ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: 64078CP
DATE: 20120807
B E T W E E N:
WENINGER FARMS LTD., STANLEY KOSCIK and LINDA KOSCIK
John W. Findlay and John W. McDonald , for the Plaintiffs
Plaintiffs
- and -
HER MAJESTY THE QUEEN IN RIGHT OF CANADA, as represented by the MINISTER OF NATIONAL REVENUE and HER MAJESTY THE QUEEN IN RIGHT OF ONTARIO, as represented by the MINISTER OF REVENUE
Ronald G. Slaght, Q.C. and Andrew Parley , for the Defendant, Her Majesty the Queen in Right of Canada, as represented by the Minister of National Revenue
Lynne M. McArdle and William J. Manuel, for the Defendant, Her Majesty the Queen in Right of Ontario, as represented by the Minister of Revenue
Defendants
Proceedings under the Class Proceedings Act, 1992
HEARD: April 13, 2012
Grace J.
[ 1 ] For several years the plaintiffs held basic production quota. They grew and sold tobacco.
[ 2 ] They allege that between 2001 and 2008 the federal (“Canada”) and provincial (“Ontario”) governments allowed the sale of “contraband tobacco products…illegally across Canada at smoke shops, bingo parlours, flea markets and in the work place.” [1] The plaintiffs maintain that these activities violate federal [2] and provincial [3] legislation, that Canada and Ontario owed and breached a duty to enforce those statutes in order to prefer one segment of society over tobacco producers and that a “greatly diminishing…market for the sale of legal tobacco that was grown” by Ontario’s tobacco producers was a consequence. [4]
[ 3 ] This action followed. The plaintiffs plead misfeasance in public office or, alternatively, negligence. Five hundred million dollars ($500,000,000) in damages is claimed. Punitive, exemplary and aggravated damages are also sought.
[ 4 ] Canada and Ontario maintain the amended statement of claim fails to disclose a reasonable cause of action. Each defendant moves to strike the pleading without leave to amend. [5]
[ 5 ] For the reasons given, I agree the amended statement of claim is fatally flawed, that it should be struck and that leave to amend should not be given. [6]
A. The Test and Material on a Rule 21.01 (1) (b) Motion
[ 6 ] Rule 21.01 (1) (b) allows a judge to strike a statement of claim on the ground it discloses no reasonable cause of action.
[ 7 ] The applicable principles are well settled. The pleading is to be read generously. Allegations are to be regarded as factually accurate unless patently absurd. If, notwithstanding that approach, it is plain and obvious that the underlying action has no reasonable prospect of success, the statement of claim should be struck. [7]
[ 8 ] Caution must be exercised. Writing for the Court in R. v. Imperial Tobacco Canada Ltd. (“ Imperial Tobacco” ) McLachlin C.J. noted:
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. [8]
[ 9 ] No evidence is admissible on a rule 21.01 (1) (b) motion. I was therefore surprised to find a copy of a significant portion of a 2008 Royal Canadian Mounted Police report bearing the title “Contraband Tobacco Enforcement Strategy” (the “2008 RCMP report”) in the motion material.
[ 10 ] I was told that the 2008 RCMP report was included because of two references in the amended statement of claim. Paragraphs 22 and 23 set forth the following allegations:
According to a report produced by the Royal Canadian Mounted Police in 2008…contraband tobacco products are being sold across Canada illegally at smoke shops, bingo parlours, flea markets and in the work place.
Smoke shops are located on first nation reserves and elsewhere in Ontario. The RCMP Report confirmed the presence of three hundred and fifteen (315) smoke shops in Ontario in 2006 and reported that new smoke shops continue to open in Ontario.
[ 11 ] I accept that there are instances where an underlying document is integral to the allegations set forth in a statement of claim. For example, a pleading may refer to an agreement or paraphrase specific clauses contained within it in accordance with rule 25.06 (7) of the Rules of Civil Procedure. It provides:
The effect of a document or the purport of a conversation, if material, shall be pleaded as briefly as possible, but the precise words of the document or conversation need not be pleaded unless those words are themselves material.
[ 12 ] In those circumstances, it may not be possible to adequately understand and assess the allegations unless consideration is given to the actual contractual language used. [9] Where that occurs, “the provisions of the agreements relied on by the plaintiffs constitute facts just as if they were reproduced as part of the statement of claim.” [10]
[ 13 ] The 2008 RCMP report is not such a document. It was mentioned as the source of two specific factual allegations. The 2008 RCMP report is not something which allows the court to understand the facts set forth in the amended statement of claim. It is a piece of evidence upon which the plaintiffs rely.
[ 14 ] That conclusion is supported by the plaintiffs’ factum. They submit the 2008 RCMP report is “admissible evidence for the purposes of this Rule 21 Motion” with respect to twelve other facts. [11] That is precisely why the 2008 RCMP report can play no role on this motion. A rule 21 motion “is not about evidence.” [12]
B. Misfeasance in Public Office
i. The Elements
[ 15 ] To establish the tort of misfeasance in public office the plaintiffs must prove:
a. Deliberate unlawful conduct by a person responsible for the exercise of public duties; and
b. Awareness that the conduct is unlawful and likely to cause damage to the plaintiffs. [13]
[ 16 ] The earliest example involved a British citizen maliciously and fraudulently deprived of the right to vote by an elections officer. [14] The earliest case in Canada involved a plaintiff whose liquor licence was wrongly revoked at the behest of a provincial premier. [15]
[ 17 ] The tort applies to a “broad range of misconduct” [16] whether it arises from an act or omission. [17] An element of “bad faith” or “dishonesty” is essential. [18] As Iacobucci J. wrote:
The tort is not directed at a public officer who is unable to discharge his or her obligations because of factors beyond his or her control but, rather, at a public officer who could have discharged his or her public obligations, yet wilfully chose to do otherwise. [19]
ii. Canada
[ 18 ] No federal public official is individually named. The Minister of National Revenue (“MNR”) is the representative identified in the title of proceedings.
[ 19 ] The allegation against the MNR starts with excise legislation. [20] The Excise Act, 2001 regulates the manufacture, importation and sale of tobacco. A duty is imposed on certain tobacco and tobacco products.
[ 20 ] Section 8 of that statute provides that the MNR “shall administer and enforce this Act.” The Interpretation Act [21] requires that “shall” be construed as mandatory.
[ 21 ] In light of those provisions the plaintiffs submit the MNR had a positive obligation – or duty - to take steps to prevent the importation and sale of contraband tobacco.
[ 22 ] The plaintiffs allege the MNR “knowingly and deliberately failed” to fulfill the Minister’s statutory duties.
[ 23 ] The foundation of this portion of the plaintiffs’ claim is, in my view, flawed. Section 8 of the Excise Tax Act, 2001 does not obligate the MNR to enforce every section of the statute. The section designates the MNR as the person within the federal government responsible for administering and enforcing the statutory provisions.
[ 24 ] A reading of the statute as a whole evidences the fact section 8 does not create a general command that each provision be rigorously and rigidly applied. A number of specific provisions give the MNR permission to take – or not take – certain steps. By way of example only, officers may be designated to exercise “any judicial or quasi-judicial power or duty” of the MNR. [22] Such officers “may” lay an information or complaint. [23] The MNR “may” issue licences. [24] A person who contravenes the statute is exposed to penalties which the MNR “may” impose. [25] Amounts due but not paid under the legislation may be collected by the MNR according to the procedure and subject to the limitations it describes. [26]
[ 25 ] The Excise Tax Act, 2001 recognizes, expressly, that the statute gives the MNR “powers” as well as “duties”. Section 8 of the statute does not have the purpose or effect the plaintiffs advocate. This case can be contrasted with the one before the Supreme Court of Canada in Odhavji Estate v. Woodhouse (“ Odhavji Estate ”). [27]
[ 26 ] In Odhavji Estate a suspected bank robber was shot and killed by police. The Special Investigations Unit (“SIU”) of the Minister of the Solicitor General commenced an investigation. The police officers involved in the incident were statutorily obligated to cooperate with the SIU and the Chief of Police was legislatively required to ensure that the force’s members complied.
[ 27 ] An action was commenced by the deceased’s family. They alleged the officers frustrated the investigation and that the Chief deliberately failed to ensure that they complied with the SIU’s directions. The claims were allowed to proceed because they rested on an alleged breach of a clearly expressed statutory duty.
[ 28 ] That is not to say that the misuse or non-exercise of a power cannot support this kind of action. As Iacobucci J. wrote:
…there is no principled reason…why a public officer who wilfuly injures a member of the public through intentional abuse of a statutory power would be liable, but not a public officer who wilfuly injures a member of the public through an intentional excess of power or a deliberate failure to discharge a statutory duty. [28]
[ 29 ] That passage takes me to the plaintiffs’ allegation that the responsibility for enforcing excise legislation was “effectively abdicated” and that the MNR and others mentioned below “ignored flagrant violations” to appease one group knowing it would prejudice tobacco producers. [29] Reading the pleading generously, it appears to me that the plaintiffs are alleging the MNR made a conscious and improperly grounded decision not to exercise the statutory powers which were conferred.
[ 30 ] The quoted portions of the amended statement of claim do not save it. I reach that conclusion for these reasons:
a. First, the amended statement of claim sets forth a series of conclusions but without any factual support;
b. Second, this action relates to an alleged policy designed to placate the aboriginal community at the expense of the plaintiffs. Consistently courts have recognized that economic, social and political factors come into play in the formulation of policy and refused to intervene absent exceptional circumstances. There is no allegation here that the policy was arbitrary, unreasonable or irresponsible: only that it had unfortunate financial consequences for one constituency; [30]
c. Third, there is no allegation of conduct which is “unlawful,” “dishonest” or made in “bad faith”. Simply put, essential requirements of the tort are not plead.
[ 31 ] The amended statement of claim in this case is analogous to the one at issue in L. (A.) v. Ontario (Ministry of Community and Social Services. [31] Section 30 of the Child and Family Services Act allowed the Minister of Community and Social Services to enter into an agreement to assist a child with special needs if the child’s parent(s) or custodian could not meet them. According to the claim, the Minister of Community and Social Services had improperly adopted a policy of refusing to enter into service agreements. The plaintiffs maintained that trauma, stress and humiliation had resulted. Damages for misfeasance in public office and negligence were claimed.
[ 32 ] In striking the misfeasance in public office claim, Sharpe J.A. wrote:
In my view, the amended statement of claim fails to plead facts sufficient to satisfy the requirements of the tort of misfeasance in public office. The pleading makes bald allegations that recite the basic elements of the tort in very general terms but fails to provide the material facts sufficient to demonstrate an intentional wrongdoing by a specific public officer aimed at the respondents. The pleading does not allege that a specific officer knowingly abused his or her statutory duties for the unlawful purpose of harming these respondents. The pleading alleges only that Ontario adopted a general policy not to enter into new s. 30 agreements that applied to all members of the public. This lack of specificity is not merely a technical defect – it goes to the core of the respondents’ claim. [32]
[ 33 ] The deficiencies in the pleading in issue here are similar. They are not merely in form. There is no substance to the serious allegations made. [33]
[ 34 ] The MNR is one of a group the plaintiffs describe as “Canada Crown Servants”. Those holding the offices of Minister of Justice, Attorney General of Canada and the Commissioner of the Royal Canadian Mounted Police are the others. The plaintiffs allege the individuals holding those offices had obligations to enforce excise legislation under the Royal Canadian Mounted Police Act [34] in the case of the latter and the Department of Justice Act [35] in the case of the first two mentioned public officials.
[ 35 ] The connection between these other government officials and the plaintiffs is even more tenuous. None of them are mentioned in the provisions of the Excise Act, 2001 to which I was referred. Because of their roles with respect to law enforcement, they are said to share responsibility for ensuring compliance with its provisions.
[ 36 ] However, the pleading is simply unsupportable in law. No affirmative duty is imposed on a police officer to lay an information or a prosecutor to pursue a charge. [36]
[ 37 ] Henco Industries Ltd. v. Haudenosaunee Six Nations Confederacy Council [37] provides an illustration of the court’s approach. In that case, a residential development had been occupied by aboriginal protestors. Civil proceedings were commenced and an injunction was granted. Subsequent events led to criminal contempt proceedings and a series of court-ordered status hearings.
[ 38 ] Given the scope of the orders made, the Court of Appeal had cause to review the breadth of the operational and prosecutorial discretion conferred on the police and Crown respectively. Laskin J.A. observed:
There are cogent reasons why the courts ordinarily have no business interfering with or questioning how the police and the Crown exercise their discretion. Respect for the separation of powers and the rule of law depend on the courts not interfering.
In the present case…many considerations are at play beyond the obligation to enforce the law. These…include Aboriginal and treaty rights, constitutional rights, the right to lawful enjoyment of property, the right to lawful protest, concerns about public safety, and importantly, the government’s obligation to bring about the reconciliation of the Aboriginal and non-Aboriginal peoples through negotiation.
The immediate enforcement and prosecution of violations of the law may not always be the wise course of action or the course of action that best serves the public interest. [38]
[ 39 ] Furthermore, the allegations against these other federal public officials are deficient for the reasons given previously in paragraph 30.
iii. Ontario
[ 40 ] The plaintiffs’ allegations have been modified and applied to a group described as the Ontario Crown Servants.
[ 41 ] The plaintiffs allege wrongdoing by the Minister of Revenue instead of the MNR. They rely on the Tobacco Tax Act [39] and earlier provisions respecting tobacco found in the Retail Sales Tax Act . [40]
[ 42 ] Once again, the plaintiffs allege the Minister of Revenue was duty bound to enforce legislation that regulated the tobacco industry and taxed tobacco and tobacco products.
[ 43 ] The plaintiffs also allege wrongdoing by the Commissioner of the Ontario Provincial Police instead of the RCMP. They allege the Commissioner had the obligation to enforce provincial legislation relating to tobacco pursuant to the Police Services Act . [41]
[ 44 ] The allegations largely mirror those made against the Canada Crown Servants: a knowing and deliberate failure to regulate the tobacco industry or to recover taxes due despite knowledge that sale of contraband tobacco would flourish and cause a decline in the market for “legal tobacco”.
[ 45 ] The misfeasance in public office claim against the Minister of Revenue cannot stand. The allegation that the Minister must enforce the provisions of the Tobacco Tax Act and Retail Sales Tax Act is contradicted by the statutory language. All of them include the word “may”, not “shall”.
[ 46 ] To the extent the claim is based on an abuse of a discretionary power, it suffers from the same deficiencies identified earlier in these reasons: vague, unsupported and conclusory statements, an unsupported challenge of a policy decision, a failure to allege essential elements of the cause of action.
[ 47 ] Insofar as the claim includes the Commissioner of the OPP, it evidences the same frailties as the claim against the Commissioner of the RCMP. It asks the court to embark on a prohibited exercise: a review of the exercise of investigative discretion based on sweeping allegations. The declaration of principles appearing at the outset of the Police Services Act deserves mention . It provides in part:
Police services shall be provided in Ontario in accordance with the following principles:
The need for cooperation between the providers of police services and the communities they serve.
The need for sensitivity to the pluralistic, multiracial and multicultural character of Ontario society.
[ 48 ] I conclude it is plain and obvious the plaintiffs’ claim will fail insofar as it is based on the tort of misfeasance in public office.
C. Negligence
[ 49 ] In their amended statement of claim, the plaintiffs allege that:
…the Canada Crown Servants and the Ontario Crown servants each owe a duty of care to the Plaintiffs and others dependent upon the lawful production, marketing and sale of tobacco and tobacco products to ensure that all tobacco marketed in Ontario is marketed in accordance with and pursuant to the provisions of the Excise Act , the Excise Tax Act, 2001, the Excise Tax Act , the Retail Sales Tax Act and the Tobacco Tax Act .
[ 50 ] They allege that Canada and Ontario breached that duty by failing to enforce and to provide “adequate and effective police services to enforce” those statutes. [42] The plaintiffs maintain that financial harm was a foreseeable consequence of non-enforcement.
[ 51 ] In order to succeed on their claim in negligence the plaintiffs must first establish that a duty of care was owed to them.
[ 52 ] A prima facie duty of care will be found to exist if recognized in analogous circumstances. [43] A public authority has been found to owe a duty of care to a specific person in cases involving the safety of buildings, highways and mines. [44] Police owe a duty of care to those targeted in a criminal investigation. [45] Those situations are not similar to this one.
[ 53 ] That finding is not terminal. As Sharpe J.A. wrote in Eliopoulos v. Ontario (Minister of Health & Long-Term Care) :
The claim is novel but that…is not fatal to the respondent’s case. It has long been recognized that the categories of negligence are not closed and that the law must remain open to the recognition of new duties of care. [46]
[ 54 ] Whether a duty of care has been established involves a two stage analysis: the first focuses on factors arising from the relationship between the plaintiffs and each defendant and the second from external considerations. [47]
i. Stage One – Foreseeability and Proximity
[ 55 ] At this point in the analysis the following question arises: is the relationship between the plaintiffs on the one hand and Canada and/or Ontario sufficiently close – or proximate – that a failure to take reasonable care might foreseeably cause economic harm to the plaintiffs? [48]
[ 56 ] As a matter of first impression this seems a rather easy question to answer. A market for any product is finite. To the extent demand is satisfied by the supply of illegal product – or contraband – the fortunes of those who conduct their businesses legally are bound to suffer. However, something more is required.
…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. [49]
[ 57 ] When dealing with the government that close – or proximate – relationship may arise in three situations.
[ 58 ] First, there may be direct dealings between the plaintiffs and government officials. Imperial Tobacco provides an example. In that case, the tobacco companies alleged that they had received and acted upon advice and directions provided by government officials. They pointed to commercial dealings with the government of Canada. A prima facie duty of care was found to exist. [50]
[ 59 ] As I have already mentioned, the amended statement of claim does not mention any dealings between the plaintiffs and the federal or provincial government. That observation also eliminates another situation described in Imperial Tobacco : one involving a combination of interactions between the parties and the underlying legislative scheme. [51]
[ 60 ] That leaves only one possibility: a statutory scheme that creates a duty of care. The plaintiffs’ task is not easy.
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…or removing children from harmful environments…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. [52]
[ 61 ] Federal and provincial legislation regulates every aspect of the tobacco industry: production, processing, importation, exportation and sale. Procedures with respect to registration, licences and permits are delineated. Sources of revenue in the form of taxes and duties are created.
[ 62 ] Means of ensuring compliance are given. The statutes set forth the consequences of non-compliance. Rights of investigation and enforcement are conferred.
[ 63 ] The legislation is clearly aimed at the public generally. A product which is – to put it mildly – controversial is tightly controlled. The statutory regime reflects concern for public health, safety and the public purse. Some may go so far as to suggest that the statutes upon which the plaintiffs rely are not intended to protect them but to curtail their tobacco business.
[ 64 ] Discretionary powers are conferred throughout each statute. As Sharpe J.A. noted:
There is now a well-established line of cases standing for the general proposition that public authorities, charged with making decisions in the general public interest, ought to be free to make those decisions without being subjected to a private law duty of care to specific members of the general public. [53]
[ 65 ] Tobacco producers are not “a narrow and clearly-defined group” which the Excise Act, 2001 , the Tobacco Tax Act and related statutes aim to serve. [54] The legislation is readily distinguishable from statutes relating to building, highway or mining safety. This case, like so many others, involves a statutory scheme which creates duties owed to citizens as a whole, not a particular interest group. [55]
[ 66 ] The requirements of foreseeability and proximity have not been met. A private law duty of care does not exist.
ii. Stage Two – External Considerations
[ 67 ] Even if I had concluded otherwise, this action would have foundered at this stage for two reasons. First, at issue is an alleged policy of non-intervention to appease the aboriginal community. Assuming for the purposes of this analysis only that allegation is true, the challenged decision is one manifestly based on economic, social and political considerations. It is, therefore, insulated from court challenge unless made irrationally or in bad faith. [56] Those words do not appear in the amended statement of claim.
[ 68 ] Second and most importantly, if a duty of care is recognized on these facts, the potential exposure of government to lawsuits is endless. Many industries are regulated. Most products are taxed. If a private law duty of care exists in this case where does it end? It seems to me that the government is exposed to the risk of suit by anyone disadvantaged by any decision made under a regulatory or taxing statute. That cannot be the law. Lang J.A.’s warning in Attis v. Canada (Minister of Health) is apt. On behalf of the Court of Appeal she wrote:
It would severely curtail the government’s ability to govern if it were found to have the necessary direct and close relationship to an individual member of the public to support a claim in tort for bad policy decisions. It is accepted that, if the government fails to make good decisions in these areas, the public will demonstrate its displeasure at election time. Thus, the law is clear that the government does not have a proximate relationship to an individual Canadian when it makes decisions of a political, social or economic nature. [57]
D. Conclusion
[ 69 ] For the reasons given, I conclude the amended statement of claim discloses no reasonable cause of action and should be struck.
[ 70 ] Leave to further amend the statement of claim was not sought. In any event, I am unaware of any basis on which the already amended claim could be rescued. The action is dismissed.
[ 71 ] If costs are sought and the issue is not resolved by the parties, they may make arrangements to make oral submissions through the trial coordinator in London. Alternatively and if agreed by all of the parties, short written submissions may be made first by the defendants within twenty one days of the release of these reasons and by the plaintiffs within fourteen days thereafter.
“ Justice A. D. Grace”
Justice A. D. Grace
Released: August 7, 2012