CITATION: GRAND RIVER ENTERPRISES SIX NATIONS LTD. et al v. ATTORNEY-GENERAL OF CANADA, 2016 ONSC 722

COURT FILE NO.: CV-08-466

DATE: 2016-0128

SUPERIOR COURT OF JUSTICE – ONTARIO

RE: GRAND RIVER ENTERPRISES SIX NATIONS LTD., JERRY BRADWICK MONTOUR, KENNETH RYAN HILL, CURTIS STYRES and GREGORY SCOTT SMITH, Plaintiffs

AND:

THE ATTORNEY-GENERAL OF CANADA, Defendant

BEFORE: The Honourable Mr. Justice D.A. Broad

COUNSEL: Bryan Finlay, Q.C., Chantell Montour and Marie Andree Vermette, for the Plaintiffs

Charleen Brenzall and Wendy J. Linden, for the Defendant

HEARD: In writing

ENDORSEMENT

Introduction

[1] The defendant seeks leave to appeal from the order of D.J. Gordon, J. dated August 28, 2015. In that order, the motion judge dismissed the defendant’s motion to strike out those parts of the plaintiffs’ Fresh as Amended Statement of Claim (the “Claim”) which claimed damages against the defendant for negligence, misfeasance in public office, and breach of fiduciary duty. Justice Gordon’s order also struck out the plaintiff’s claim for breach of aboriginal rights with leave to amend within 90 days.

[2] The Claim seeks damages in the sum of $1.5 billion for negligence, misfeasance in public office, and breach of aboriginal rights. It also seeks equitable compensation in the amount of $1.5 billion for breach of fiduciary duty and failure to act in accordance with “the honour of the Crown” in dealing with the aboriginal plaintiffs. It also claims related declaratory relief as well as punitive, aggravated and exemplary damages in the amount of $5 million.

[3] The plaintiff Grand River Enterprises Six Nations Ltd. (GRE) was incorporated in 1996 and is in the business of the manufacture and sale of tobacco products. Its head office and manufacturing facility are located on the Six Nations Reserve in the Province of Ontario. The individual plaintiffs are shareholders of GRE and are each aboriginal and status Indians as defined by the Indian Act. They were each also partners (but not all of the partners) of the partnership named Grand River Enterprises (the “partnership”) which operated the business prior to the incorporation of GRE.

[4] The plaintiffs’ Claim is grounded in two wrongs for which they allege the defendant is liable: first, a requirement imposed by the Minister of National Revenue that the partnership incorporate (the “forced incorporation issue”) and second, the failure of the federal government to combat the problem of contraband and counterfeit tobacco products on the Six Nations Reserve (the “Reserve”), including its alleged failure to properly implement or administer the defendant’s Anti-Smuggling Initiative (the “Initiative”) (the “contraband issue” as characterized by the plaintiffs or the “failure to enforce issue” as characterized by the defendant).

[5] The defendant seeks leave to appeal the ruling of Gordon, J. dismissing its motion to strike the claims for misfeasance, negligence and breach of fiduciary duty in respect of the second branch only of the plaintiffs’ claim, namely the contraband, or failure to enforce, issue.

Test for Leave to Appeal

[6] The test for granting leave to appeal under Rule 62.02(4) is well-settled. It is recognized that leave should not be easily granted and the test to be met is a very strict one. There are two possible branches upon which leave may be granted. Both branches involve a two-part test and, in each case, both aspects of the two-part test must be met before leave may be granted.

[7] Under Rule 62.02(4)(a), the moving party must establish that there is a conflicting decision of another judge or court in Ontario or elsewhere (but not a lower level court) and that it is, in the opinion of the judge hearing the motion, “desirable that leave to appeal be granted.” A “conflicting decision” must be with respect to a matter of principle, not merely a situation in which a different result was reached in respect of particular facts: Comtrade Petroleum Inc. v. 490300 Ontario Ltd. (1992) 1992 7405 (ON SC), 7 O.R. (3d) 542 (Div. Ct.).

[8] Under Rule 62.02(4)(b), the moving party must establish that there is reason to doubt the correctness of the order in question and that the proposed appeal involves matters of such importance that leave to appeal should be granted. It is not necessary that the judge granting leave be satisfied that the decision in question was actually wrong – that aspect of the test is satisfied if the judge granting leave finds that the correctness of the order is open to “very serious debate”: Nazari v. OTIP/RAEO Insurance Co., 2003 40868 (ON SC), [2003] O.J. No. 3442 (S.C.J.); Ash v. Lloyd’s Corp. (1992), 1992 7652 (ON SC), 8 O.R. (3d) 282 (Gen. Div.). In addition, the moving party must demonstrate matters of importance that go beyond the interests of the immediate parties and involve questions of general or public importance relevant to the development of the law and administration of justice: Rankin v. McLeod, Young, Weir Ltd. (1986), 1986 2749 (ON SC), 57 O.R. (2d) 569 (H.C.J.); Greslik v. Ontario Legal Aid Plan (1988), 1988 4842 (ON SCDC), 65 O.R. (2d) 110 (Div. Ct.).

[9] The second branch set forth in Rule 62.02(4)(b) has been summarized in another way as follows:

It is not necessary for the moving party to convince the court that the decision it seeks to appeal from is wrong or even probably wrong. It is sufficient for the moving party to show this court that there is good reason to doubt the correctness of the decision. Thus, the court should ask itself whether the correctness of the decision in question is open to "very serious debate" and, if so, is it a decision that warrants resolution by a higher level of judicial authority.

(see Brownhall v. Canada, 2006 7505 (ON SC), 2006 CarswellOnt 995 (S.C.J.) at para. 30)

[10] Rule 62.02(7) provides that the judge granting leave shall give brief reasons in writing. The purpose of the brief reasons is not only to explain to the party opposing leave why leave was granted but, more importantly, to assist the panel hearing the appeal and the parties to keep focussed on the issues for which leave was granted.

[11] It is not necessary for me to consider the first branch test for leave as I am satisfied that leave to appeal ought to be granted on the basis that the second branch has been satisfied, namely that the correctness of the decision is open to very serious debate and it is a decision that warrants resolution by an appellate court. I reach that conclusion for the reasons that follow.

Claim based on Misfeasance in Public Office

[12] Justice Gordon found that, although malice may not have been fully particularized in the Claim, a motion to strike is not the place to assess the sufficiency of the supporting evidence and that much will depend on the testimony of witnesses and documents produced. He found that the Claim contains sufficient facts and particularity with respect to misfeasance to allow the claim to proceed and that amendments may be made as further particulars are ascertained. He also found that the tort of misfeasance of public office is still developing and changing and that a trial on this issue, given the facts as pleaded, will assist in clarifying the law relating to misfeasance (see Reasons of Justice Gordon at paras. 80-81).

[13] The defendant, in summary, submits the following with respect to the issue of misfeasance in public office:

(a) the requisite elements to sustain a claim in misfeasance are well-settled, as set out in the case of Odhavji Estate v. Woodhouse, 2003, SCC 69, namely, (i) deliberate unlawful conduct by a public officer in the exercise of public functions; (ii) awareness that the conduct is unlawful and likely to injure the plaintiff; and (iii) that the unlawful conduct caused the damages;

(b) citing the case of Ontario v. Gratton-Masuy Environmental Technologies, 2010 ONCA 501 (C.A.), an express plea of actual malice in the form of a specific intent to injure a person or class of persons is required. A bald plea of malice is insufficient to defeat a Rule 21 motion, and broadly cast allegations of bad faith, malice, and bias based merely on assumptions and speculation about the motivations underlying the conduct of government officials do not satisfy the rules of pleading;

(c) since a core requirement of a claim in misfeasance is that the alleged misconduct must have been deliberate and that the defendant must have been aware of the unlawful and injurious nature of the conduct, particularization of the allegations of the relevant state of mind on the part of the particular public officer must be pleaded and the pleading must specifically identify the individuals against whom the allegations are made. The plaintiff’s Claim fails to identify an individual who is alleged to have the requisite state of mind to commit the deliberately harmful act;

(d) a general unspecified alleged failure to enforce the law or a policy does not support a viable claim for misfeasance in public office;

(e) where a claim is grounded on the failure of a public officer to take certain action, such as, in this case, a failure to enforce, misfeasance cannot be made out unless there is a failure to act in the face of a clear statutory duty. The legislation, namely the Excise Act, 2001, SC 2002, c. 22 and Canada Border Services Agency Act, SC 2005, c 38, grants the authority to take enforcement action but does not require enforcement action to be taken;

(f) the plaintiff’s reliance upon the common law does not assist with respect to imposing a duty on the Ministers or on others who enforce the law. Law enforcement officials and prosecutors enjoy discretion as to the investigation, laying and prosecution of charges and there is no positive duty on such authorities to lay and prosecute charges in any particular case.

Claim in Negligence

[14] With respect to the claim in negligence, Justice Gordon, after observing that it has become increasingly difficult for plaintiffs to establish a relationship of proximity and to avoid policy reasons militating against recognition of a duty of care, found that it would be premature to dismiss the plaintiff’s negligence claim. He held that what is at issue is enforcement of the legislation, whether as a result of the Initiative or otherwise, and that this is not a matter of policy. He characterized the dispute as being between the discretion to enforce and the refusal to enforce. He observed that the public has the same interest as the plaintiff in the enforcement of legislation on the basis of equal treatment (see Reasons of Justice Gordon paras. 58-66).

[15] The defendant, in summary, submits as follows with respect to the issue of negligence:

(a) the interests and concerns which must be taken into account by law enforcement have inherent complexity, by reason of which, law enforcement must have discretion as to where, when and how to enforce;

(b) the utilization of scarce resources amid competing needs ground the reasoning behind previous court decisions which have consistently rejected the imposition of a private law duty of care in enforcement matters. Moreover, determining when charges should be laid is a matter of prosecutorial discretion involving many considerations, none of which involved the financial interests of a particular entity or entities, such as the plaintiffs;

(c) a private law duty of care to the plaintiffs would conflict with the ability to fully discharge the statutory duties. Those charged with making decisions in the public interest are to be free to make those decisions without being subjected to a private law duty of care to specific members of the public. Discretionary public duties of this nature cannot give rise to a private law duty sufficient to ground an action in negligence;

(d) the fact that there has been contact and interactions between the parties is not sufficient to find proximity to ground a prima facie duty of care;

(e) the motions judge erred in stating that the pleading alleged an abdication of enforcement since there was no such pleading;

(f) the effect of finding that the enforcement of legislation or the Initiative is not a matter of policy is in effect to expose the government to indeterminate liability;

(g) core government decisions protected from liability are decisions as to a course or principle of action that are based on public policy considerations, such as economic, social and political factors. Determinations regarding issues such as the amount of funds to expend, the number of officers to deploy, the need to balance conflicting demands for those resources and social factors such as whether to take enforcement action on a reserve remain pure policy decisions. Imposing a private law duty of care on the defendant would represent an unwarranted intrusion into government policy that could interfere with sound administration.

Claim for Breach of Fiduciary Duty

[16] With respect to the claim based on breach of fiduciary duty Justice Gordon found that, having regard to the ongoing development of aboriginal law, the Claim satisfactorily addresses the necessary elements for breach of fiduciary duty, namely, (i) that the Crown assumed discretionary control over specific aboriginal interests and (ii) that there was an undertaking that gave rise to a fiduciary duty (see Manitoba Metis Federation v. Canada (Attorney General), 2013 SCC 14). He held further that the pleaded agreement regarding enforcement of the Initiative, and the other pleaded facts, gives an air of reality to the argument that an undertaking was made by the Crown. He held that it is logical and consistent with the Crown’s obligation of equal treatment and in the interests of the public to see legislation enforced with respect to all on-reserve manufacturers of tobacco products, not just some of them. He also held that the honour of the Crown principle helps to inform regarding the relationships between the parties, in general, and their negotiations, in particular. Since this aspect of aboriginal law is still in the early stages of development, it is possible another duty may be recognized for how government deals with aboriginal people who are claiming unfair treatment (see Reasons of Justice Gordon, paras. 126-131).

[17] The defendant, in summary, submits as follows with respect to the issue of breach of fiduciary duty:

(a) appellate jurisprudence requires lower courts to rigorously scrutinize pleadings which allege that the Crown is in breach of the fiduciary duty. It is insufficient to allow claims to proceed in the speculative hope that the law will evolve;

(b) appellate jurisprudence also requires that the plaintiff plead facts capable of showing an undertaking by the fiduciary to forsake the interests of all others in favour of those of the beneficiary in relation to the specific legal interest at stake, and that the fiduciary has the power to exercise discretionary control over that legal interest;

(c) the pleading does not allege that the Crown gave an undertaking to enforce the legislation for the benefit of the individual partners or for GRE, forsaking the interests of the public, as is required, nor do the pleadings disclose that the Crown had discretionary control over a pre-existing legal or practical interest;

(d) there is no “obligation of equal treatment” in the enforcement context and Justice Gordon did not assess whether the alleged agreement to enforce the Initiative was the type of undertaking that could give rise to a fiduciary duty;

(e) the degree of control exerted by the government over the interest in question must be equivalent or analogous to direct administration of that interest before a fiduciary relationship can be said to arise. The type of legal control over an interest that arises from the ordinary exercise of statutory powers does not suffice;

(f) Justice Gordon gave no consideration to the standing issue as it relates to the fiduciary claim, given the fact that the individual plaintiffs argue that the Crown gave an undertaking to them, but the entity whose interests are said to be affected is GRE; and

(g) Justice Gordon appears to have confused the doctrines of fiduciary duty and honour of the Crown.

Application of the Test and Conclusion

[18] As indicated above, it is not necessary for me to find that the defendant’s arguments will or probably will succeed. I am, however, satisfied that they do raise issues that are open to very serious debate. In coming to this determination I have had careful regard to the careful and persuasive counter-arguments advanced by the plaintiffs in their Factum. It is not my role, as the judge hearing the leave motion, to make determinations of the issues. That is the role of the panel hearing the appeal. The cogency of the arguments on both sides reinforces the conclusion that the correctness of the decision is indeed open to very serious debate.

[19] I am also satisfied that the matters for which leave is sought are of such importance that leave should be granted. It has been observed that for this to be the case an element of public interest is required (see Burrows v. Canada, [2004] O.J. No. 3217 (S.C.J.) at para. 10) or alternatively, a matter of principle going beyond simply the interests of the individual parties involved (see Catalyst Capital Group Inc. v. Moyse, 2015 ONSC 2384 (Div. Ct.) at para.13).

[20] In my view both aspects – matters of public interest and matters of principle – are present here. The degree to which policy decisions of government respecting law enforcement on reserve and the exercise of investigative and prosecutorial discretion may be circumscribed by the imposition of liability to private commercial interests based on misfeasance in public office, negligence and/or breach of fiduciary duty is a matter of public interest and principle warranting determination by a higher level of judicial authority.

[21] Leave to appeal the decision of Justice Gordon to dismiss the defendant’s motion to strike the claims of misfeasance in public office, negligence and breach of fiduciary duty in relation to the “contraband” or “failure to enforce” issue is therefore granted.

[22] The question of entitlement to costs of the leave motion is reserved to the panel hearing the appeal. However, it will be helpful to the panel for me to fix the quantum of the costs of the leave motion. If the parties are able to agree on the quantum of the costs of the motion they are to communicate their agreement to me within 14 days hereof. If they are unable to agree, each party shall submit their Costs Outline within 21 days hereof. The Costs Outlines shall be delivered to my chambers at the Courthouse, 85 Frederick Street, 7th Floor, Kitchener, Ontario N2H 0A7.

D.A. Broad, J.

Date: January 28, 2016