



COURT OF APPEAL FOR ONTARIO

CITATION: Ontario v. Imperial Tobacco Canada
    Ltd., 2013 ONCA 481

DATE: 20130716

DOCKET: C56568 & C56569

Hoy A.C.J.O., Feldman and Simmons JJ.A.

BETWEEN

Her Majesty the Queen in Right of Ontario

Applicant (Respondent)

and

Imperial Tobacco Canada Limited

Respondent (Appellant)

and

The Ontario Flue-Cured Tobacco Growers Marketing
    Board

Respondent (Respondent)

Orestes Pasparakis and Rahool P. Agarwal, for the appellant

John Kelly, Lise G. Favreau and Kristin Smith, for the
    respondent Her Majesty the Queen in Right of Ontario

William V. Sasso, for the respondent The Ontario
    Flue-Cured Tobacco Growers Marketing Board

Peter J. Osborne, for the intervener Her Majesty the
    Queen in Right of Canada

Brian H. Greenspan, for the intervener Rothmans, Benson
    & Hedges

Heard: July 3, 2013

On appeal from the order of Justice Helen A. Rady of the Superior
    Court of Justice, dated January 2, 2013, with reasons reported at 2012 ONSC
    6027.

ENDORSEMENT

[1]

The issue to be decided on this application and therefore on this appeal
    was set out in this courts Order dated July 20, 2011, para. 2 as follows:

2. THIS COURT ORDERS that the appeal be allowed in part and the
    stay of this Application be lifted to allow the Application to proceed, to seek
    a declaration that the claim of the Tobacco Board in Court file no. 6475CP is
    not a Released Claim for the purposes of s. 15 of the Comprehensive Agreement
    dated July 31, 2008.

[2]

The Comprehensive Agreement dated July 31, 2008 (the 2008 Agreement)
    was entered into between the appellant, Imperial Tobacco Canada Limited, Her
    Majesty the Queen in Right of Canada, Her Majesty the Queen in Right of Ontario
    and the nine other provinces, to settle claims arising out of a course of
    conduct by Imperial between 1985 and 1996 whereby Imperial smuggled tobacco out
    of Canada then back in without paying required duties and taxes. A number of
    other tobacco companies, including the intervener, Rothmans, Benson &
    Hedges Inc. (Rothmans), entered into similar agreements to settle similar
    claims with the same government entities.

[3]

The claim of the Tobacco Board referred to in the 2011 Order is
    contained in a class action brought in December 2009 against Imperial and other
    tobacco companies by the respondent, The Ontario Flue-Cured Tobacco Growers
    Marketing Board and four individual tobacco farmers, as representative
    plaintiffs.

[4]

In the proposed class action, the Board and the farmers seek damages for
    breach of contract on behalf of a proposed class comprised of growers and
    producers in Ontario who sold tobacco through the Board pursuant to contracts
    between the Board and tobacco companies, including Imperial, during the period from
    January 1, 1986 and December 31, 1996.

[5]

The alleged breaches arose out of lmperials underpayment to the Board
    for tobacco that was being sold illegally in Canada. As described in the
    statement of claim, Imperial purchased tobacco from the producers through the
    Board at the lower price applicable to tobacco intended for export and sale
    outside Canada, even though the tobacco was ultimately smuggled back into
    Canada and sold domestically.

[6]

Section 15 of the 2008 Agreement releases Imperial from certain claims
    and reads as follows:

15. The Releasing Entities hereby, without any further action
    on the part of such Releasing Entities, absolutely and unconditionally fully
    release and forever discharge, the Released Entities from the Released Claims.
    Without in any way limiting the generality of the foregoing, the Releasing
    Entities further agree that:

(a) in the event that a proceeding, claim, action, suit or
    complaint with respect to a Released Claim is brought by Releasing Entity
    against a Released Entity, this release may be pleaded as a complete defence
    and reply, and may be relied upon in such a proceeding as a complete estoppel
    to dismiss the said proceeding; and

(b) in the event of (a), the Releasing Entity that initiated
    the proceeding shall be liable for all reasonable costs, legal fees,
    disbursements and expenses incurred by the Released Entity as a result of such
    proceeding.

In other words, if the claims the Board seeks to
    advance in the class action against Imperial are Released Claims by a
    Releasing Entity, then the release in s. 15 constitutes a complete defence
    for Imperial to those claims and to the class action.

[7]

The terms Released Claims, Releasing Entities and Released
    Entities are all defined terms in the 2008 Agreement. Section 1 provides that
    Releasing Entities means Her Majesty in Right of Canada and in right of the
    Provinces and includes for greater certainty the Canada Revenue Agency and the
    Canada Border Services Agency.

[8]

The Board was established in 1957 on vote of Ontarios tobacco
    producers. It is a corporation without share capital established by regulation
    under the
Farm Products Marketing Act
, R.S.O. 1990, c. F.9. The
    Ontario Farm Products Marketing Commission delegated broad supply management
    powers to the Board. The Commission is a statutory body whose members are
    appointed by the Lieutenant Governor and whose employees are public servants. The
    Commission deposits moneys it receives into the Consolidated Revenue Fund.

[9]

The Boards primary role during the class period and at the time the
    2008 Agreement was signed was to regulate and control the production and
    marketing of Ontario-grown tobacco. During this period, the Board operated
    autonomously. Its board of directors consisted of directors elected by the
    tobacco producers representing each of the tobacco growing districts in
    Ontario, plus an additional member appointed by the elected members.

[10]

Among
    other things, the Board had the power to, and did require that producers only
    market their tobacco through the Board. The Board entered into annual contracts
    on behalf of the producers for the sale of the producers tobacco, including
    those annual contracts at issue in the proposed class proceedings.

[11]

When
    the 2008 Agreement was signed, and during the class period, the Board had the
    sole authority to enforce the rights of the producers to recover payments owed
    by tobacco companies under the annual contracts. Significantly, while the
    tobacco producers were the beneficiaries of those contracts, they were not
    parties to the contracts. Counsel for Imperial (and counsel for the intervener
    Rothmans) fairly advised the court that they do not concede that the tobacco
    producers can bring class actions like the current one, without the involvement
    of the Board.

[12]

On
    the question of whether the claims are Released Claims within the meaning of
    the 2008 Agreement, s. 1 provides:

Released Claims means (excepting only the obligations under
    this Agreement); all manner of civil, administrative and regulatory
    proceedings, actions, causes of action, suits, duties, debts, dues, accounts,
    bond, covenants, contracts, complaints, claims, charges, and demands of
    whatsoever nature for damages, liabilities, monies, losses, indemnity,
    restitution, disgorgement, forfeiture, punitive damages, penalties, fines,
    interest, taxes, assessments, duties, remittances, costs, legal fees and
    disbursements, expenses, interest in loss, or injuries howsoever arising, known
    or unknown, including without limitation any claims arising at common law or in
    equity, by any federal or provincial statute or regulation and including all
    civil claims that may be allowable to the Releasing Entities within criminal or
    other proceedings in the form of restitution, disgorgement, forfeiture,
    punitive damages, penalties, fines or interest or otherwise, which hereto may
    have been or may hereafter arise in any way relating to, arising out of or in
    connection with:

(a) any exportation transhipment or shipment out of Canada,
    smuggling, reimportation or transhipment into Canada or any of the provinces
    thereof of tobacco products manufactured, distributed or sold by the Released
    Entities (including aiding or participating in such activities), smuggling or
    any conduct in any way relating to smuggling, contraband tobacco products, the
    exportation, reimportation, transhipment or shipment of tobacco products
    manufactured, distributed or sold by Released Entities that were otherwise
    contraband, during the Relevant Period;

(b) any failure by the Released Entities to pay taxes,
    duties, excise, customs or excise taxes or duties or other amounts payable on
    account of smuggled and/or reimported and/or transhipped (including
    inter-provincial transhipments) and/or otherwise contraband tobacco products
    manufactured, distributed, sold by the Released Entities and/or sold, delivered
    or consumed in Canada, or any expenditures relating to enforcing or recovering
    any such tax, duty, excise or other amounts alleged to be payable, or any
    failure to file a return, form, account or any other required documentation in
    respect of such amounts (including aiding or participating in such activities)
    in relation to the Relevant Period; and

(c) any after-the-fact conduct including any oral or written
    statements, representations or omissions related to the matters referred to in
    (a) and/or (b) whether during the Relevant Period or afterward or during the
    negotiation of this Agreement.

(d) for avoidance of doubt, Released Claims shall not
    include any claims

(1) whether already commenced or
    that may be commenced, related to the recovery of alleged health care costs,
    unless such claims arise from (a), (b) or (c) above. This paragraph is not
    intended to limit the ability of a Releasing Entity to claim, in any health
    care cost recovery litigation, damages on an aggregated basis based on the
    actual incidence of smoking. For greater certainty, this Agreement does not
    limit the Releasing Entities' ability to introduce and rely on evidence of
    smoking incidence, even if such incidence may arise out of or is related to
    (a), (b) or (c) above, and a Released Entity shall not raise as a defence or
    lead any evidence that the actual incidence of smoking or the health care costs
    caused or contributed to by smoking should be reduced by reason of (a), (b) or
    (c) above;

(2) in proceedings bearing Court
    File Nos. 04-CL-5530 and O3-CV-253858 CMI, in the Ontario Superior Court of
    Justice (the Actions). For the avoidance of doubt, this exclusion shall not
    include any claims made against the Released Entities; or

(3) against the CTMC.

[13]

The
    dispute between the parties on what is included under this definition turns on
    whether the word and should be implied between clauses (a) and (b), having
    the effect of limiting the general words in clause (a) to the types of tax and
    penalty claims described in clause (b), or whether the word or should be read
    in, having the effect that each clause is given a separate meaning and that
    clause (b) does not modify or limit the claims described in clause (a).

[14]

The
    respondent, Her Majesty the Queen in Right of Ontario, argues that clause (a)
    sets out the transactions that could have given rise to the payment of taxes
    and duties while clause (b) addresses the failure to pay those taxes and
    duties. As a result, the respondents submit that clause (b) modifies and limits
    the claims as described in clause (a).

[15]

Imperials
    position is that clause (a) and clause (b) should be read disjunctively.
    According to Imperial, the reference in clause (c) to after-the-fact conduct 
    related to the matters referred to in (a)
and/or
(b) (emphasis added)
    means that after-the-fact conduct related to either clause (a) or clause (b) is
    a released claim. It would not make sense, Imperial argues, that after-the-fact
    conduct related to clause (a) alone be released, but not the actual conduct
    referred to in clause (a) alone. Imperial also relies on clause (d) which
    exempts certain claims by government for the recovery of health care costs
    unless such claims arise from (a), (b) or (c) above. Again, if the claims in
    the three clauses are individually treated in the exempt claims provision, they
    must be individually released when they are not exempt.

[16]

We
    accept the interpretation suggested by Imperial based on the use of the word
    or as described. Furthermore, it would not be necessary to exempt government
    health care claims against the tobacco companies  which are not limited to
    taxes and duties - from the definition of Released Claims, if such health care
    claims could not otherwise be included as Released Claims.

[17]

However,
    although the claims asserted in the class action may come within the words of
    the definition of Released Claims, they are only released under s. 15 of the
    2008 Agreement if they are released by a Releasing Entity. In this way, the
    2008 Agreement ensures that only claims within the definition of Released
    Claims that belong beneficially to a Releasing Entity are released.

[18]

It
    is clear that in bringing the proposed class action, the Board is acting only
    as agent for the producers to enforce the annual contracts entered into by the
    Board on their behalf, and not as an agent on behalf of the Crown or for the
    benefit of the Crown. Accordingly, in bringing the proposed class action, the
    Board is not asserting a Released Claim belonging beneficially to the Crown
    and is not acting as a Releasing Entity within the meaning of the 2008
    Agreement.

[19]

The
    appeal is therefore dismissed with costs payable by Imperial to the respondent
    Board in the amount of $15,000, and payable by Imperial and Rothmans to the
    respondent Her Majesty the Queen in Right of Ontario in the amount of $18,500,
    all inclusive of disbursements and HST.

A.
    Hoy A.C.J.O.

K.
    Feldman J.A.

J. M. Simmons J.A.


