Dec 28, 2014

R v Imperial Tobacco Canada Ltd: The SCC Clarifies Negligence Claims against Public Authorities

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

In September 2005, the Supreme Court of Canada (“SCC”) held that British Columbia’s Tobacco Damages and Health Care Costs Recovery Act, SBC 2000, c 30 [CRA] was constitutional in British Columbia v Imperial Tobacco Canada Ltd., [2005] 2 SCR 473. The CRA allows the provincial government to recover smoking-related healthcare costs from tobacco companies. In response to the decision, the tobacco industry, in what can be seen as an effort to derail payment, attempted to recoup damages from the federal government by alleging that the Government of Canada (“Canada”) should also be responsible for any damages that might be found against the tobacco companies because Canada has actively participated in the Canadian tobacco industry on an operational level for 50 years. In July 2011, the SCC unanimously rejected this argument in R v Imperial Tobacco Canada Ltd., [2011] 3 SCR 45 [Imperial Tobacco], eliminating the possibility of holding Canadian taxpayers as insurers of smoking-related diseases.

The main issue before the SCC in Imperial Tobacco was whether to strike out third-party notice that added the Government of Canada as a third-party to two cases before the courts of British Columbia: British Columbia v Imperial Tobacco Canada Limited, 2009 BCCA 540 [Costs Recovery] and Knight v Imperial Tobacco Canada Limited, 2009 BCCA 541 [Knight]. In the Costs Recovery case, the Government of British Columbia sought to recover costs for medical treatment of individuals suffering from tobacco-related illnesses, alleging that the tobacco companies failed to warn the public about the risks associated with cigarettes. In the Knight case, a class action was brought against Imperial Tobacco on behalf of class members who purchased “light” or “mild” cigarettes. The class alleged that the tobacco industry misrepresented the levels of tar and nicotine listed on the packages.

Imperial Tobacco pleaded that Canada researched, designed, developed, tested, manufactured, and promoted the “light” and “mild” strains of tobacco at issue in the Knight case, and that it received licensing fees and royalties for the tobacco strains it developed in return. Additionally, Imperial Tobacco alleged that Canada made misrepresentations to consumers and Imperial Tobacco about the relative safety of cigarettes containing the tobacco strains designed by Canada. Accordingly, Imperial Tobacco raised numerous claims against Canada in both cases. For example, the tobacco companies claimed that Canada owes a duty of care to Imperial Tobacco and consumers for negligent design, failure to warn and negligent misrepresentation. The tobacco companies also claimed entitlement to equitable indemnity from Canada; even if Canada is not liable under any of the third-party claims, they claimed entitlement to declaratory relief.

The test to strike out a claim is well established: assuming the facts as pleaded are true, if it is plain and obvious that the pleading discloses no reasonable cause of action, a claim will be struck. The SCC struck out all of the claims against Canada, holding that none of them had a reasonable chance of success. This post focuses on the clarification of the concept of “policy” provided by the SCC.

The crux of the appeal was to differentiate between governmental “policy” and “operational” decisions. Government actors have no duties in negligence with respect to policy decisions, yet they may attract tort liability when they are negligent in carrying out prescribed duties. Policy decisions are exempted from tort liability because the Crown must be free to govern and make policy decisions without becoming subject to tort liability as a result of those decisions. The question then becomes what constitutes a policy decision that is protected from negligence liability? While various courts have addressed this question, the SCC said that the answer remains elusive. The policy/operational approach, albeit the dominant approach in Canada, “does not work very well as a legal test.” Courts have found it notoriously difficult to decide whether a decision falls on the policy or operational side of the line.

After a review of foreign jurisprudence, the SCC made the following three observations: (1) the net of immunity is cast too broadly if all the rational government acts that involve discretion are protected; (2) only “core” policy decisions should be protected from negligence liability; and (3) core policy decision should not be defined as a “non-operational” decision, but should be defined positively as a decision that is grounded in social, economic and political considerations.

Based on these premises, the SCC concluded that “core” policy governmental decisions protected from judicial review are “decisions as to a course or principle of action that are based on public policy consideration, such as economic, social and political factors, provided they are neither irrational nor taken in bad faith.” This approach emphasizes positive features of policy decisions, instead of defining the decision negatively as one that is not an “operational” decision. Additionally, it is not a litmus test and the degree of “policy” involved should be taken into account. Furthermore, government actors with the responsibility of formulating a course of action based on social, economic or political factors are likely to be immune.

After the SCC fashioned this clearer policy/operational test, it held that the claims to negligent misrepresentation, failure to warn and negligent design were struck out because they were related to core policy decisions. Assuming that the facts as pleaded were true – Canada falsely represented to consumers and to tobacco companies that low-tar cigarettes were less harmful – Canada developed this public health policy out of concern for the health of Canadians. Additionally, the Minister of Health’s recommendations on warning labels are integral to the policy of encouraging smokers to switch to low-tar cigarettes. Furthermore, even though Canada owed a prima facie duty of care to the tobacco companies when it negligently designed its strains of low-tar tobacco, policy considerations negated this duty because Canada’s decision was based on Canada’s health policy.

Although the SCC restricted government immunity to only “core” policy decisions, it is not enough to hold Canada liable because the government made the decision out of public health policy concerns. Other provinces, including Ontario, also followed the British Columbia model and enacted similar legislations to recover health care costs incurred for treating smoking-related diseases. It will be interesting to see how the tobacco industry will attempt to stretch legal boundaries to delay payments in the years to come.