Before: The Honourable = Madam Justice=20 Wedge

Reasons for Judgment
Application = to Strike=20 Third Party Notices

Counsel=20 for the Plaintiff

Daniel A. Webster, = Q.C.
Ryan=20 D.W. Dalziel
James A. = Duvall

Counsel=20 for the Defendant
Imperial Tobacco Canada=20 Limited

David Harris, = Q.C.
Deborah A.=20 Glendinning

Counsel=20 for the Defendants
Rothmans, Benson & Hedges Inc., and = Rothmans=20 Inc.

Kenneth N. Affleck,=20 Q.C.

Counsel=20 for the Defendants
JTI-MacDonald Corp., R.J. Reynolds Tobacco = Company,=20 R.J. Reynolds Tobacco International, = Inc.

Jeffrey J. Kay, = Q.C.
Robert J.=20 McDonell

Counsel=20 for the Defendants
B.A.T. Industries p.l.c., British American = Tobacco=20 (Investments) Limited

Craig P. = Dennis
Michael D.=20 Shirreff

Counsel=20 for the Defendant
Carreras Rothmans=20 Limited

Bryan G. Baynham,=20 Q.C.

Counsel=20 for the Third Party

William M. Everett,=20 Q.C.
Rodney L. Hayley
Paul Vickery
Marko Vesely
Monika = A.=20 Lozinska-Legault

Date and=20 Place of Trial/Hearing:

March 3-6,=20 2008

Vancouver,=20 B.C.

I. =20 Introduction

[1] = ; =20 The Tobacco Damages and = Health Care=20 Costs Recovery Act, S.B.C. 2000, c. 30 (the = =93Costs Recovery=20 Act=94) authorizes the government of British Columbia to bring = an action=20 against a manufacturer of tobacco products for the recovery of health = care=20 expenditures incurred in the treatment and care of individuals with = diseases=20 contracted through exposure to tobacco products.

[2] = ; =20 Shortly after the Costs = Recovery=20 Act came into force in January 2001, British Columbia = commenced=20 an action against numerous tobacco manufacturers, both Canadian and = foreign=20 (collectively, =93the Defendants=94).

[3] = ; =20 Several of the Canadian = Defendants (namely=20 Rothmans, Imperial Tobacco and JTI-MacDonald) commenced third party = proceedings=20 against the Attorney General of Canada (=93Canada=94) in June, = 2007. A number=20 of the foreign Defendants (namely B.A.T. Industries, Carreras, R.J. = Reynolds and=20 R.J. Reynolds International) commenced third party proceedings against = Canada in=20 November, 2007.

[4] = ; =20 The remaining Defendants did not = bring=20 third party proceedings.

[5] = ; =20 Broadly summarized, the Third = Party Notices=20 seek the following relief against Canada:

a) = A=20 declaration that the Defendants committed no =93tobacco-related=20 wrong=94;

b) =20 Alternatively, a declaration that if British Columbia incurred = the cost=20 of health care benefits as alleged, those costs were caused or = contributed to by=20 the conduct or breaches of duty of care of officials of Canada, and = accordingly=20 that the Defendants=92 liability, if any, be extinguished or=20 reduced;

c) =20 Alternatively, a declaration that damages against Canada be = measured by=20 the extent of any liability of the Defendants to British=20 Columbia;

d) =20 Alternatively, an order that Canada indemnify in whole or in part = the=20 Defendants to the extent of any liability of the Defendants to British=20 Columbia;

e) =20 Alternatively, contribution and indemnity pursuant to the = provisions of=20 the Negligence Act, R.S.B.C. 1996, c. 333 = based=20 on Canada=92s conduct as a =93manufacturer=94 of tobacco within the = meaning of the=20 Costs Recovery Act.

II. The=20 Present Application

[6] = ; =20 Canada applies under Rule = 19(24)(a) of the=20 Rules of Court for an order that the Third Party Notices = be struck=20 out as disclosing no reasonable cause of action.

[7] = ; =20 Canada advances the following = grounds in=20 support of its position that the third party proceedings are bound to=20 fail:

1) = Canada=20 cannot be bound by provincial legislation and, in particular, is immune = from=20 liability under the Costs Recovery = Act;

2) = In the=20 alternative, Canada and its officials are not =93manufacturers=94 within = the meaning=20 of the Costs Recovery Act;

3) = In the=20 further alternative, Canada owes no private law duty of care to any of = the=20 Defendants or to consumers of tobacco products; and

4) = There=20 is no basis for a claim for equitable indemnity, contribution pursuant = to the=20 Negligence Act.

Preliminary=20 Issues

[8] = ; =20 In the event that British = Columbia lacks=20 the legislative capacity to bind Canada under the Costs Recovery=20 Act, the Third Party Notices must be struck without = regard to the=20 remaining issues with one exception. The Defendants argue that = even if=20 Canada is immune from liability, the third party claims for declaratory = relief=20 should be allowed to proceed for procedural reasons (British = Columbia=20 Ferry Corp. v. T & N plc (1995), 16 B.C.L.R. (3d) = 115, 65=20 B.C.A.C. 118) [B.C. Ferry]. They say they are = entitled to=20 defend the action on the basis of Canada=92s role in the tobacco = industry over the=20 past fifty years, and will be prejudiced if Canada does not remain bound = as a=20 third party by the Rules of Court. =

[9] = ; =20 Accordingly, the issues for = determination=20 in the first instance are the following:

A. Canada=92s = Immunity:

(1) = Is the=20 Federal Crown immune from liability as a result of the doctrine of Crown = immunity?

(2) = If so,=20 does British Columbia nevertheless have the capacity to bind the Federal = Crown=20 through legislation?

(3) = Does the=20 Costs Recovery Act create an action in tort such that the=20 Crown Liability and Proceedings Act, R.S.C. 1985, c. C-50 = (the=20 =93CLPA=94) applies?

B. If Canada is = immune from=20 liability, does the immunity defeat the Defendants=92 claims for = declaratory=20 relief against Canada?

Disposition

[10] =20 I have concluded that the Third = Party=20 Notices must be struck on the following grounds:

1. = It is=20 plain and obvious that the allegations cannot succeed because Canada is = immune=20 to liability under the province=92s Costs Recovery Act; = and

2. =20 Canada=92s immunity precludes all proceedings against it, = including third=20 party proceedings for declaratory relief.

III. = Background

The = Legislation

[11] =20 Section 2 of the Costs = Recovery=20 Act creates a =93direct and distinct=94 cause of action = against a=20 tobacco manufacturer to recover health care costs of insured persons or = a=20 population of insured persons. The section provides, in part, as=20 follows:

2 (1) The government = has a=20 direct and distinct action against a manufacturer to recover the cost of = health=20 care benefits caused or contributed to by a tobacco related=20 wrong.

(2) = An action=20 under subsection (1) is brought by the government in its own right and = not on=20 the basis of a subrogated claim.

(3) = In an=20 action under subsection (1), the government may recover the cost of = health care=20 benefits whether or not there has been any recovery by other persons who = have=20 suffered damage caused or contributed to by the tobacco related wrong = committed=20 by the defendant.

(4) = In an=20 action under subsection (1), the government may recover the cost of = health care=20 benefits

(a) = for=20 particular individual insured persons, or

(b) on=20 an aggregate basis, for a population of insured persons as a result of = exposure=20 to a type of tobacco product.

[12] =20 Section 2(5) provides that where = the=20 government seeks to recover health care costs on an aggregate basis, it = is not=20 necessary to identify particular individuals or prove the cause of = tobacco=20 related disease in any particular individual.

[13] =20 Section 3(1) of the Costs = Recovery=20 Act addresses recovery of health care costs on an = aggregate=20 basis. Pursuant to the section, British Columbia must prove, in = respect of=20 a type of tobacco product, the following three factors on a balance of=20 probabilities:

(a) = the=20 defendant breached a common law, equitable or statutory duty or = obligation owed=20 to persons in British Columbia who have been exposed or might become = exposed to=20 the type of tobacco product,

(b) = exposure=20 to the type of tobacco product can cause or contribute to disease,=20 and

(c) = during all=20 or part of the period of the breach referred to in paragraph (a), the = type of=20 tobacco product, manufactured or promoted by the defendant, was offered = for sale=20 in British Columbia.

[14] =20 Under s. 3(4), a defendant may = reduce its=20 liability to the extent that it proves its breach of duty did not cause = or=20 contribute to the exposure to the tobacco product or to the tobacco = related=20 disease or risk of disease.

[15] =20 Section 1(1) defines a = =93manufacturer=94 as a=20 =93person who manufactures or has manufactured a tobacco = product=94. The=20 definition includes a person who, at present or in the = past:

(a) = causes,=20 directly or indirectly, through arrangements with contractors, = subcontractors,=20 licensees, franchisees or others, the manufacture of a tobacco=20 product,

...

(c) = engages=20 in, or causes, directly or indirectly, other persons to engage in the = promotion=20 of a tobacco product, or

...

[16] =20 The definition of = =93manufacturer=94 does not=20 include an individual (s. 1(2)).

[17] =20 A =93tobacco related wrong=94 is = defined in s.=20 1(1) as follows:

(a) = a tort=20 committed in British Columbia by a manufacturer which causes or = contributes to=20 tobacco related disease, or

(b) = in an=20 action under section 2 (1), a breach of a common law, equitable or = statutory=20 duty or obligation owed by a manufacturer to persons in British Columbia = who=20 have been exposed or might become exposed to a tobacco product;=20

[18] =20 Following the passage of the = legislation,=20 several of the Defendants challenged its constitutional validity. = They=20 argued that the legislation was beyond the legislative powers of British = Columbia. The Supreme Court of Canada rejected the = challenge. It=20 concluded that the true substance of the legislation relates to matters = falling=20 within the province=92s legislative competence and is therefore = constitutionally=20 valid (British Columbia v. Imperial Tobacco Canada Ltd., = 2005 SCC=20 49, [2005] 2 S.C.R. 473.)

[19] =20 In its reasons, the Court = described s. 2(1)=20 as the =93keystone=94 of the Act, which creates a direct and distinct = action against=20 a tobacco manufacturer for the present value of existing and future = health care=20 costs incurred or contributed to by tobacco related wrongs. At = paras. 7-8,=20 the Court said:

... [Section] 2(1) creates a cause of action = by which=20 the government of British Columbia may recover from a tobacco = manufacturer money=20 spent treating disease in British Columbians, where such disease was = caused by=20 exposure to a tobacco product (whether entirely in British Columbia or = not), and=20 such exposure was caused by that manufacturer's tort in British = Columbia, or=20 breach of a duty owed to persons in British Columbia.

The cause of action created by s. 2(1), = besides being=20 "direct and distinct", is not a subrogated claim: s. 2(2). = Nor is it=20 barred by the Limitation = Act ... = Crucially, it=20 can be pursued on an aggregate basis ‑‑ i.e., in respect of = a population of=20 persons for whom the government has made or can reasonably be expected = to make=20 expenditures: =20 s. 2(4)(b).

[20] =20 In the course of addressing the = issue of=20 the =93pith and substance=94 of the Costs Recovery Act, = the Court=20 observed that in their arguments the Defendants had placed great = emphasis on the=20 issue of the locus of the breach of duty by a manufacturer (that = is,=20 whether the breach must occur within British Columbia). The Court = noted at=20 paras. 40-41 that the emphasis on the manufacturer=92s breach of duty = was=20 erroneous for two reasons:

First, the driving force of the Act's cause = of action=20 is compensation for the government of British Columbia's health care = costs, not=20 remediation of tobacco manufacturers' breaches of duty. While the = Act=20 makes the existence of a breach of duty one of several necessary = conditions to a=20 manufacturer's liability to the government, it is not the mischief at = which the=20 cause of action created by the Act is aimed. The Act leaves = breaches of=20 duty to be remedied by the law that gives rise to the duty. = Thus, the=20 breaches of duty to which the Act refers are of subsidiary significance = to the=20 cause of action created by it ...

Second, and in any event, the only relevant = breaches=20 under the Act are breaches of duties (or obligations) owed "to persons = in=20 British Columbia" ... Thus, even if the existence of a breach = of duty=20 were the central element of the Act's cause of action (it is not), the = cause of=20 action would remain strongly related to British = Columbia.

(Emphasis added)

The Third Party=20 Claims

[21] =20 The Defendants allege that the = role Canada=20 has played in the tobacco industry for the past several decades lies at = the=20 heart of the wrongful conduct asserted by British Columbia against=20 them.

[22] =20 The allegations of fact contained = in the=20 Third Party Notices include the following:

=B7 =20 Canada created programs = pursuant to=20 which it developed and manufactured the tobacco used in the commercially = produced cigarettes sold in British Columbia;

=B7 =20 Canada earned licensing = fees on the=20 tobacco strains it developed;

=B7 =20 Canada dictated the = necessity of=20 warnings on packages and their content;

=B7 =20 Canada requested, and then = mandated,=20 the measurement and disclosure of tar and nicotine = deliveries;

=B7 =20 Canada published tables = listing=20 comparative tar and nicotine deliveries as a =93useful buyer=92s = guide=94 for=20 smokers;

=B7 =20 Canada was the leader in = creating=20 and marketing the =93Less Hazardous Cigarettes=94 (that is, the = =93light=94 and =93mild=94=20 cigarettes).

[23] =20 According to the Defendants, = Canada=92s=20 involvement in the tobacco industry went beyond the traditional = government role=20 of formulating policies to regulate an industry. Rather, Canada = was=20 directly responsible for every step in the implementation of the =93Less = Hazardous=20 Cigarette=94 program. In doing so, Canada became a = =93manufacturer=94 within the=20 meaning of the Costs Recovery Act.

[24] =20 In short, say the Defendants, = Canada was=20 directly and significantly involved in the very conduct alleged by = British=20 Columbia in its statement of claim to constitute breaches of duty to = consumers=20 by the Defendants.

[25] =20 Canada=92s response to the = allegations of=20 fact in the Third Party Notices is that each of the allegations is aimed = solely=20 at the programs undertaken by Canada in its effort to regulate the = tobacco=20 industry. When it became apparent that there was an association = between=20 smoking cigarettes and the rising incidence of lung cancer, among other = tobacco=20 related diseases, Canada responded with policies and regulatory = programs. =20 It has taken specific steps at various times over the past several = decades in=20 furtherance of those policies and programs.

[26] =20 Clearly, says Canada, it was not = a=20 commercial entity attempting to profit from tobacco; rather, it was = acting as=20 the nation=92s health regulator attempting to find a solution to an = increasingly=20 significant public health problem. Its actions, all taken pursuant = to=20 policy, were aimed at mitigating the health impact on the public of a = product=20 created and promoted by the tobacco industry and from which that = industry has=20 made immense profits.

IV. = The Test=20 for Striking Pleadings

[27] =20 Rule 19(24)(a) of the Rules = of=20 Court provides that the court may, at any stage of the=20 proceedings, order that a pleading be struck out on the ground that it = discloses=20 no reasonable claim or defence.

[28] =20 The test for striking a statement = of claim=20 is whether it is =93plain and obvious=94 that the pleading discloses no = reasonable=20 cause of action.

[29] =20 The facts as alleged in the = pleadings, for=20 purposes of an application to strike, must be taken to be true unless = patently=20 ridiculous or incapable of proof. Only if the action is certain to = fail=20 should a plaintiff=92s statement of claim be struck out (Hunt v. = Carey=20 Canada Inc., [1990] 2 S.C.R. 959, 74 D.L.R. (4th) 321=20 [Hunt]).

[30] =20 Though a court should not strike = a pleading=20 simply because the claim is novel or complex, or the state of the law = uncertain,=20 it will not refrain from striking a claim that is bound to fail = (Hunt;=20 Kripps v. Touche Ross & Co. (1992), 69 B.C.L.R. (2d) 62, 94 = D.L.R.=20 (4th) 284 (C.A.) leave to appeal to S.C.C. refused, [1993] 2 S.C.R. = viii, 101=20 D.L.R. (4th) vii).

V. =20 Discussion

A. Is=20 Canada Immune from Liability under the Costs Recovery Act?=20

Positions of the=20 Parties

[31] =20 Canada submits the third party = proceedings=20 disclose no reasonable cause of action because, as a matter of law, the = Federal=20 Crown is immune from liability under the Costs Recovery=20 Act. The issue of Crown immunity, which is fatal to = the=20 Defendants=92 Third Party Notices, is one that is capable of being = determined in=20 the absence of a full factual record.

[32] =20 The Defendants say it is by no = means plain=20 and obvious that Canada cannot be bound by provincial legislation. = They=20 argue that Canada is invoking interjurisdictional immunity, which is not = uniformly supported by the case authorities. At the very least, = they say,=20 the issue is one that ought to be determined at trial with the advantage = of a=20 full factual record.

[33] =20 The Defendants argue that = even if=20 Canada is not directly bound by the Costs Recovery = Act,=20 it is nevertheless bound in accordance with the = CLPA. =20 They say the Costs Recovery Act creates or modifies = an=20 action in tort, and the CLPA renders Canada liable = for=20 tortious conduct. For that reason, Canada is not immune from = liability=20 under the Act.

[34] =20 British Columbia supports the = Defendants=92=20 position on the issue of Canada=92s immunity. According to British = Columbia,=20 Crown immunity does not necessarily exclude the application of a = provincial=20 statute such as the Costs Recovery Act, which has been = determined=20 to be constitutionally intra vires the provincial = legislature. It=20 argues there is no constitutional principle that provincial enactments = cannot=20 bind the federal Crown. British Columbia also argues that Canada = has not=20 provided any basis on which it could be said the application of the Act = to=20 Canada would impermissibly encroach on an area of exclusively federal=20 power.

[35] =20 British Columbia says the real = question is=20 whether the Act should be interpreted so as not to apply to Canada even = on the=20 facts as alleged by the Defendants. The interpretive question that = Canada=92s motion to strike poses does not have a plain and obvious = answer at this=20 stage of the proceedings.

1. =20 The Crown Immunity Doctrine

[36] =20 The law is clear that absent any=20 legislative provision to the contrary, the Crown (whether Federal or = Provincial)=20 is immune from the application of statutory law. In Rudolph = Wolff=20 & Co. v. Canada, [1990] 1 S.C.R. 695, 69 D.L.R. (4th) 392=20 [Wolff], the Supreme Court of Canada said the following at = p.=20 699.

At common law there was no jurisdiction in the = courts to=20 hear an action against the Crown. The ability to bring such an = action was=20 derived solely from statute.

[37] =20 In British Columbia, the=20 Interpretation Act, R.S.B.C. 1996, c. 238=20 purports to reverse the presumption of Crown immunity. In = doing so, it=20 is clear that the provincial legislature has reversed the presumption of = Crown=20 immunity in respect of the Provincial Crown. However, in the = present case=20 the question is whether the province is capable of reversing the = presumption in=20 respect of the Federal Crown. The answer depends on whether the = Federal=20 Crown enjoys immunity from being bound by provincial legislation, a form = of=20 so-called =93interjurisdictional immunity=94.

2. =20 Capacity of the Province to Bind the Federal = Crown

[38] =20 British Columbia framed the issue = at hand=20 as a question of whether interjurisdictional immunity exists in Canada, = and=20 argued that the case authority does not support its = existence.

[39] =20 I cannot agree with that = characterization=20 of the issue because the term =93interjurisdictional immunity=94 has = different=20 meanings in different contexts. The term has been used to describe = the=20 exclusivity or =93water-tightness=94 of federal and provincial powers = under sections=20 91 and 92 of the Constitution Act, 1867 (see, e.g.,=20 O.P.S.E.U. v. Ontario (Attorney General), [1987] 2 S.C.R. = 2, 41=20 D.L.R. (4th) 1). However, it has also been used to describe = the=20 purported inability of the Crown in right of one jurisdiction to bind = the Crown=20 in right of another, even with respect to matters within its legislative = capacity. With regard to the latter use of the term, the Supreme = Court of=20 Canada has not addressed the issue of whether interjurisdictional = immunity=20 exists generally. Instead, it has examined the separate questions = of=20 whether the Federal Crown is immune from the legislative force of the = provinces=20 (as it did in Attorney General (Que.) and Keable v. Attorney = General=20 (Can.) et. al., [1979] 1 S.C.R. 218, 90 D.L.R. (3d) 161=20 [Keable]) and whether the Provincial Crown is immune from = the=20 legislative force of the Federal government (as it did in Her = Majesty in=20 Right of the Province of Alberta v. Canadian Transport = Commission,=20 [1978] 1 S.C.R. 61, 75 D.L.R. (3d) 257 [Alberta v.=20 C.T.C.])

[40] =20 On the issue of whether the = Provincial=20 Crown has the power to legislatively bind the Federal Crown, the answer = is quite=20 clear that it does not. In Wolff, the Supreme Court = of=20 Canada said the following at p. 700:

It is beyond question that only the Parliament = of Canada=20 could enact statutes to provide that actions could be brought against = the Crown=20 in right of Canada. It is only that body which can legislate as to = the=20 court in which those claims can be brought.

[41] =20 British Columbia argued that the = comments=20 of the Court in Wolff were made in the context of a = different=20 issue (that is, whether provisions of the Federal Court = Act,=20 R.S.C. 1970 (2nd Supp.), c. 10 were contrary to s. 15 of the=20 Charter) and are not conclusive of the issue in the = present=20 case. I cannot agree. While it is true that Wolff = did=20 not deal with the issue of Crown immunity or division of powers per = se, I=20 do not regard the comments of the Court as any less binding. The = comments=20 were made in the course of a discussion concerning the history of = actions=20 against the Crown and were not obiter. Further, as the very = words=20 of the Court indicate, the existence of Federal Crown immunity from = provincial=20 legislation is =93beyond question=94.

[42] =20 The concept of Federal Crown = immunity from=20 provincial legislation has its origins in the common law. Its = historical=20 roots were discussed by Chief Justice Laskin in Alberta v.=20 C.T.C. In that case, the government of Alberta challenged = the=20 authority of the C.T.C. to require the province=92s compliance with = regulations=20 under the federal Aeronautics Act, R.S.C. 1970, c. = A-3. The=20 issue was whether the Provincial Crown could be bound by federal=20 legislation. Laskin C.J. began his analysis with the following = observation=20 at p. 69:

Prima facie, the Crown, whether in right of Canada or in = right of a=20 Province, is not a "person" under the Aeronautics Act or under = the Air=20 Carrier Regulations, ... The Crown can be a "person" for the = purposes of the=20 Act and Regulations only if it can be found that it is included in the=20 regulatory scheme by necessary implication. The common law = position as to=20 such inclusion is stated in Bombay Province v. Bombay Municipal=20 Corporation [1947] A.C. 58, where Lord du Parcq said this (at p. = 61):

... The general principle to be applied in = considering=20 whether or not the Crown is bound by general words in a statute is not = in doubt.=20 The maxim of the law in early times was that no statute bound the = Crown=20 unless the Crown was expressly named therein ... But the rule so laid = down is=20 subject to at least one exception. The Crown may be bound, as has = often=20 been said, "by necessary implication". If, that is to say, it is = manifest=20 from the very terms of the statute, that it was the intention of the = Legislature=20 that the Crown should be bound, then the result is the same as if the = Crown had=20 been expressly named....

[43] =20 Laskin C.J. noted that the court = in=20 Bombay Province said the Crown may also be bound by = necessary=20 inference if the purpose of the legislation would be =93wholly = frustrated=94 unless=20 the Crown were bound.

[44] =20 The common law principle of Crown = immunity=20 has been replaced by s. 17 of the federal Interpretation = Act,=20 R.S.C. 1985, c. l-21 (which was s. 16 at the time the decision in = Alberta=20 v. C.T.C. was published) which reads as = follows:

No enactment is binding on Her Majesty or = affects Her=20 Majesty or Her Majesty's rights or prerogatives in any manner, except as = mentioned or referred to in the enactment.

[45] =20 The narrow issue in Alberta = v. C.T.C=20 was whether Crown immunity extended to the Crown in right of the = Province in light of the specific provisions of the legislation in=20 question. Laskin C.J. first observed at p. 72 that the immunity of = the=20 Federal Crown to provincial legislation is a well-settled rule in = Canadian law:=20

The point that I = raise, namely=20 whether Her Majesty or the Crown, where generally referred to in federal = or=20 provincial legislation should be taken to mean the Crown in right of = Canada or=20 of a Province, as the case may be, is influenced by the fact that a=20 Provincial Legislature cannot in valid exercise of its legislative = power,=20 embrace the Crown in right of Canada in any compulsory = regulation. =20 This does not mean that the federal Crown may not find itself subject to = provincial legislation where it seeks to take the benefit thereof ...=20

(Emphasis added)

[46] =20 Laskin C.J. concluded that the = impugned=20 legislation did not =93mention or refer to=94 the Provincial Crown and = accordingly=20 Alberta was entitled to rely on its Crown immunity.

[47] =20 Federal Crown immunity from = provincial=20 legislation was the central issue in Keable. Keable = was=20 appointed Commissioner of an inquiry created by the province of Quebec = under its=20 provincial Public Inquiry Commission Act to investigate = allegedly=20 illegal activities of the R.C.M.P. As Commissioner, he sought to = inquire=20 into the administration and management of the police force, which = operates under=20 the authority of a federal statute. The issue was the scope of = Keable=92s=20 power to do so when his mandate derived from provincial=20 legislation.

[48] =20 Pigeon J. (Estey and Pratte JJ.=20 concurring), concluded that while the inquiry was properly constituted = under=20 provincial legislation to investigate criminal acts, it could not bind = the=20 Federal Crown with respect to the administration of the force. The = basis=20 for his conclusion was the rule that provincial legislation cannot bind = the=20 Federal Crown. At p. 242, Pigeon J. stated:

=85. Parliament=92s authority for the = establishment of=20 this force and its management as part of the Government of Canada is=20 unquestioned. It is therefore clear that no provincial authority = may=20 intrude into its management. While members of the force enjoy no = immunity=20 from the criminal law and the jurisdiction of the proper provincial = authorities=20 to investigate and prosecute criminal acts committed by any of them as = by any=20 other person, these authorities cannot, under the guise of carrying on = such=20 investigations, pursue the inquiry into the administration and = management of the=20 force.

[49] =20 For the same reason, the = Commissioner could=20 not compel the Solicitor General to participate in the inquiry. = Pigeon J.,=20 referring to the earlier decision of the Court in Alberta v. = C.T.C.=20 said the following at p. 244:

=85[A]t common law, a = commission of=20 inquiry has no power to compel the attendance of witnesses and to = require the=20 production of documents. Any jurisdiction for such purposes = depends on=20 statutory authority, and it seems clear that provincial legislation = cannot be=20 effective by itself to confer such jurisdiction as against the Crown in = right of=20 Canada. In the recent case of Her Majesty in right of Canada = v.=20 C.T.C., Laskin C.J., said with the concurrence of all but = two of=20 the other members of the Court (at. p. 72):

=85 a Provincial = Legislature cannot, in=20 the valid exercise of its legislative power, embrace the Crown in right = of=20 Canada in any compulsory regulation.

In Quebec North Shore = Paper v. C.P.=20 Ltd., Laskin C.J., said, speaking for the full court, (at p.=20 1063):

=85 It should be recalled = that the law=20 respecting the Crown came into Canada as part of the public or = constitutional=20 law of Great Britain, and there can be no pretence that that law is = provincial=20 law. In so far as there is a common law associated with the = Crown=92s=20 position as a litigant it is federal law in relation to the Crown in = right of=20 Canada, just as it is provincial law in relation to the Crown in right = of a=20 Province, and is subject to modification in each case by the competent=20 Parliament or Legislature.

[50] =20 Finally, at p. 245 Pigeon J.=20 stated:

In Gautier v. the=20 King, Anglin J., as he then was, said at p.=20 194:

=85 Provincial legislation = cannot=20 proprio vigore take away or abridge any privilege of the Crown in = right=20 of the Dominion=85.

[51] =20 In the present case, British = Columbia=20 argued that the statements in both Alberta v. C.T.C and=20 Keable with respect to the immunity of the Federal Crown = from=20 provincial legislation were simply obiter dicta. Further, = said=20 British Columbia, in both cases the Court simply accepted as binding = some=20 questionable assertions contained in the prior decision of = Gauthier v. The=20 King (1917), 56 S.C.R. 176, 40 D.L.R. 353 = [Gauthier] that=20 were, themselves, obiter. In its written argument, British = Columbia=20 rather boldly stated that =93no reasoning of any substance, let alone a = provision=20 of the constitution, was offered by the Gauthier Court to = support=20 those assertions.=94

[52] =20 I cannot accept British = Columbia=92s=20 argument. First, the statement of Anglin J. in = Gauthier was=20 not obiter. The central issue was whether the Federal Crown = could=20 be bound by a provincial statute (in that case, Ontario legislation = concerning=20 commercial arbitration). On the basis of the rule that provincial=20 legislation cannot bind the Federal Crown, the Court concluded that = Ontario=20 could not compel the Federal Government to submit to arbitration under a = regime=20 created by provincial statute.

[53] =20 Second, the statements of the = Court in the=20 two earlier referenced decisions are not obiter. In both = cases, the=20 Court was discussing the origins of Crown immunity. In = Keable,=20 as in the present case, the very issue was whether the Federal = Crown=20 could be bound by provincial legislation.

[54] =20 The issue has been regarded as = well-settled=20 in this province. In F.B.D.B. v. Hillcrest Motor Inn Inc.=20 (1986), 6 B.C.L.R. (2d) 223, [1986] 6 W.W.R. 444 (S.C.), the = issue was=20 whether the bank, as agent of the Federal Crown, could be bound by the=20 province=92s Workers Compensation Act which purported to give = priority to=20 assessments levied by the Workers=92 Compensation Board. There was = little=20 doubt, said Low J. (as he then was) that the legislature intended = to give=20 the assessments priority over claims of the Federal Crown. The = question,=20 however, was whether it was within the legislative capacity of the = province to=20 do so. Low J. concluded at p. 231 that the case law was =93heavily = weighted=94=20 against the view that provincial legislation could bind the Federal = Crown: =20

The federal Crown = prerogative is=20 succinctly stated in Re Adams Shoe Co., 54 O.L.R. 625, 4 C.B.R. = 375,=20 [1923] 4 D.L.R. 927 at 931 (S.C.)

The law has been well = settled that no=20 provincial legislation can either bind or affect the prerogative right = of the=20 Crown in the right of the Dominion or take away its common law = rights. =20 Therefore, provincial legislation passed, which has the effect of = attempting to=20 make taxes a claim prior to the claim of the Crown in the right of the = Dominion=20 would be ultra vires.

See also Burrard Power Co. v. R., = [1911] A.C. 87=20 (P.C.), and Gauthier v. R. [citation omitted].

[55] =20 The decision of Low J. was upheld = on appeal=20 (F.D.B.D. v. Hillcrest Motor Inn Inc. (1988), 26 B.C.L.R. = (2d)=20 379, 51 D.L.R. (4th) 464 (C.A.)). The Court of Appeal cited = Alberta=20 v. C.T.C. for the proposition that, =93a provincial legislature = cannot in=20 valid exercise of its legislative power embrace the Crown in right of = Canada in=20 any compulsory legislation.=94

[56] =20 British Columbia and the = Defendants relied=20 on Alberta Government Telephones v. Canada (Canadian = Radio-Television and=20 Telecommunications Commission), [1989] 2 S.C.R. 225, 61 D.L.R. = (4th) 193=20 [Alberta Government Telephones] to argue that the Supreme = Court of=20 Canada has more recently rejected the concept of interjurisdictional=20 immunity. The decision concerned the creation by provincial = statute of=20 Alberta Government Telephones (=93AGT=94) in order to provide = telecommunications=20 services within the province. CNCP brought an application to the = CRTC for=20 various orders requiring AGT to provide telecommunications connections = to=20 CNCP. AGT took the position that it did not fall within the = federal=20 regulatory authority of the CRTC pursuant to the Railway = Act,=20 R.S.C. 1985, c. R-3 because it was an agent of the Provincial = Crown and,=20 as a result of Crown immunity, could not be bound by the = Act.

[57] =20 The narrow issue before the = Supreme Court=20 of Canada was whether, despite being a federal undertaking, AGT was an = agent of=20 the Provincial Crown and immune to the provisions of the Railway=20 Act which conferred jurisdiction on the CRTC. The = Court=20 concluded that the Provincial Crown was entitled to the same immunity = under=20 s. 17 of the federal Interpretation Act as the = Federal=20 Crown. That is, the Railway Act could not bind AGT = unless=20 AGT was =93mentioned or referred to=94 in the = enactment.

[58] =20 The Court held that while the = common law=20 rule of Crown immunity had been replaced by s. 16 of the = Interpretation=20 Act, the test as to whether the Crown had been =93mentioned or = referred=20 to=94 remained substantially the same as the common law rule described = in=20 Bombay Province. The court said the following at p.=20 281:

=85[T]he scope of the words =93mentioned or = referred to=94=20 must be given an interpretation independent of the supplanted common = law. =20 However, the qualifications in Bombay, supra, are based on sound=20 principles of interpretation which have not entirely disappeared over=20 time. It seems to me that the words =93mentioned or referred to=94 = in s. 16=20 are capable of encompassing: (1) expressly binding words (=93Her Majesty = is=20 bound=94); (2) a clear intention to bind which, in Bombay = terminology, =93is=20 manifest from the very terms of the statute=94, in other words, an = intention=20 revealed when provisions are read in the context of other textual = provisions=85;=20 and, (3) an intention to bind where the purpose of the statute would be = =93wholly=20 frustrated=94 if the government were not bound, or, in other words, if = an=20 absurdity (as opposed to simply an undesirable result) were = produced. =20 These three points should provide a guideline for when a statue has = clearly=20 conveyed an intention to bind the Crown.

[59] =20 The Court concluded that the = Railway=20 Act did not mention or refer to the AGT. For that = reason,=20 the CRTC could not invoke its regulatory powers under the Act as against = AGT.

[60] =20 The Alberta Government = Telephones=20 case does not address the issue of whether the Federal Crown can = be=20 bound by provincial legislation. The Court was faced with the = argument=20 that there exists in Canada the doctrine of governmental immunity tied = to the=20 division of powers in sections 91 and 92 of the Constitution Act,=20 1867. The Court rejected the concept of an = overarching=20 intergovernmental immunity tied to the constitutional division of = powers. =20 It reiterated, however, that the Federal Crown has the power to bind the = Crowns=20 in right of the Provinces. The decision is entirely silent on the = question=20 of whether the Provinces can bind the Federal Crown, and nothing in it = can be=20 taken as addressing the question by implication.

[61] =20 The Defendants also relied on the = decision=20 of Canadian Western Bank v. Alberta, 2007 SCC 22, [2007] 2 = S.C.R.=20 3 [Canadian Western Bank], in which the circumstances were = as=20 follows. Alberta had enacted changes to its Insurance = Act to=20 make federally chartered banks subject to the provincial licensing = scheme=20 governing the promotion of insurance products. The Court was = confronted=20 with the assertion of the banks that, as federal undertakings, they were = immune=20 from regulation by the province of Alberta on the basis of = interjurisdictional=20 immunity.

[62] =20 The Court observed that in most = cases, it=20 is not possible for a legislature to exercise its jurisdiction = effectively over=20 a matter =93without incidentally affecting matters within the = jurisdiction of=20 another level of government=94 (para. 29). Most matters have both = provincial=20 and federal aspects. The =93pith and substance=94 doctrine = recognizes the=20 interplay between federal and provincial powers, and is the conceptual = framework=20 usually invoked to determine the validity of impugned=20 legislation.

[63] =20 However, said the Court, in = certain narrow=20 circumstances the powers of one level of government must be protected = against=20 even incidental intrusions by the other level of government. There = are=20 some =93works or undertakings, things or persons specifically of federal = jurisdiction=94 with respect to which federal jurisdiction is meant to = be=20 exclusive (at para. 41). In those instances, =93the text and logic = of our=20 federal structure justifies the application of interjurisdictional = immunity to=20 certain federal =91activities=92=94 (at para. 42). Thus, where = there is a vital=20 and essential federal interest in question, the doctrine will=20 apply.

[64] =20 On the facts of the = Canadian Western=20 Bank case, the Court concluded there was no vital or = indispensable=20 federal interest at play. The federal and provincial legislation = in=20 question was complementary rather than conflicting. There was no = basis on=20 which to invoke the doctrine of interjurisdictional immunity. Once = again,=20 the decision is silent on the issue of whether the Federal Crown can be = bound by=20 provincial legislation.

Conclusion

[65] =20 At issue in the present case is = the=20 prerogative of the Federal Crown to determine when and in what = circumstances it=20 will incur civil liability. The case law is clear: The = liability of=20 the Federal Crown cannot be unilaterally determined by provincial = legislation,=20 nor can its common law immunity from suit be unilaterally displaced by=20 provincial legislation. It is federal legislation alone which can = have=20 such effect.

[66] =20 I accept as correct the position = of Canada=20 that the rules governing the liability of the Federal Crown comprise an=20 exclusively federal body of common law overlaid by federal = legislation. In=20 the words of the Supreme Court of Canada in Wolff, =93it = is beyond=20 question=94 that only the Parliament of Canada is capable of enacting = legislation=20 determining the liability of the Federal Crown. Where there is a = federal=20 rule prescribing that provincial statutes be taken into account in = determining=20 the rights or liabilities of the Federal Crown, then provincial statutes = will=20 apply, but only because there is a federal rule calling for their=20 application.

3. =20 The Cause of Action created by the Costs=20 Recovery Act

[67] =20 The Defendants argue that even if = Canada is=20 otherwise immune from liability, it cannot claim the protection in the = present=20 case because the Costs Recovery Act creates or = modifies=20 tortious conduct. That being the case, s. 3 of the=20 CLPA is engaged.

[68] =20 Section 3 of the = CLPA,=20 which modifies the common law rule concerning liability of = the=20 Federal Crown, reads in part as follows:

The Crown is liable for the damages for which, = if it=20 were a person, it would be liable=85

(b) = =85in=20 respect of

(i) a=20 tort committed by a servant of the Crown=85

[69] =20 To determine whether this section = is=20 applicable to the Federal Crown in the present case, the following = questions=20 must be answered:

1. Are=20 the actions of a servant or servants of the Federal Crown captured by = the=20 descriptions under the Costs Recovery = Act?

2. Is=20 the =93direct and distinct action=94 contemplated by s. 2(1) of the = Costs=20 Recovery Act an action in tort?

[70] =20 The answer to question 1 is = likely in the=20 affirmative. On the facts as pleaded in the Third Party Notices, = the=20 employees of Agriculture Canada were involved in the production, = assembly or=20 packaging of a tobacco product and are therefore, at least arguably,=20 =93manufacturers=94 under the Act.

[71] =20 The Federal Crown advanced the = argument=20 that the CPLA establishes vicarious liability only = on=20 behalf of individual servants while the Costs Recovery Act = precludes liability for individuals. In my view, this argument is = tenuous,=20 particularly in light of =93authority [indicating] that shared liability = of=20 servants of one or more departments may be possible=94: Paul = Lordon,=20 Crown Law. (Vancouver: Butterworths, 1991) at p. = 341.

[72] =20 The remaining question is whether = s. 2 of=20 the Costs Recovery Act creates or modifies an = action in=20 tort.

[73] =20 For convenience, I will again = reproduce=20 subsections (1) and (2) of s. 2 of the Costs Recovery=20 Act:

2 (1) The government = has a=20 direct and distinct action against a manufacturer to recover the cost of = health=20 care benefits caused or contributed to by a tobacco related=20 wrong.

(2) = An action=20 under subsection (1) is brought by the government in its own right and = not on=20 the basis of a subrogated claim.

[74] =20 Under s. 1, =93tobacco related = wrong=94 is=20 defined to include both torts and breaches of obligations. The = question is=20 whether the fact that the action under s. 2(1) is dependent on the=20 existence of a tort (or breach of obligation) renders it an action in=20 tort. In my view, it does not.

[75] =20 As noted earlier, the Supreme = Court of=20 Canada, in rejecting the constitutional challenge brought by the = Defendants,=20 identified the elements of the statutory cause of action created by the=20 Costs Recovery Act. The cause of action is = the right=20 of British Columbia to seek recovery of its health care costs. The = mischief at which the cause of action is aimed is not remediation of = breaches of=20 duty by the tobacco manufacturers to consumers of its products: = =93The Act=20 leaves breaches of duty to be remedied by the law that gives rise to the = duty=94. (Imperial Tobacco at para. = 40)

[76] =20 Section 2(2) makes clear that the = cause of=20 action belongs to British Columbia in its own right; it is not a = subrogated=20 claim on behalf of consumers of tobacco products who have suffered as a = result=20 of the Defendants=92 activities. There is no requirement that = British=20 Columbia establish damage to any particular consumer resulting from the=20 Defendants=92 conduct. Further, the clear wording of the section = precludes=20 any argument that a duty can be seen to exist between the government and = tobacco=20 manufacturers on the basis that the government is acting on behalf of = individual=20 insured persons.

[77] =20 It is significant that by = operation of s.=20 2(3) of the Costs Recovery Act, claims of British Columbia = can=20 succeed even where the Defendants have already been held liable to = individual=20 consumers in tort or for breach of duty. The damages capable of = recovery=20 under the Costs Recovery Act are purely economic. = They have=20 no relation to the extent of the actual damage suffered by individual = consumers=20 of tobacco products as a result of the alleged breaches of duty by the=20 Defendants.

[78] =20 The claim of an individual = consumer for=20 damages at common law regarding a tobacco related wrong would be an = action based=20 in tort. The consumer would be entitled to compensation for the = actual=20 damage he or she suffered as a result of the wrong, which is a hallmark = of an=20 action in tort. By contrast, the claim of British Columbia arises = from the=20 decision of the provincial government to pass legislation permitting it = to=20 recover its costs for providing health care services to its = residents. =20 That claim does not seek to make the consumer whole for a loss or injury = sustained through any unlawful act or omission of the tobacco=20 company.

[79] =20 The action contemplated by s. = 2(1) exists=20 even in the absence of any legal duty owed by the tobacco manufacturer = to the=20 government. Because no legal duty exists between the plaintiff = (the=20 government) and the defendant (the tobacco manufacturer) there can be no = breach=20 of duty and no consequent damage for which the plaintiff may bring an = action to=20 be made whole.

[80] =20 It is plain and obvious, in my = view, that=20 the Costs Recovery Act does not create or modify an action in=20 tort.

[81] =20 The defendants relied on the case = of=20 Knight v. Imperial Tobacco Canada Limited, = 2007 BCSC=20 964, [2007] B.C.J. No. 1461 (QL) [Knight]. In = Knight,=20 a class action was brought by consumers against Imperial Tobacco = under=20 the Business Practices and Consumers Protection Act, = S.B.C. 2004,=20 c. 2 (the =93BPCPA=94) for its allegedly = deceptive=20 conduct in the development and marketing of its =93light=94 and = =93mild=94 tobacco=20 products. Imperial Tobacco issued a Third Party Notice against = Canada, and=20 Canada brought an application to have it struck.

[82] =20 On the issue of Crown immunity, = Satanove J.=20 concluded that the BPCPA did not, by its terms, = bind the=20 federal Crown expressly or by implication. However, she went on to = consider whether the statute created or modified a cause of action in=20 tort. Satanove J. noted that the BPCPA = imposed an=20 obligation on developers and marketers of products to refrain from any=20 representations, or refrain from engaging in any conduct, that had the = tendency=20 or effect of deceiving or misleading a consumer. That obligation, = she=20 concluded at para. 15, involved elements =93akin to the common law torts = of=20 negligent misstatement, deceit and failure to disclose material = facts=94. =20 For that reason, it was not =93plain and obvious=94 that Crown = officials, by=20 operation of the CLPA, could not be found liable = for=20 tortious conduct under the BPCPA.

[83] =20 Unlike the Costs Recovery=20 Act, the BPCPA creates a right of = action in=20 the consumers of the products who are owed a duty of care by those = developing=20 and marketing the impugned products. It is the consumer who = suffers the=20 damage and who is entitled to sue for damages. The touchstone of = the=20 BPCPA is remediation of breaches of duty owed to = consumers=20 by those who develop or market the products in issue. Satanove J.=20 concluded that the liability created by the statute resembled negligent = or=20 fraudulent misrepresentation sufficiently to create, or at least = arguably to=20 create, a cause of action in tort. The cause of action created by = the=20 legislation at issue in Knight differs significantly from = that=20 created by the Costs Recovery Act.

Conclusion

[84] =20 The statute under consideration = in=20 Knight bears no resemblance to the one at issue in the = present=20 case. The Costs Recovery Act creates a = stand-alone=20 statutory cause of action permitting British Columbia to recover its = health care=20 costs from tobacco manufacturers who have breached their duty to=20 consumers. It does not create or modify an action in=20 tort.

[85] =20 Accordingly, it is plain and = obvious that=20 the allegations contained in the Third Party Notices cannot=20 succeed.

B. = Are the=20 Defendants=92 Entitled to Claim for Procedural Declaratory Relief?=20

[86] =20 The Third Party Notice of each of = the=20 Defendants seeks declaratory relief in substantially similar = terms. =20 Imperial Tobacco, for example, claims the following:

a) = A=20 declaration that [Imperial Tobacco] committed no =93tobacco related=20 wrongs=94;

b) =20 Alternatively, a declaration that if the Plaintiff incurred the = cost of=20 health care benefits as alleged in the Statement of claim, those costs = were=20 caused or contributed to by the conduct, fault, or alternatively, = breaches of=20 duty of care of officials of the Federal Government and ITCAN=92s = liability, if=20 any, accordingly be extinguished or reduced;

=85.

[87] =20 The Defendants, relying = principally on the=20 B.C. Ferry case, argue that even if Canada is immune from=20 liability, it ought to remain a third party in the litigation for = procedural=20 reasons. They assert that they ought to be permitted to proceed = with their=20 third party actions against Canada in order to determine their true = liability=20 for losses caused by them as distinct from those caused by Canada. = If the=20 Third Party Notices are struck, their ability to defend against the = allegations=20 of British Columbia could be severely prejudiced. That is = particularly so,=20 say the Defendants, as it is unclear whether Canada would be immune from = the=20 Rules of Court concerning non-parties if it is not a party = to the=20 litigation.

[88] =20 Canada argues that where a third = party is=20 immune from liability by operation of law, as in the present case, all=20 proceedings against it, including third party proceedings for = declaratory=20 relief, are also precluded. In order to address the concern of the = Defendants that Canada may be beyond the reach of the Rules of=20 Court, Canada has agreed to be bound by them as a = non-party for=20 purposes of this case only.

Discussion

[89] =20 As a result of Canada=92s = agreement to be=20 bound by the Rules of Court, the Defendants will be = entitled to=20 seek document production under Rule 26 and witness testimony under Rules = 28 and=20 38. They will also continue to have the right to make application = under=20 the federal Access to Information Act, R.S.C. 1985, c. = A-1=20 to obtain Canada=92s tobacco-related documents.

[90] =20 There is nothing in the = Costs=20 Recovery Act to suggest that Canada must be a party in = order to=20 allow the court to determine the extent of the Defendants=92 = liability. It=20 is settled law that a trial judge may make an assessment of fault = against a=20 non-party in order to reduce the defendant=92s proportionate=20 liability.

[91] =20 Where a third party is immune by = operation=20 of law, all proceedings against it are precluded: Pearse v. = Canpar=20 Transport Ltd. et al., 2001 BCSC 594, 88 B.C.L.R. (3d)=20 312.

[92] =20 In B.C. Ferry, the = Court of=20 Appeal emphasized at pp. 129-130 that the third party in question had = been=20 properly joined, and that =93a private accord between plaintiff and = third party=94=20 should not entirely negate the joinder:

It is important to keep in mind that the = defendants had=20 a perfect right to bring third party proceedings against the = respondents, based=20 on allegations of fault attributed to them in the Third Party = Notices=85. It=20 would, in my view, by manifestly wrong if a private accord between = plaintiff and=20 third party could work to deprive a defendant of the ability to = establish an=20 element of proof essential to the just resolution of the action on which = all=20 parties had joined issue. =85. In those circumstances, I am of the = view that=20 the third party claims for declaratory relief should be allowed to=20 proceed.

[93] =20 The Court of Appeal made clear at = p. 129=20 that such claims for declaratory relief for purely procedural advantage = ought to=20 be the exception rather than the rule:

While I am of the view that the general rule = against=20 sanctioning actions brought for purely procedural relief will always be = an=20 important consideration governing the exercise of the court=92s = discretion to=20 grant declaratory relief, I do not accept the proposition that it must = be=20 regarded as a controlling consideration in all cases. There will = be=20 instances, albeit rarely, where the declaratory relief should be granted = notwithstanding the fact that it is needed only for such=20 purpose.

Conclusion

[94] =20 B.C. Ferry = stands for the proposition that a third party = which is=20 properly part of an action at the time it is commenced may not, by = settling its=20 claim with the plaintiff, escape discovery under the Rules of=20 Court if the result is significant prejudice to another,=20 non-settling party. In the present case, Canada has been immune = from=20 liability from the time the action was commenced and, accordingly, was = never a=20 proper party in the litigation.

[95] =20 Further, Canada has agreed to = submit to the=20 Rules of Court which will permit the Defendants = access to=20 all of the procedures necessary to assist the court in determining their = liability as distinct from the liability of Canada.

VI. =20 Summary

[96] =20 In summary, I have concluded that = all of=20 the third party claims issued by the Defendants against Canada, = including the=20 claim for procedural declaratory relief, must be struck. =

The = Honourable Madam=20 Justice C. A. Wedge