viewed as too broad. Discretion can imbue even routine tasks, like driving a government vehicle. To protect all government acts that involve discretion unless they are irrational simply casts the net of immunity too broadly.

[85] The second observation is that there is considerable support in all jurisdictions reviewed for the view that “true” or “core” policy decisions should be protected from negligence liability. The current Canadian approach holds that only “true” policy decisions should be so protected, as opposed to operational decisions: Just. The difficulty in defining such decisions does not detract from the fact that the cases keep coming back to this central insight. Even the most recent “justiciability” test in the U.K. looks to this concept for support in defining what should be viewed as justiciable.

[86] A third observation is that defining a core policy decision negatively as a decision that is not an “operational” decision may not always be helpful as a stand-alone test. It posits a stark dichotomy between two water-tight compartments — policy decisions and operational decisions. In fact, decisions in real life may not fall neatly into one category or the other.

[87] Instead of defining protected policy decisions negatively, as “not operational”, the majority in Gaubert defines them positively as discretionary legislative or administrative decisions and conduct that are grounded in social, economic, and political considerations. Generally, policy decisions are made by legislators or officers whose official responsibility requires them to assess and balance public policy considerations. The decision is a considered decision that represents a “policy” in the sense of a general rule or approach, applied to a particular situation. It represents “a course or principle of action adopted or proposed by a government”: New Oxford Dictionary of English (1998), at p. 1434. When judges are faced with such a course or principle of action adopted by a government, they generally will find the matter to be a policy decision. The weighing of social, economic, and political considerations to arrive at a course or principle of action is the proper role of government, not the courts. For this reason, decisions and conduct based on these considerations cannot ground an action in tort.

[88] Policy, used in this sense, is not the same thing as discretion. Discretion is concerned with whether a particular actor had a choice to act in one way or the other. Policy is a narrow subset of discretionary decisions, covering only those decisions that are based on public policy considerations, like economic, social and political considerations. Policy decisions are always discretionary, in the sense that a different policy could have been chosen. But not all discretionary decisions by government are policy decisions.

[89] While the main focus on the Gaubert approach is on the nature of the decision, the role of the person who makes the decision may be of assistance. Did the decision maker have the responsibility of looking at social, economic or political factors and formulating a “course” or “principle” of action with respect to a particular problem facing the government? Without suggesting that the question can be resolved simply by reference to the rank of the actor, there is something to Scalia J.’s observation in Gaubert that employees working at the operational level are not usually involved in making policy choices.

[90] I conclude that “core policy” government decisions protected from suit are decisions as to a course or principle of action that are based on public policy considerations, such as economic, social and political factors, provided they are neither irrational nor taken in bad faith. This approach is consistent with the basic thrust of Canadian cases on the issue, although it emphasizes positive features of policy decisions, instead of relying exclusively on the quality of being “non-operational”. It is also supported by the insights of emerging jurisprudence here and elsewhere. This said, it does not purport to be a litmus test. Difficult cases may be expected to arise from time to time where it is not easy to decide whether the degree of “policy” involved suffices for protection from negligence liability. A black and white test that will provide a ready and irrefutable answer for every decision in the infinite variety of decisions that government actors may produce is likely chimerical. Nevertheless, most government decisions that represent a course or principle of action based on a balancing of economic, social and political considerations will be readily identifiable.

[91] Applying this approach to motions to strike, we may conclude that where it is “plain and obvious” that an impugned government decision is a policy decision, the claim may properly be struck on the ground that it cannot ground an action in tort. If it is not plain and obvious, the matter must be allowed to go to trial.

(iv) Conclusion on the Policy Argument

[92] As discussed, the question is whether the alleged representations of Canada to the tobacco companies that low-tar cigarettes are less harmful to health are matters of policy, in the sense that they constitute a course or principle of action of the government. If so, the representations cannot ground an action in tort.

[93] The third-party notices plead that Canada made statements to the public (and to the tobacco companies) warning about the hazards of smoking, and asserting that low-tar cigarettes are less harmful than regular cigarettes; that the representations that low-tar cigarettes are less harmful to health were false; and that insofar as consumption caused extra harm to consumers for which the tobacco companies are held liable, Canada is required to indemnify the tobacco companies and/or contribute to their losses.

[94] The third-party notices implicitly accept that in making the alleged representations, Health Canada was acting out of concern for the health of Canadians, pursuant to its policy of encouraging smokers to switch to low-tar cigarettes. They assert, in effect, that Health Canada had a policy to warn the public about the hazardous effects of smoking, and to encourage healthier smoking habits among Canadians. The third-party claims rest on the allegation that Health Canada accepted that some smokers would continue to smoke despite the adverse health effects, and decided that these smokers should be encouraged to smoke lower-tar cigarettes.

[95] In short, the representations on which the third-party claims rely were part and parcel of a government policy to encourage people who continued to smoke to switch to low-tar cigarettes. This was a “true” or “core” policy, in the sense of a course or principle of action that the government adopted. The government’s alleged course of action was adopted at the highest level in the Canadian government, and involved social and economic considerations. Canada, on the pleadings, developed this policy out of concern for the health of Canadians and the individual and institutional costs associated with tobacco-related disease. In my view, it is plain and obvious that the alleged representations were matters of government policy, with the result that the tobacco companies’ claims against Canada for negligent misrepresentation must be struck out.

[96] Having concluded that the claims for negligent misrepresentation are not actionable because the alleged representations were matters of government policy, it is not necessary to canvas the other stage-two policy grounds that Canada raised against the third-party claims relating to negligent misrepresentation. However, since the argument about indeterminate liability was fully argued, I will briefly discuss it. In my view, it confirms that no liability in tort should be recognized for Canada’s alleged misrepresentations.

(b) Indeterminate Liability

[97] Canada submits that allowing the defendants’ claims in negligent misrepresentation would result in indeterminate liability, and must therefore be rejected. It submits that Canada had no control over the number of cigarettes being sold. It argues that in cases of economic loss, the courts must limit liability to cases where the third party had a means of controlling the extent of liability.

[98] The tobacco companies respond that Canada faces extensive, but not indeterminate liability. They submit that the scope of Canada’s liability to tobacco companies is circumscribed by the tort of negligent misrepresentation. Canada would only be liable to the smokers of light cigarettes and to the tobacco companies.

[99] I agree with Canada that the prospect of indeterminate liability is fatal to the tobacco companies’ claims of negligent misrepresentation. Insofar as the claims are based on representations to consumers, Canada had no control over the number of people who smoked light cigarettes. This situation is analogous to Cooper, where this Court held that it would have declined to apply a duty of care to the Registrar of Mortgage Brokers in respect of economic losses suffered by investors because “[t]he Act itself imposes no limit and the Registrar has no means of controlling the number of investors or the amount of money invested in the mortgage brokerage system” (para. 54). While this statement was made in obiter, the argument is persuasive.

[100] The risk of indeterminate liability is enhanced by the fact that the claims are for pure economic loss. In Design Services Ltd. v. Canada, 2008 SCC 22, [2008] 1 S.C.R. 737, the Court, per Rothstein J., held that “in cases of pure economic loss, to paraphrase Cardozo C.J., care must be taken to find that a duty is recognized only in cases where the class of plaintiffs, the time and the amounts are determinate” (para. 62). If Canada owed a duty of care to consumers of light cigarettes, the potential class of plaintiffs and the amount of liability would be indeterminate.

[101] Insofar as the claims are based on representations to the tobacco companies, they are at first blush more circumscribed. However, this distinction breaks down on analysis. Recognizing a duty of care for representations to the tobacco companies would effectively amount to a duty to consumers, since the quantum of damages owed to the companies in both cases would depend on the number of smokers and the number of cigarettes sold. This is a flow-through claim of negligent misrepresentation, where the tobacco companies are passing along their potential liability to consumers and to the province of British Columbia. In my view, in both cases, these claims should fail because Canada was not in control of the extent of its potential liability.

(c) Summary on Stage-Two Policy Arguments

[102] In my view, this Court should strike the negligent misrepresentation claims in both cases as a result of stage-two policy concerns about interfering with government policy decisions and the prospect of indeterminate liability.

D. Failure to Warn

[103] The tobacco companies make two allegations of failure to warn: B.A.T. alleges that Canada directed the tobacco companies not to provide warnings on cigarette packages (the labelling claim) about the health hazards of cigarettes; and Imperial alleges that Canada failed to warn the tobacco companies about the dangers posed by the strains of tobacco designed and licensed by Canada.

(1) Labelling Claim

[104] B.A.T. alleges that by instructing the industry to not put warning labels on their cigarettes, Canada is liable in tort for failure to warn. In the Knight case, Tysoe J.A. did not address the failure to warn claims. Hall J.A., writing for the minority, would have struck those claims on stage-two grounds, finding that Canada’s decision was a policy decision and that liability would be indeterminate. Hall J.A. also held that liability would conflict with the government’s public duties (para. 99). In the Costs Recovery case, Tysoe J.A. adopted Hall J.A.’s analysis from the Knight case in rejecting the failure to warn claim as between Canada and the tobacco companies (para. 89). B.A.T. challenges these findings.

[105] The crux of this failure to warn claim is essentially the same as the negligent misrepresentation claim, and should be rejected for the same policy reasons. The Minister of Health’s recommendations on warning labels were integral to the government’s policy of encouraging smokers to switch to low-tar cigarettes. As such, they cannot ground a claim in failure to warn.

(2) Failure to Warn Imperial About Health Hazards

[106] The Court of Appeal, per Tysoe J.A., held that the third-party notices did not sufficiently plead that Canada failed to warn the industry about the health hazards of its strains of tobacco. Imperial argues that this was in error, because the elements of a failure to warn claim are identical to the elements of the negligence claim, which was sufficiently pleaded.

[107] Canada points out that the two paragraphs of the third-party notices that discuss failure to warn only mention the claims that relate to labels, and not the claim that Canada failed to warn Imperial about potential health hazards of the tobacco strains. Canada also argues that to support a claim of failure to warn, the plaintiff must not only show that the defendant acted negligently, but that the defendant was also under a positive duty to act. It submits that nothing in the third-party notices suggests that Canada was under such a positive duty here.

[108] I agree with Canada that the tort of failure to warn requires evidence of a positive duty towards the plaintiff. Positive duties in tort law are the exception rather than the rule. In Childs v. Desormeaux, the Court held:

Although there is no doubt that an omission may be negligent, as a general principle, the common law is a jealous guardian of individual autonomy. Duties to take positive action in the face of risk or danger are not free-standing. Generally, the mere fact that a person faces danger, or has become a danger to others, does not itself impose any kind of duty on those in a position to become involved. [para. 31]

Moreover, none of the authorities cited by Imperial support the proposition that a plea of negligence, without more, will suffice to raise a duty to warn: Day v. Central Okanagan (Regional District), 2000 BCSC 1134, 79 B.C.L.R. (3d) 36, per Drossos J.; see also Elias v. Headache and Pain Management Clinic, 2008 CanLII 53133 (Ont. S.C.J.), per Macdonald J. (paras. 6 to 9).

[109] Even if pleading negligence were viewed as sufficient to raise a claim of duty to warn, which I do not accept, the claim would fail for the stage-two policy reasons applicable to the negligent misrepresentation claim.

E. Negligent Design

[110] The tobacco companies have brought two types of negligent design claims against Canada that remain to be considered. First, they submit that Canada breached its duty of care to the tobacco companies when it negligently designed its strains of low-tar tobacco. The Court of Appeal held that the pleadings supported a prima facie duty of care in this respect, but held that the duty was negated by the stage-two policy concern of indeterminate liability. Second, Imperial submits that Canada breached its duty of care to the consumers of light and mild cigarettes in the Knight case. A majority of the Court of Appeal held that this claim should proceed to trial.

[111] In my view, both remaining negligent design claims establish a prima facie duty of care, but fail at the second stage of the analysis because they relate to core government policy decisions.

(1) Prima Facie Duty of Care

[112] I begin with the claim that Canada owed a prima facie duty of care to the tobacco companies. Canada submits that there was no prima facie duty of care since there is no proximity between Canada and the tobacco companies, relying on the same arguments that it raises in the negligent misrepresentations claims.

[113] In my view, the Court of Appeal correctly concluded that Canada owed a prima facie duty of care towards the tobacco companies with respect to its design of low-tar tobacco strains. I agree with Tysoe J.A. that the alleged relationship in this case meets the requirements for proximity:

If sufficient proximity exists in the relationship between a designer of a product and a purchaser of the product, it would seem to me to follow that there is sufficient proximity in the relationship between the designer of a product and a manufacturer who uses the product in goods sold to the public. Also, the designer of the product ought reasonably to have the manufacturer in contemplation as a person who would be affected by its design in the context of the present case. It would have been reasonably foreseeable to the designer of the product that a manufacturer of goods incorporating the product could be required to refund the purchase price paid by consumers if the design of the product did not accomplish that which it was intended to accomplish. [Knight case, para. 67]

[114] The allegation is that Canada was acting like a private company conducting business, and conducted itself toward the tobacco companies in a way that established proximity. The proximity alleged is not based on a statutory duty, but on interactions between Canada and the tobacco companies. Canada’s argument that a duty of care would result in conflicting private and public duties does not negate proximity arising from conduct, although it may be a relevant stage-two policy consideration.

[115] For similar reasons, I conclude that on the facts pleaded, Canada owed a prima facie duty of care to the consumers of light and mild cigarettes in the Knight case. On the facts pleaded, it is at least arguable that Canada was acting in a commercial capacity when it designed its strains of tobacco. As Tysoe J.A. held in the court below, “a person who designs a product intended for sale to the public owes a prima facie duty of care to the purchasers of the product” (para. 48).

(2) Stage-Two Policy Considerations

[116] For the reasons given in relation to the negligent misrepresentation claim, I am of the view that stage-two policy considerations negate this prima facie duty of care for the claims of negligent design. The decision to develop low-tar strains of tobacco on the belief that the resulting cigarettes would be less harmful to health is a decision that constitutes a course or principle of action based on Canada’s health policy. It was a decision based on social and economic factors. As a core government policy decision, it cannot ground a claim for negligent design. This conclusion makes it unnecessary to consider the argument of indeterminate liability also raised as a stage-two policy objection to the claim of negligent design.

F. The Direct Claims Under the Costs Recovery Acts

[117] The tobacco companies submit that the Court of Appeal erred when it held that it was plain and obvious that Canada could not qualify as a manufacturer under the CRA. They also present three alternative arguments: (1) that if Canada is not liable under the Act, it is liable under the recently adopted Health Care Costs Recovery Act, S.B.C. 2008, c. 27 (“HCCRA”); (2) that if Canada is not liable under either the CRA or the HCCRA, it is nonetheless liable to the defendants for contribution under the Negligence Act; and (3) that in the further alternative, Canada could be liable for contribution under the common law (joint factum of Rothmans, Benson & Hedges (“RBH”) and Philip Morris only).

[118] Section 2 of the CRA establishes that “[t]he government has a direct and distinct action against a manufacturer to recover the cost of health care benefits caused or contributed to by a tobacco related wrong”. The words “manufacture” and “manufacturer” are defined in s. 1(1) of the Act as follows:

1 (1) . . .

“manufacture” includes, for a tobacco product, the production, assembly or packaging of the tobacco product;

“manufacturer” means a person who manufactures or has manufactured a tobacco product and includes a person who currently or in the past

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

(b) for any fiscal year of the person, derives at least 10% of revenues, determined on a consolidated basis in accordance with generally accepted accounting principles in Canada, from the manufacture or promotion of tobacco products by that person or by other persons,

(c) engages in, or causes, directly or indirectly, other persons to engage in the promotion of a tobacco product, or

(d) is a trade association primarily engaged in

(i) the advancement of the interests of manufacturers,

(ii) the promotion of a tobacco product, or

(iii) causing, directly or indirectly, other persons to engage in the promotion of a tobacco product;

The third-party notices allege that Canada grew (manufactured) tobacco and licensed it to the tobacco industry for a profit, and that Canada “promoted” the use of mild or light cigarettes to the industry and the public. These facts, they say, bring Canada within the definition of “manufacturer” of the CRA.

[119] Canada submits that it is not a manufacturer under the Act. In the alternative, it submits that it is immune from the operation of this provincial statute at common law and alternatively under the Constitution.

[120] For the reasons that follow, I conclude that Canada is not a manufacturer under the Act. Indeed, holding Canada accountable under the CRA would defeat the legislature’s intention of transferring the health-care costs resulting from tobacco related wrongs from taxpayers to the tobacco industry. This conclusion makes it unnecessary to consider Canada’s arguments that it would in any event be immune from liability under the provincial Act. I would also reject the tobacco companies’ argument for contribution under the HCCRA and the Negligence Act, and the common law contribution argument.

(1) Could Canada Qualify as a Manufacturer Under the [Tobacco Damages and Health Care Costs Recovery A](https://www.canlii.org/en/bc/laws/stat/sbc-2000-c-30/latest/sbc-2000-c-30.html)ct?

[121] The Court of Appeal held that the definition of “manufacturer” could not apply to the Government of Canada. I agree. While the argument that Canada could qualify as a manufacturer under the CRA has superficial appeal, when the Act is read in context and all of its provisions are taken into account, it is apparent that the British Columbia legislature did not intend for Canada to be liable as a manufacturer. This is confirmed by the text of the statute, the intent of the legislature in adopting the Act, and the broader context of the relationship between the province and the federal government.

(a) Text of the Statute

[122] The definition of manufacturer in s. 1(1) “manufacturer” (b) of the Act includes a person who “for any fiscal year of the person, derives at least 10% of revenues, determined on a consolidated basis in accordance with generally accepted accounting principles in Canada, from the manufacture or promotion of tobacco products by that person or by other persons”. Hall J.A. held that this definition indicated that the legislature intended the Act to apply to companies involved in the tobacco industry, and not to governments.

[123] The tobacco companies respond that the definition of “manufacturer” is disjunctive since it uses the word “or”, such that an individual will qualify as a manufacturer if it meets any of the four definitions in (a) to (d). Even if Canada is incapable of meeting the definition in (b) of the Act (deriving 10% of its revenues from the manufacture or promotion of tobacco products), Canada qualifies under subparagraphs (a) (causing the manufacture of tobacco products) and (c) (engaging in or causing others to engage in the promotion of tobacco products) on the facts pled, they argue.

[124] Like the Court of Appeal, I would reject this argument. It is true that s. 1 must be read disjunctively, and that an individual will qualify as a manufacturer if it meets any of the four definitions in (a) to (d). However, the Act must nevertheless be read purposively and as a whole. A proper reading of the Act will therefore take each of the four definitions into account. It will also consider the rest of the statutory scheme, and the legislative context. When the Act is read in this way, it is clear that the B.C. legislature did not intend to include the federal government as a potential manufacturer under the CRA.

[125] The fact that one of the statutory definitions is based on revenue percentage suggests that the term “manufacturer” is meant to capture businesses or individuals who earn profit from tobacco-related activities. This interpretation is reinforced by the provisions of the Act that establish the liability of defendants. Section 3(3)(b) provides that “each defendant to which the presumptions [provided in s. 3(2) of the CRA] apply is liable for the proportion of the aggregate cost referred to in paragraph (a) equal to its market share in the type of tobacco product”. This language cannot be stretched to include the Government of Canada.

[126] I conclude that the text of the CRA, read as a whole, does not support the view that Canada is a “manufacturer” under the Act.

(b) Legislative Intention

[127] I agree with Canada that considerations related to legislative intent further support the view that Canada does not fall within the definition of “manufacturer”. When the CRA was introduced in the legislature, the Minister responsible stated that “the industry” manufactured a lethal product, and that “the industry” composed of “tobacco companies” should accordingly be held accountable (B.C. Official Report of Debates of the Legislative Assembly (Hansard), vol. 20, 4th Sess., 36th Parl., June 7, 2000, at p. 16314). It is plain and obvious that the Government of Canada would not fit into these categories.

[128] Imperial submits that it is improper to rely on excerpts from Hansard on an application to strike a pleading, since evidence is not admissible on such an application. However, a distinction lies between evidence that is introduced to prove a point of fact and evidence of legislative intent that is provided to assist the court in discerning the proper interpretation of a statute. The former is not relevant on an application to strike; the latter may be. Applications to strike are intended to economize judicial resources in cases where on the facts pled, the law does not support the plaintiff’s claim. Courts may consider all evidence relevant to statutory interpretation in order to achieve this purpose.

(c) Broader Context

[129] The broader context of the statute strongly supports the conclusion that the British Columbia legislature did not intend the federal government to be liable as a manufacturer of tobacco products. The object of the Act is to recover the cost of providing health care to British Columbians from the companies that sold them tobacco products. As held by this Court in British Columbia v. Imperial Tobacco Canada Ltd., 2005 SCC 49, [2005] 2 S.C.R. 473:

[T]he driving force of the Act’s cause of action is compensation for the government of British Columbia’s health care costs, not remediation of tobacco manufacturers’ breaches of duty. While the Act makes the existence of a breach of duty one of several necessary conditions to a manufacturer’s liability to the government, it is not the mischief at which the cause of action created by the Act is aimed. [para. 40]

The legislature sought to transfer the medical costs from provincial taxpayers to the private sector that sold a harmful product. This object would be fundamentally undermined if the funds were simply recovered from the federal government, which draws its revenue from the same taxpayers.

[130] The tobacco companies’ proposed application of the CRA to Canada is particularly problematic in light of the long-standing funding relationship between the federal and provincial governments with regards to health care. The federal government has been making health transfer payments to the provinces for decades. As held by Hall J.A.:

If the Costs Recovery Act were to be construed to permit the inclusion of Canada as a manufacturer targeted for the recovery of provincial health costs, this would permit a direct economic claim to be advanced against Canada by British Columbia to obtain further funding for health care costs. In light of these longstanding fiscal arrangements between governments, I cannot conceive that the legislature of British Columbia could ever have envisaged that Canada might be a target under the Costs Recovery Act. [para. 33]

[131] Imperial argues that the only way to achieve the object of the CRA is to allow the province to recover from all those who participated in the tobacco industry, including the federal government. I disagree. Holding the federal government accountable under the Act would defeat the legislature’s intention of transferring the cost of medical treatment from taxpayers to the tobacco industry.

(d) Summary

[132] For the foregoing reasons, I conclude that it is plain and obvious that the federal government does not qualify as a manufacturer of tobacco products under the CRA. This pleading must therefore be struck.

(2) Could Canada Be Found Liable Under the [Health Care Costs Recovery Act](https://www.canlii.org/en/bc/laws/stat/sbc-2008-c-27/latest/sbc-2008-c-27.html)?

[133] The tobacco companies submit that if Canada is not liable under the CRA, it would be liable under the HCCRA, which creates a cause of action for the province to recover health care costs generally from wrongdoers (s. 8(1)). Canada submits that the HCCRA is inapplicable because it provides that the cause of action does not apply to cases that qualify as “tobacco related wrong[s]” under the CRA (s. 24(3)(b)). RBH and Philip Morris respond that a “tobacco related wrong” under the CRA may only be committed by a “manufacturer”. Consequently, if the CRA does not apply to Canada because it cannot qualify as a manufacturer, it is not open to Canada to argue that the more general HCCRA does not apply either.

[134] In my view, the tobacco companies cannot rely on the HCCRA in a CRA action for contribution. While it is true that Canada is incapable of committing a tobacco-related wrong itself if it is not a manufacturer, the underlying cause of action in this case is that it is the defendants who are alleged to have committed a tobacco-related wrong. The HCCRA specifies that it does not apply in cases “arising out of a tobacco related wrong as defined in the Tobacco Damages and Health Care Costs Recovery Act” (s. 24(3)(b)). This precludes contribution claims arising out of that Act.

(3) Could Canada Be Liable for Contribution Under the [Negligence Act](https://www.canlii.org/en/bc/laws/stat/rsbc-1996-c-333/latest/rsbc-1996-c-333.html) if It Is Not Directly Liable to British Columbia?

[135] RBH and Philip Morris submit that even if Canada is not liable to British Columbia, it can still be held liable for contribution under the Negligence Act. They argue that direct liability to the plaintiff is not a requirement for being held liable in contribution.

[136] As noted above, I agree with Canada’s submission that, following Giffels, a party can only be liable for contribution if it is also liable to the plaintiff directly.

[137] Accordingly, I would reject the argument that the Negligence Act in British Columbia allows recovery from a third party that could not be liable to the plaintiff.

(4) Could Canada Be Liable for Common Law Contribution?

[138] RBH and Philip Morris submit that if this Court rejects the contribution claim under the Negligence Act, it should allow a contribution claim under the common law. They rely on this Court’s decisions in Bow Valley and Blackwater v. Plint, 2005 SCC 58, [2005] 3 S.C.R. 3, in which this Court recognized claims of contribution which were not permitted by statute.

[139] I would reject this argument. In my view, the cases cited by RBH and Philip Morris support common law contribution claims only if the third party is directly liable to the plaintiff. In Bow Valley, the Court recognized a limited right of contribution “between tortfeasors”, and noted that the defendants were “jointly and severally liable to the plaintiff” (paras. 101 and 102). A similar point was made by this Court in Blackwater (per McLachlin C.J.), which stated that a “common law right of contribution between tortfeasors may exist” (para. 68 (emphasis added)). There is no support in our jurisprudence for allowing contribution claims in cases where the third party is not liable to the plaintiff.

G. Liability Under the [Trade Practice Act](https://www.canlii.org/en/bc/laws/stat/rsbc-1996-c-457/latest/rsbc-1996-c-457.html) and the [Business Practices and Consumer Protection A](https://www.canlii.org/en/bc/laws/stat/sbc-2004-c-2/latest/sbc-2004-c-2.html)ct

[140] In the Knight case, Imperial alleges that Canada satisfies the definition of a “supplier” under the Trade Practice Act (“TPA”) and the Business Practices and Consumer Protection Act (“BPCPA”). The TPA was repealed and replaced by the BPCPA in 2004. Imperial argues that the Court of Appeal erred in striking its claim against Canada under these statutes.

[141] In my view, Canada could not qualify as a “supplier” under the Acts on the facts pled. Section 1 of the TPA defined “supplier” as follows:

1 . . .

“supplier” means a person, other than a consumer, who in the course of the person’s business solicits, offers, advertises or promotes the disposition or supply of the subject of a consumer transaction or who engages in, enforces or otherwise participates in a consumer transaction, whether or not privity of contract exists between that person and the consumer, and includes the successor to, and assignee of, any rights or obligations of the supplier.

Section 1(1) of the BPCPA defines “supplier” as follows:

1 (1) . . .

“supplier” means a person, whether in British Columbia or not, who in the course of business participates in a consumer transaction by

(a) supplying goods or services or real property to a consumer, or

(b) soliciting, offering, advertising or promoting with respect to a transaction referred to in paragraph (a) of the definition of “consumer transaction”,

whether or not privity of contract exists between that person and the consumer, and includes the successor to, and assignee of, any rights or obligations of that person and, except in Parts 3 to 5 [Rights of Assignees and Guarantors Respecting Consumer Credit; Consumer Contracts; Disclosure of the Cost of Consumer Credit], includes a person who solicits a consumer for a contribution of money or other property by the consumer;

[142] The Court of Appeal unanimously held that neither definition could apply to Canada because its alleged actions were not undertaken “in the course of business”. The court held that the pleadings allege that Canada promoted the use of mild or light cigarettes, but only in order to reduce the health risks of smoking, not in the course of a business carried on for the purpose of earning a profit (Knight case, para. 35).

[143] Imperial submits that it is not necessary for Canada to have been motivated by profit to qualify as a “supplier” under the Acts, provided it researched, designed and manufactured a defective product. Canada responds that its alleged purpose of improving the health of Canadians shows that it was not acting in the course of business. This was not a case where a public authority was itself operating in the private market as a business, but rather a case where a public authority sought to regulate the industry by promoting a type of cigarette.

[144] I accept that Canada’s purpose for developing and promoting tobacco as described in the third-party notice suggests that it was not acting “in the course of business” or “in the course of the person’s business” as those phrases are used in the TPA or the BPCPA, and therefore that Canada could not be a “supplier” under either of those statutes. The phrases “in the course of business” and “in the course of the person’s business” may have different meanings, depending of the context. On the one hand, they can be read as including all activities that an individual undertakes in his or her professional life: e.g., see discussion of the indicia of reasonable reliance above. On the other, they can be understood as limited to activities undertaken for a commercial purpose. In my view, the contexts in which the phrases are used in the TPA and the BPCPA support the latter interpretation. The definitions of “supplier” in both Acts refer to “consumer transaction[s]”, and contrast suppliers, who must have a commercial purpose, with consumers. It is plain and obvious from the facts pleaded that Canada did not promote the use of low-tar cigarettes for a commercial purpose, but for a health purpose. Canada is therefore not a supplier under the TPA or the BPCPA, and the contribution claim based on this ground and the Negligence Act should be struck.

[145] Having concluded that Canada is not liable under the TPA and the BPCPA, it is unnecessary to consider whether, if it were, Canada would be protected by Crown immunity.

H. The Claim for Equitable Indemnity

[146] RBH and Philip Morris submit that if the tobacco companies are found liable in the Costs Recovery case, Canada is liable for “equitable indemnity” on the facts pleaded. They submit that whenever a person requests or directs another person to do something that causes the other to incur liability, the requesting or directing person is liable to indemnify the other for its liability. Imperial adopts this argument in the Knight case.

[147] Equitable indemnity is a narrow doctrine, confined to situations of an express or implied understanding that a principal will indemnify its agent for acting on the directions given. As stated in Parmley v. Parmley, 1945 CanLII 13 (SCC), [1945] S.C.R. 635, claims of equitable indemnity “proceed upon the notion of a request which one person makes under circumstances from which the law implies that both parties understand that the person who acts upon the request is to be indemnified if he does so” (p. 648, quoting Bowen L.J. in Birmingham and District Land Co. v. London and North Western Railway Co. (1886), 34 Ch. D. 261, at p. 275.

[148] In my view, the Court of Appeal, per Hall J.A., correctly held that the tobacco companies could not establish this requirement of the claim:

[I]f the notional reasonable observer were asked whether or not Canada, in the interaction it had over many decades with the appellants, was undertaking to indemnify them from some future liability that might be incurred relating to their business, the observer would reply that this could not be a rational expectation, having regard to the relationship between the parties. Likewise, if Canada through its agents had been specifically asked or a suggestion had been made to its agents by representatives of the appellants that Canada might in future be liable for any such responsibility or incur such a liability, the answer would have been firmly in the negative. [Costs Recovery case, para. 57]

When Canada directed the tobacco industry about how it should conduct itself, it was doing so in its capacity as a government regulator that was concerned about the health of Canadians. Under such circumstances, it is unreasonable to infer that Canada was implicitly promising to indemnify the industry for acting on its request.

I. Procedural Considerations

[149] In the courts below, the tobacco companies argued that even if the claims for compensation against Canada are struck, Canada should remain a third party in the litigation for procedural reasons. The tobacco companies argued that their ability to mount defences against British Columbia in the Costs Recovery case and the class members in the Knight case would be severely prejudiced if Canada was no longer a third party. This argument was rejected in chambers by both Wedge J. and Satanove J. The majority of the Court of Appeal found it unnecessary to consider the question, while Hall J.A. would have affirmed the holdings of the chambers judges.

[150] The tobacco companies did not pursue this issue on appeal. I would affirm the findings of Wedge J., Satanove J. and Hall J.A. and strike the claims for declaratory relief.

V. Conclusion

[151] I conclude that it is plain and obvious that the tobacco companies’ claims against Canada have no reasonable chance of success, and should be struck out. Canada’s appeals in the Costs Recovery case and the Knight case are allowed, and the cross-appeals are dismissed. Costs are awarded throughout against Imperial in the Knight case, and against the tobacco companies in the Costs Recovery case. No costs are awarded against or in favour of British Columbia in the Costs Recovery case.

Appeals allowed and cross‑appeals dismissed with costs.

Solicitor for the appellants/respondents on cross‑appeal (33559‑33563): Attorney General of Canada, Ottawa.

Solicitors for the respondent/appellant on cross‑appeal Imperial Tobacco Canada Limited (33559): Hunter Litigation Chambers Law Corporation, Vancouver.

Solicitors for the respondent Her Majesty the Queen in Right of British Columbia (33563): Bull, Housser & Tupper, Vancouver.

Solicitors for the respondent/appellant on cross‑appeal Imperial Tobacco Canada Limited (33563): Osler, Hoskin & Harcourt, Toronto.

Solicitors for the respondents/appellants on cross‑appeal Rothmans, Benson & Hedges Inc. and Rothmans Inc. (33563): Affleck Hira Burgoyne, Vancouver.

Solicitors for the respondents/appellants on cross‑appeal JTI‑MacDonald Corp., R.J. Reynolds Tobacco Company and R.J. Reynolds Tobacco International Inc. (33563): Farris, Vaughan, Wills & Murphy, Vancouver.

Solicitors for the respondents/appellants on cross‑appeal B.A.T. Industries p.l.c. and British American Tobacco (Investments) Limited (33563): Sugden, McFee & Roos, Vancouver.

Solicitors for the respondent/appellant on cross‑appeal Carreras Rothmans Limited (33563): Harper Grey, Vancouver.

Solicitors for the respondent/appellant on cross‑appeal Philip Morris U.S.A. Inc. (33563): Davis & Company, Vancouver.

Solicitors for the respondent/appellant on cross‑appeal Philip Morris International Inc. (33563): McCarthy Tétrault, Montréal.

Solicitor for the intervener the Attorney General of Ontario (33559‑33563): Attorney General of Ontario, Toronto.

Solicitors for the intervener Her Majesty the Queen in Right of the Province of New Brunswick (33563): Bennett Jones, Toronto.

Solicitor for the intervener the Attorney General of British Columbia (33559‑33563): Attorney General of British Columbia, Victoria.