



COURT OF APPEAL FOR ONTARIO

CITATION: Grand River Enterprises Six Nations Ltd. v.
    Attorney General (Canada), 2017 ONCA 526

DATE: 20170623

DOCKET: C61091 & C62018

Feldman, Epstein and Miller JJ.A.

BETWEEN

Grand River Enterprises Six Nations Ltd., Jerry
    Bradwick Montour, Kenneth Ryan Hill, Curtis Styres and Gregory Scott Smith

Plaintiffs (Respondents)

and

The Attorney General of Canada

Defendant (Appellant)

Wendy J. Linden, Christine Mohr, Victoria C. Yankou and Jacob
    Pollice, for the appellant

Bryan Finlay, Q.C., Ben A. Jetten and Marie-Andrée
    Vermette, for the respondents

Heard: September 28-29, 2016

On appeal from the order of
    Justice Donald J. Gordon of the Superior Court of Justice, dated August 28,
    2015.

Epstein J.A.:

OVERVIEW

[1]

The respondents, Grand River Enterprises Six Nations Ltd. (GRE) and
    four individuals who are shareholders of GRE and former members of the
    partnership that pre-existed GRE, have sued the appellant, the Attorney General
    of Canada (the Crown), for $1.5 billion in damages, plus equitable
    compensation in the same amount. They allege the Crown is liable for misfeasance
    in public office, negligence, breach of fiduciary duty and breach of aboriginal
    rights.

[2]

The respondents claims are based on two theories of liability  forced
    incorporation and failure to enforce.

[3]

Under the respondents forced incorporation theory, the individual
    respondents allege that, as a result of Crown misconduct  misconduct that amounts
    to misfeasance in public office and breach of fiduciary duty  they were forced
    into incorporating their partnership. As a result, GRE paid taxes that the
    individual respondents would have been exempt from paying as Indians under s.
    87 of the
Indian Act
, R.S.C. 1985, c. I-5.

[4]

Under the respondents failure to enforce theory, they allege that the
    Crown undertook to combat the problem of contraband and counterfeit tobacco
    products on the Six Nations of the Grand River Reserve (the Reserve), but failed
    to do so. They claim that while the Crown adopted initiatives to combat the
    problem of contraband tobacco, including the 1994 Anti-Smuggling Initiative
    (the 
Initiative
), the Crown failed to follow through even after a
    promise was made to intensify enforcement against contraband to level the
    playing field between GRE and other on-Reserve tobacco manufacturers. They
    allege that the failure to implement or administer the
Initiative
,
    including the failure to properly enforce existing laws relating to the
    manufacture and sale of tobacco products, amounted to negligence, misfeasance
    in public office and breach of fiduciary duty, and caused the respondents to
    incur substantial losses.

[5]

The Crown moved under r. 21 of the
Rules of
    Civil Procedure
,
R.R.O. 1990,

Reg. 194,
to
    strike the respondents claims on the basis of 1) lack of jurisdiction, and 2) failure
    to disclose any viable cause of action.

The Crowns motion was largely unsuccessful. The motion judge struck
    only one aspect of the claim relating to breach of aboriginal rights, with
    leave to amend, and granted leave to amend to add the remaining partners. Otherwise,
    the motion to strike was dismissed.

[6]

For jurisdictional reasons, the Crown brought two
    separate appeals from the motion judges decision.

[7]

The appeal from the refusal to strike portions of the
    claim on jurisdictional grounds was brought to the Court of Appeal as of right.
    In this appeal, the Crown argues that, in effect, the respondents, through the
    forced incorporation claims, are seeking to recover excise duties and taxes,
    and that such claims are barred by s. 174 of the
Excise Act, 2001
, S.C. 2002, c. 22.
[1]
The Crown also relies on s. 12 of the
Tax Court of Canada Act
, R.S.C. 1985, c. T-2, which gives the Tax Court exclusive
    jurisdiction to hear references and appeals under the

Excise
    Act
.
The motion judge concluded that the Superior
    Court had jurisdiction to hear the forced incorporation claims.
I will refer to this aspect of the appeal as the forced
    incorporation appeal.

[8]

In the second appeal, the Crown challenges the motion
    judges refusal to strike the respondents tort and breach of fiduciary duty claims
    for failure to enforce on the basis that they disclose no reasonable cause of
    action. The second appeal was joined with the first appeal after the Divisional
    Court granted the Crown leave to appeal from the determination that those
    claims could proceed and then transferred the appeal to this court. I will
    refer to this aspect of the appeal as the failure to enforce appeal.

[9]

For the reasons that follow, I would dismiss the forced
    incorporation appeal. I would allow the failure to enforce appeal in part as,
    in my view,
the motion judge erred in failing to strike the fiduciary
    claims as disclosing no reasonable cause of action. In all other respects I
    would dismiss the failure to enforce appeal.

BACKGROUND

A.

Procedural
    History

[10]

The original statement of claim was issued in July
    2008.

[11]

The action was stayed for several years pending the determination of
    appeals brought by GRE before the Tax Court of Canada and the Federal Court of
    Canada. In the meantime, a second statement of claim, the
Amended
Statement of Claim, was issued in October 2009. The third statement of claim 
    the one in issue on the Crowns motion to strike  was issued in September
    2013. I will refer to it as the Fresh Statement of Claim.

[12]

Following the motion judges decision, the respondents amended their
    claim yet again in accordance with the motion judges reasons.

[13]

The Crown has not filed a statement of defence.

B.

The Pleading

[14]

For the purposes of the motion to strike, the following facts, taken
    from the Fresh Statement of Claim, are assumed to be true:

·

GRE was incorporated in April 1996. Its business, operated on the
    Reserve, is to manufacture and sell tobacco products.

·

Each of the four individual respondents is a status Indian.

·

Prior to GREs incorporation, each individual respondent was a
    partner in the Grand River Enterprises partnership. The partnership was engaged
    in the manufacture and sale of tobacco products on the Reserve.

·

In 1993 and 1994, the partnership engaged in discussions with the
    Minister of National Revenue, with a view to obtaining a tobacco manufacturing
    licence under the
Excise Act
. The licence was required to purchase raw
    tobacco from the Ontario Flue-Cured Tobacco Growers Marketing Board. It was
    also necessary at that time to have a licence to legally possess tobacco in
    bulk.

·

The then Minister of National Revenue advised members of the
    partnership that the payment of excise duties and taxes was an essential
    pre-condition to obtaining an excise licence for on and off-Reserve operations.
    He also advised that the manufacture of tobacco products without an excise
    licence would contravene the
Excise Act
. That representation was wrong
    and the Minister knew it was wrong.

·

In 1996, criminal prosecutions were brought against the
    partnership and the partners for violating excise and customs legislation. The
    charges were aimed at forcing the partnership to incorporate. The charges were
    resolved after one partner pleaded guilty to two
Customs Act,
R.S.C.
    1985, c.1, violations and paid a fine.

·

In resolving the prosecutions, the partners maintained the
    position that no federal taxes or duties were owed on account of the
    manufacture and sale of tobacco products by and to Indians on a reserve.

·

Additional forms of pressure, aimed at forcing the partnership to
    incorporate, were brought to bear on the partnership. For instance, the RCMP
    raided its business premises and seized equipment, and the Crown confiscated
    money that the partnership had paid into the Reserves community fund.

·

In early 1996, members of the partnership resumed discussions
    with the Minister of National Revenue, with a view to securing an excise
    licence. They were advised by the Minister and her representatives that to be
    considered for an excise licence, the partnership must first incorporate. This
    was improper since there was no such requirement under the
Excise Act
.

·

The Minister required the partnership to incorporate the tobacco
    manufacturing business on the Reserve in an effort to impose tax liability that
    would not otherwise exist, and in order to deprive the individual respondents
    of their rights as Indians to be free of taxation.

·

Faced with the governments ultimatum, on April 29, 1996, GRE was
    incorporated and adopted the tobacco manufacturing business of the partnership.

·

After its incorporation, GRE applied for an excise licence to
    manufacture tobacco products. In April 1997, one of the individual respondents
    and other band council members met with an official at the Department of
    National Revenue. At the meeting, the terms and conditions that would be
    imposed on GRE if it wished to obtain an excise licence were outlined.

·

At the same meeting, there was a clear agreement that if GRE were
    to be given an excise licence on the conditions that had been outlined, the
    government would carry out intensified enforcement against contraband under the
    federal governments
Initiative
, and take all measures to ensure that
    other on-Reserve manufacturers of tobacco products would abide by the same
    rules as the respondents. In the alternative, there was an implied undertaking
    given to the same effect.

·

On May 29, 1997, GRE was granted an excise licence to manufacture
    tobacco.

·

Had the partners not incorporated GRE, the partnership would have
    been exempt from paying excise taxes and duties pursuant to s. 87 of the
Indian
    Act,
because the property being taxed was the partners personal property
    and was situated on a reserve.

·

As early as February 2003, GRE complained to the federal government
    about the increased availability of contraband on the Reserve. While GRE was
    paying $50 to $60 million a year in taxes and duties, it could see no effort on
    the part of any federal agency to combat the illicit trade in contraband
    products on the Reserve.

·

GRE has on a frequent and recurring basis brought to the
    attention of the Ministers responsible for implementing and administering the
Initiative
and their representatives their failure to combat the problem of contraband on
    the Reserve. Even so, the Ministers have done virtually nothing to address the
    issue of contraband on the Reserve.

C.

The Test
    and Standard of Review

[15]

On a motion to strike for failure to disclose a
    reasonable cause of action, the Supreme Court has identified the test to be whether
    the claim has no reasonable prospect of success:
R. v. Imperial
    Tobacco Canada Ltd
., 2011 SCC 42, [2011] 3 S.C.R. 45, at
    para. 17;
Odhavji Estate v. Woodhouse
, 2003
    SCC 69, [2003] 3 S.C.R. 263, at paras 14-15;
Hunt v. Carey Canada
    Inc
., [1990] 2 S.C.R. 959, at p. 980.

[16]

The courts have emphasized that motions to strike must be approached
    generously, erring on the side of allowing novel but arguable claims to
    proceed to trial, as actions that yesterday were deemed hopeless may tomorrow
    succeed:
Imperial Tobacco
, at para. 21.

[17]

On a motion to stay or dismiss a claim for lack of jurisdiction
    under r. 21.01(3)(a), the question is different  whether the Superior Court
    has jurisdiction, or it doesnt have jurisdiction  and not whether the claim
    has a reasonable prospect of success:
Canada (Attorney General) v. TeleZone
    Inc
.
,
    2008 ONCA 892, 94 O.R. (3d) 19, affd 2010 SCC 62, [2010] 3 S.C.R. 585.

[18]

On a r. 21 motion where the issue is whether the pleadings disclose a
    reasonable cause of action or defence, the standard of review is correctness:
Addison
    Chevrolet Buick GMS Ltd. v. General Motors of Canada Ltd
., 2016 ONCA 324,
    130 O.R. (3d) 161, at para. 21. The question of whether the Superior Court has
    jurisdiction is a legal determination that also attracts a correctness
    standard:
TeleZone

(Ont. C.A.), at para. 92.

PART ONE: THE FORCED INCORPORATION APPEALS

A.

Motion
    Below

[19]

In its notice of motion, the Crown asserted, under the
    heading Jurisdiction, that no right of recovery exists in respect of excise
    taxes assessed pursuant to the
Excise Act

by virtue of s. 174.

[20]

Section 174 of the
Excise Act
provides as follows:

Except as specifically provided under this Act, the

Customs
    Act
, the

Customs
    Tariff

or
    the

Financial
    Administration Act
, no person has a right to recover any money paid to Her
    Majesty as or on account of, or that has been taken into account by Her Majesty
    as, duty, interest or other amount payable under this Act.

[21]

The notice of motion also references s. 12(1) of the
Tax Court of
    Canada Act,
which provides:

The Court has exclusive original
    jurisdiction to hear and determine references and appeals to the Court on
    matters arising under the

Air Travellers Security Charge Act
, the

Canada Pension Plan
, the

Cultural Property Export and Import
    Act
, Part V.1 of the

Customs
    Act
, the

Employment
    Insurance Act
, the

Excise
    Act, 2001
, Part IX of the

Excise
    Tax Act
, the

Income
    Tax Act
, the

Old
    Age Security Act
, the

Petroleum
    and Gas Revenue Tax Act
and the
Softwood
    Lumber Products Export Charge Act, 2006

when
    references or appeals to the Court are provided for in those Acts.

[22]

The notice of motion states that the validity of tax
    assessments raised against GRE had been finally determined by the Tax Court
[2]
, which has exclusive
    jurisdiction pursuant to s. 12, and that to the extent that [the claim]
    challenges the tax assessments it is a collateral attack and outside the
    jurisdiction of the Superior Court.

[23]

In his reasons, the motion judge outlined the Crowns arguments on the
    s. 174 issue as follows, at paras. 135-137:

The [Crown] argues a lack of jurisdiction for the plaintiffs
    claim for two reasons:

(i)       the plaintiffs claim is clearly to recover taxes and
    duties paid but are barred from so doing pursuant to section 174, Excise Act;
    and

(ii)      the plaintiffs claim is a collateral attack on the
    tax assessments already addressed by the Tax Court of Canada.

Although the claim is drafted as a tort action, the [Crown]
    says it is clearly a disguised claim for a refund of taxes wrongfully assessed.
Merchant Law Group v. Canada (Revenue Agency)
, 2009 FC 755, 2010 FCA
    184, prohibits such a claim.

The Tax Court of Canada has exclusive jurisdiction to deal with
    tax related claims and, hence, the [Crown] submits this court does not. See:
Reference
    Re: Goods and Services Tax
, [1992] 2 S.C.R. 445;
Canada v. Addison and
    Leyen Ltd.
, 2007 SCC 33, and
Sorbara v. Canada (Attorney General)
(2008), 93 O.R. (3d) 241 (Ont. S.C.J.), affd (2009) 98 O.R. (3d) 673 (Ont.
    C.A.).

[24]

The motion judges analysis rejecting the Crowns position, at paras.
    142-144, is brief:

The plaintiffs claim is drafted in tort. The
    factual basis, in my view, necessitates a discussion and consideration of the
    tax assessment of GRE. Indeed, having regard to the allegation the government
    failed to implement and administer the
Initiative
, should the plaintiffs succeed on liability the measure of damages
    may take into account the amount of taxes paid. After all, the other on-reserve
    unlicensed tobacco manufacturers pay no taxes.

Further, the tax assessment pertains to GRE,
    not the partnership. The argument of the [Crown] does not apply to their claim.

Accordingly, I reject the assertion only the
    Tax Court of Canada has jurisdiction. Having regard to the principles
    enunciated in
Telezone
and the claims as
    pleaded, I conclude this court has jurisdiction.

B.

Appeal to
    this Court

(1)

Nature of the Appeal

[25]

The Crown identifies the sole issue on this appeal as whether the motion
    judge erred in failing to give effect to s. 174 of the
Excise Act
.

[26]

Both parties agreed that this appeal strictly relates to the claims for
    relief based on forced incorporation, although the respondents say that it is
    not possible to completely bifurcate the claims between the forced
    incorporation and the failure to enforce issues.

[27]

In oral argument, Crown counsel clarified that the Crown is not asking
    that any causes of action be struck on this appeal. Rather, it is the claims
    for relief that should be struck.

[28]

The requested relief is set out at paras. 1(a) and (b) of the Fresh
    Statement of Claim:

1.

The Plaintiffs claim as against the
    Defendant:

(a)

damages in the amount of $1.5 billion
for:

(i)

misfeasance in public office;

(ii)

negligence; and

(iii)

breach of the aboriginal rights and the
    rights protected under the
Indian Act
of the partners of the Grand River Enterprises partnership;

(b)

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 dealings with the aboriginal
    Plaintiffs;

[29]

According to the Crowns Amended Notice of Appeal, the damages claimed
    in paras. 1(a)(i) and 1(b) are barred because they amount to a claim for a
    refund of tax.

[30]

The Crown submits that paras. 1(a) and (b) must be read in the
    context of the Fresh Statement of Claim as a whole. It points to other
    paragraphs, including para. 51:

51. The Plaintiffs claim the damages they have suffered and the
    equitable compensation to which they are entitled.
If the partners had not
    been forced to incorporate GRE, then no taxes would have been payable.
The
    Plaintiffs also seek damages and equitable compensation for the losses they
    have suffered as a result of the sale of Contraband that the Ministers have
    wrongfully failed to prevent, as set out above. [Emphasis added.]

[31]

The Crown also points to para. 29 of the Fresh
    Statement of Claim:

29. All the members of the Partnership at the time of GREs
    incorporation were Indians and all of GREs shareholders and directors since
    its incorporation have been and are Indians. Consequently,
had the partners
    not incorporated GRE and continued

the business of the Partnership
    through that corporation, as they were forced to do by the Minister of National
    Revenue, the Partnership would at all times have been exempt from paying excise
    taxes and duties pursuant to section 87 of the
Indian Act
because the
    property being taxed was the partners personal property and was situated on a
    reserve.
[Emphasis added.]

[32]

The Crown asserts that if the claims for relief are
    read in the context of these and other paragraphs, it is clear that the damages
    the respondents seek to recover by way of their forced incorporation claims are
    the duties and taxes paid by GRE under the
Excise Act
.

(2)

Discussion of Issues on Appeal

[33]

As indicated, the issue is the effect of s. 174 and whether
    the Superior Court has jurisdiction to hear the forced incorporation matter.


a)

Analysis

[34]

Although
    the parties agree that the
Excise Act
is a complete code, they part company on
    the proper characterization of the respondents claims for damages and
    equitable compensation as they relate to forced incorporation.

[35]

The
    Crown submits that this is a case of artful pleading and the claims for relief
    are disguised claims to recover the duties and taxes paid by GRE under the
Excise
    Act
.

[36]

In
    contrast, the respondents submit that the claims for relief are claims for
    damages and equitable compensation flowing from valid private law causes of
    action and not, as a matter of statutory interpretation, claims to recover
    amounts for the purposes of s. 174 of the
Excise Act
.

[37]

I
    turn first to the statutory interpretation argument and then address the
    characterization of the claims.

Statutory Interpretation Argument

[38]

The respondents statutory interpretation argument
    relies on the use of the word recover in s. 174. For ease of reference, I
    repeat that section:

Except as specifically provided under this
    Act, the
Customs Act
, the
Customs Tariff
or the
Financial
    Administration Act
,
no person has a right to
    recover any money paid
to Her Majesty as or on account of, or that has been
    taken into account by Her Majesty as, duty, interest or other amount payable
    under this Act. [Emphasis added.]

[39]

The
    individual respondents argue that it cannot be said they are seeking to
    recover taxes, since a person cannot recover something that he or she did not
    pay in the first place. Here, it was GRE, and not the individual respondents, that
    paid duties and taxes under the
Excise Act
after GRE obtained an
    excise licence.

[40]

The
    respondents submit that the statutory interpretation argument disposes of the
    s. 174 issue because GRE does not come into play: they accept the Crowns
    position that the forced incorporation claims are strictly on behalf of the
    individual respondents. Since only the individual respondents, as Indians,
    can seek an exemption from taxation under s. 87 of the
Indian
    Act
, only they
    can claim that but for the forced incorporation, no taxes would have been
    paid.

[41]

I
    am not persuaded that s. 174 only precludes claims by the person who actually
    paid the duty or taxes.

[42]

First,
    the respondents have not pointed to any case law to support that proposition.

[43]

Second,
    in my view, the word recover must be read in the context of the entire
    section, which precludes any person, which is broadly defined in the
Excise
    Act
, from seeking to recover any money paid. This wording, in the passive
    voice, does not specify by whom the amount is paid.

[44]

Thus,
    the mere fact that the amounts were paid by GRE and not the individual
    respondents does not bring the situation outside the ambit of s. 174.

Characterization of the Claim Argument

[45]

The
    Crown argued that the only losses claimed in relation to forced incorporation
    are the duties and taxes paid by GRE and so the claim should be characterized
    as a claim to recover duties and taxes paid under the
Excise Act
. In
    oral argument, Crown counsel recast the characterization issue to some extent,
    saying that the essential nature of the respondents claim is nothing more than
    a disguised dispute about whether the individual respondents are entitled to a
    s. 87 tax exemption, which could have and should have been decided by the Tax
    Court long before now.

[46]

The
    essence of a dispute must be based on a realistic appreciation of the practical
    result sought by the claimant:
Domtar Inc. v. Canada
, 2009 FCA 218, 392 N.R. 200, at
    para. 28, citing
Canada v. Roitman
, 2006 FCA 266, 353 N.R. 75, at para. 16, leave to
    appeal refused, [2006] S.C.C.A. No. 353. I
n order to
    assess its essential character, the claim must be read 
holistically and practically without fastening
    onto matters of form:

Canada (Minister of National Revenue 
    M.N.R.) v. JP Morgan Asset Management (Canada) Inc.
, 2013 FCA 250, 367 D.L.R. (4th) 525, at para.
50.

[47]

In arguing that s. 174
    acts as a bar, the Crown relies on four
cases, which it says are similar to this
    one:
Michelin Tires (Canada) Ltd v. Canada (1998)
, 158 F.T.R. 101, affd
    2001 FCA 145, 271 N.R. 183, leave to appeal refused, [2001] S.C.C.A. No. 367;
British
    Columbia Ferry Corp. v. Canada (Minister of National Revenue  M.N.R.)
, 2001 FCA 146, 271 N.R.
    345
;

Sorbara
    v. Canada (Attorney General)
(2008), 93 O.R. (3d) 241 (S.C.), affd 2009 ONCA 506, 98
    O.R. (3d) 673, leave to appeal refused, [2009] S.C.C.A. No. 299;
Merchant
    Law Group v. Canada (Revenue Agency)
, 2009 FC 755, 311 D.L.R. (4th) 124, affd
    2010 FCA 184, 321 DL.R. (4th) 301.

[48]

I
    do not see these cases as dispositive. Each depends on the precise nature of
    the claims brought. In both
Michelin
and
B.C. Ferry
, there was a direct
    challenge to decisions by the Crown to deny tax refunds. In
Sorbara
, the plaintiffs
    challenged the assessment of GST based on an interpretation of the legislation.
    In
Merchant
, the plaintiffs did not seek compensatory damages for
    wrongful conduct; rather, they sought the recovery of GST outside the Act.

[49]

Here, the
    respondents do not challenge the assessment of GREs taxes. They accept that
    GRE is required to pay taxes and duties under the
Excise Act
. Their claim is that if
    GRE had never existed and the tobacco business had continued as a partnership, the
    partners would have paid no taxes. The respondents seek compensatory damages
    arising from valid causes of action based on alleged misconduct by the Crown.

[50]

Case
    law has consistently held that the Tax Court cannot take misconduct into
    account in an appeal against assessments:
Main Rehabilitation
    Co. v. Canada
,
    2004 FCA 403, 247 D.L.R. (4th) 597, at para. 7, leave to appeal refused, [2005]
    S.C.C.A. No. 37;
Ereiser v. Canada
, 2013 FCA 20, 444 N.R. 64, at paras.
    31-32, leave to appeal refused, [2013] S.C.C.A. No. 167. Rather, private law
    claims based on Crown misconduct may be heard by a provincial Superior Court:
    see, for e.g.,
Leroux v. Canada (Revenue Agency)
, 2012 BCCA 63, 347
    D.L.R. (4th) 122.

[51]

Although
    the Crown accepts that matters of misconduct lie in the Superior Court, it
    argues that this case is not about misconduct. At its root, says the Crown,
    this case is about the interpretation and application of a taxing statute, and
    the issue of whether the partners are entitled to an exemption under s. 87 of
    the
Indian Act
. In oral argument, counsel stated that the Crowns position
    was not that the respondents should now go to the Tax Court, but that they
    could have and should have already gone to the Tax Court for a ruling on the s.
    87 issue.

[52]

There
    are two elements of the respondents forced incorporation claims. The first is
    that, but for Crown misconduct, GRE would not have been incorporated. The
    second is that, but for the incorporation, the partners business would not
    have paid taxes under s. 87 of the
Indian Act
.

[53]

I
    accept the respondents point that if they were to prove the pleaded causes of
    action in relation to forced incorporation, they would be entitled to damages
    and equitable compensation flowing from the breaches. In proving their losses,
    it would be up to the respondents to show that they would have been exempt from
    paying tax as pleaded in their Fresh Statement of Claim.

Taxes are an Element of the Damages Claim Argument

[54]

Another
    point of contention between the parties is whether a claim falls within s. 174
    where the amount of taxes paid is relevant to the assessment of damages.

[55]

The
    motion judge appreciated that the factual basis

of the respondents tort
    claim necessitated a consideration of GREs tax assessment, and that the amount
    of taxes paid might be relevant to the assessment of damages.


[56]

The
    Crown argues that those factors are fatal, pointing to
Deluca
    v. Canada (Attorney General)
, 2016 ONSC 3865, in which Dunphy J. struck from the plea of
    general damages any amount that [was] indirectly calibrated from the value of
    the lost tax deduction: para. 25. He concluded, at para. 24, that the
    plaintiff could not plead by way of tort damages as against the Crown in right
    of Canada the value of the very benefit he is ineligible to receive from the
    same Crown in right of Canada by the terms of a statute of Parliament, which
    in that case was the
Income Tax Act
.

[57]

However,
    in
Deluca
,
the plaintiff had pending appeals of the reassessment of his
    tax returns that had disallowed deductions claimed. If he were to be successful
    on those appeals, the entire foundation of his tort and other claims before the
    Superior Court would disappear. As Dunphy J. noted, at para. 19, the merits of
    the pending appeals [were] not merely incidental to this claim  they [were]
    his claim.

[58]

In
    contrast, in this case neither GRE nor the individual respondents challenge the
    assessment of GREs taxes. Rather, the individuals claim that, but for the
    Crowns wrongful conduct, GRE would not have existed, the business would have
    continued as a partnership, and the partners would not have paid duties or
    taxes under the
Excise Act
.

[59]

Crown counsel also refers to
Grenon v. Canada (Revenue Agency)
, 2016 AQBQ 260, 35 Alta.
    L. R. (6th) 139.
In my view,
Grenon
is also
    distinguishable. Here, the respondents are not seeking to collaterally attack
    any decision already made by the Tax Court with regard to GRE. If there were a
    requirement to incorporate, then GRE had to pay duties and taxes. But if there
    were no need to incorporate, the individual respondents seek to put themselves
    back in the position that they would otherwise have been in. Rather than
    benefitting from the tobacco business as GRE shareholders, it is alleged they
    would have operated the GRE business as partners  and as partners they would
    have been exempt from taxation under the
Excise Act
. Although, as
    discussed above, the individual respondents will have to address the s. 87
    issue in proving damages, they are not, in my view, seeking to challenge the
    validity of any reassessment.

[60]

A number of cases support the contention that the fact that the damages
    claimed in an action relate in part to the quantum of taxes paid does not necessarily
    trigger the application of s. 174:
Obonsawin v. Canada
, 2004 TCC 3,
    2004 G.T.C. 131; and
Obonsawin (c.o.b. Native Leasing Services) v. Canada
,
    2006 G.T.C. 1274 (Ont. S.C.);
Leroux
, at paras. 22- 24. These cases
    support the view that simply because a tax assessment may be relevant to a
    claim or to the assessment of damages, that does not necessarily mean that it
    should be characterized as a matter that goes to the Tax Court.

(3)

Conclusion and Final Comments

[61]

For these reasons, I would not interfere with the motion judges conclusion
    that the Superior Court has jurisdiction to hear the claims for relief based on
    the respondents' theory of forced incorporation. As I read his reasons, there
    are two aspects to the motion judges decision in regards to jurisdiction.

[62]

First, he finally determined that the Superior Court has jurisdiction to
    hear the damages claim, as pleaded. He therefore disposed of the defence that
    the claim should be struck since it must go to the Tax Court, which amounts to
    a final order.

[63]

Second, as I read para. 142 of his reasons, the motion judge is saying
    that, as a matter of law, the fact that the factual basis of the tort claim
    involves a discussion of GREs taxes and the fact that the measure of damages may
    take into account the amount of taxes paid does not mean that it is plain and
    obvious that the claim is barred by s. 174.

[64]

On this reading, although the Superior Court has jurisdiction to hear
    the claim for damages for forced incorporation, it is still open to the Crown
    to argue, based on the trial evidence, that the damages claim for forced
    incorporation is a disguised claim to recover duties and taxes and thus is
    barred by s. 174. While a Superior Court judge cannot hear a claim that is
    caught by s. 174, a Superior Court judge may decide whether s. 174 applies, as
    the motion judge below was asked to do. At this stage of the proceeding, it is
    not plain and obvious that s. 174 is engaged but the trial judge may, based on
    the evidence at trial, revisit the characterization issue.

[65]

To be clear, by confirming that a trial on this issue may proceed in
    Superior Court, this court is finally deciding that the Superior Court has
    jurisdiction to hear it. However, the court has not determined whether s. 174
    of the Act will be a bar to the respondents claims. That will be decided by
    the trial judge once the evidence has been heard and the factual findings have
    been made.

[66]

Although the Crown had taken the position as a procedural matter that
    the motion judges decision amounted to a final decision on the interpretation
    and application of s. 174, the respondents agreed in oral argument that by
    failing to strike the claim, the motion judge left the matter open for trial. I
    agree that is the result.

[67]

I now turn to the second appeal.

PART TWO: THE FAILURE TO ENFORCE APPEALS

[68]

As noted above, this second appeal deals with the respondents failure
    to enforce claims based on negligence, misfeasance and breach of fiduciary
    duty.

[69]

The Crown submits that the motion judge erred in failing to strike the
    claims on the basis that it is plain and obvious that they have no reasonable
    chance of success. In particular, the Crown says the motion judge erred in
    holding that a corporation or individual can seek damages in tort or for breach
    of fiduciary duty for lost market share and profits when Ministers allegedly
    fail to properly implement policy initiatives aimed at a range of objectives,
    only one of which is increasing the effectiveness of enforcement measures
    targeting contraband tobacco. For instance, the respondents allege the Crown
    failed to implement the 1994
Initiative
, which the Crown says was aimed
    at combatting the smuggling of alcohol, drugs and weapons through various
    measures including tax and enforcement measures.

I.

MISFEASANCE IN PUBLIC OFFICE

[70]

Section 7 of the Fresh Statement of Claim provides as follows:

MISFEASANCE IN PUBLIC OFFICE

43.  The Ministers continuous course of conduct (including
    their failure to act) as set forth above, including the requirement to
    incorporate, was deliberate and unlawful in the exercise of their public
    functions: they knowingly acted for an improper purpose as described above and
    knowingly exceeded their authority.

44. The Ministers knew that such conduct was unlawful and
    likely to injure the Plaintiffs. The conduct was deliberate in that: (a) the
    requirement that the aboriginal Plaintiffs incorporate and pay taxes contrary
    to their rights to be free of taxation was knowingly imposed; and (b) the
    Ministers knowingly persisted in failing to properly implement and administer
    the
Initiative
, even though their lack of action was repeatedly pointed
    out to them, as demonstrated above. In addition, the Ministers knew that it was
    unlawful because, as described below, they knowingly breached their duty of
    care to the Plaintiffs. The Ministers knew that all of this conduct and
    failures would likely injure the Plaintiffs as a result of licensed tobacco
    manufacturers such as the Plaintiffs suffering harm or losses in the form of
    lost profits, loss of market share and diminution of the value of their
    businesses goodwill, including the value of trademarks and other intellectual
    property, again as set forth above. The Plaintiffs were in fact injured: there
    was no level playing field.

A.

Motion
    Below

[71]

Before the motion judge, the Crown argued that there is no statutory
    duty to implement any particular law enforcement measure in any particular
    manner. The Crown, citing
Weninger Farms Ltd.
v. Canada (Minister of
    National Revenue)
, 2012 ONSC 4544, relied on its discretion to
    investigate and prosecute.

[72]

The Crown also submitted that the respondents had not sufficiently pled the
    element of malice. There was no particularization of the Crowns relevant state
    of mind. The Crown relied on
Mackin v. New Brunswick
, 2002 SCC 13,
    [2002] 1 S.C.R. 405, at para. 78, as showing that damages would not be awarded
    absent conduct that is clearly wrong, in bad faith or an abuse of power. The
    Crown submitted that its conduct could not be said to be unlawful. Nor could
    the subjective element of the tort be established.

[73]

The motion judge analyzed this issue as follows, at paras. 78-82:

On the facts as pleaded, in my view the plaintiffs claim is
    stronger on misfeasance than negligence, particularly as there is no duty of
    care element.

As before, I do not see the forced incorporation as compelling
    but failure to enforce the
Initiative
is a different matter. There is,
    however, a narrow window of opportunity with respect to the forced
    incorporation issue in that there is no statutory support for the requirement
    of incorporation and the ultimate result may well be significant. Determination
    of the tax liability or exemption under section 87,
Indian Act
, is not a
    perquisite in my view.

Malice may not be fully particularized in the pleading; however
    a motion to strike is not the place to assess the sufficiency of the supporting
    evidence. Much will depend on the testimony of witnesses and documents
    produced. See:
Miguana v. Toronto (City) Police Services Board
, 2008
    ONCA 799. A misfeasance claim may be permitted to survive on a motion to strike
    even in cases where it might be difficult to prove. See:
Driskell v.
    Dangerfield
, [2007] M.J. No. 20 (Q.B.).

The Fresh as Amended Statement of Claim contains sufficient
    facts and particularity with respect to misfeasance to allow the claim to
    proceed. Amendments may be made as further particulars are ascertained. Further,
    the tort of misfeasance [in] public office, in my view, is still developing and
    changing. As in [
Granite Power Corp. v. Ontario
(2004), 72 O.R. (3d)
    194, leave to appeal refused, [2004] S.C.C.A No. 409], this claim should not be
    struck at this stage regardless of how difficult it may be to establish. A
    trial on this issue, given the facts as pleaded, will assist in clarifying the
    law as it relates to misfeasance.

In result, I conclude that it is not plain and obvious the
    claim will fail.

B.

Appeal to
    this Court

[74]

Despite the motion judges comment that the tort of misfeasance in
    public office is still developing and changing, there is no dispute about the
    test for establishing misfeasance in public office. The test was summarized by
    the Supreme Court in its 2003 decision in
Odhavji Estate,
at para. 32:

[T]he tort of misfeasance in a public office is an intentional
    tort whose distinguishing elements are twofold: (i) deliberate unlawful conduct
    in the exercise of public functions; and (ii) awareness that the conduct is
    unlawful and likely to injure the plaintiff. Alongside deliberate unlawful
    conduct and the requisite knowledge, a plaintiff must also prove the other
    requirements common to all torts. More specifically, the plaintiff must prove
    that the tortious conduct was the legal cause of his or her injuries, and that
    the injuries suffered are compensable in tort law.

(1)

Unlawful Conduct

[75]

The Crown submits that, in addition to the requirements set out by the
    Supreme Court in the test as described, where a claim is grounded in an alleged
    failure of a public officer to take certain action, misfeasance cannot be made
    out unless there is a failure to act in the face of a clear statutory duty.
    According to the Crown, an omission cannot be unlawful unless it constitutes a
    deliberate breach of official duty and there is nothing that requires
    Ministers [to] implement policies or enforce the legislation in any particular
    manner. Accordingly, the Crown cannot be liable for any failure to enforce the
Initiative
.

a)

Analysis

[76]

The Crown relies on para. 24 of
Odhavji
:

Insofar as the nature of the misconduct is concerned, the
    essential question to be determined is not whether the officer has unlawfully
    exercised a power actually possessed, but whether the alleged misconduct is
    deliberate and unlawful. As Lord Hobhouse wrote in
Three Rivers, supra
,
    at p. 1269:


The relevant act (or omission, in the sense
    described) must be unlawful. This may arise from a straightforward breach of
    the relevant statutory provisions or from acting in excess of the powers
    granted or for an improper purpose.

Lord Millett reached a similar conclusion, namely, that
a
    failure to act can amount to misfeasance in a public office, but only in those
    circumstances in which the public officer is under a legal obligation to act
.
    Lord Hobhouse stated the principle in the following terms, at p. 1269: "If
    there is a legal duty to act and the decision not to act amounts to an unlawful
    breach of that legal duty, the omission can amount to misfeasance [in a public
    office]." See also
R. v. Dytham
, [1979] Q.B. 722 (C.A.).
So, in
    the United Kingdom, a failure to act can constitute misfeasance in a public
    office, but only if the failure to act constitutes a deliberate breach of
    official duty
. [Emphasis added.]

[77]

As I read these paragraphs, Iacobucci J. was reviewing the law in the
    United Kingdom and not describing the current law in Canada.

[78]

The Crown also relies on para. 37 of
Odhavji
, where the court
    applied the test for misfeasance to the facts of the case:

Although the allegation that the Chief
deliberately
failed to segregate the officers satisfies the requirement that the Chief
intentionally
breached his legal obligation to ensure compliance with the
Police Services
    Act
, the same cannot be said of his alleged failure to ensure that the
    defendant officers produced timely and complete notes, attended for interviews
    in a timely manner, and provided accurate and complete accounts of the
    incident. As above, inadvertence or negligence will not suffice; a mere failure
    to discharge the obligations of the office cannot constitute misfeasance in a
    public office. In light of the allegation that the Chief's failure to segregate
    the officers was deliberate, this is not a sufficient basis on which to strike
    the pleading.
Suffice it to say, the failure to issue orders for the purpose
    of ensuring that the defendant officers cooperated with the investigation will
    only constitute misfeasance in a public office if the plaintiffs prove that the
    Chief deliberately failed to comply with the standard established by s.
    41(1)(b) of the
Police Services Act
. [Underlining in original;
    bolding added.]

[79]

In the bolded passage, Iacobucci J. was commenting on a situation where
    it was not alleged the Chief had acted deliberately, and so it could not be said
    that there was deliberate unlawful conduct. A public officers failure to act
    must be more than mere inadvertence or negligence to amount to misfeasance.

[80]

The paragraphs upon which the Crown relies must be read in the context
    of paras. 22-23 of
Odhavji
, where Iacobucci J. discusses two
    categories of misfeasance claims:

What then are the essential ingredients of the tort, at least
    insofar as it is necessary to determine the issues that arise on the pleadings
    in this case? In
Three Rivers
, the House of Lords held that the tort of
    misfeasance in a public office can arise in one of two ways, what I shall call
    Category A and Category B. Category A involves conduct that is specifically
    intended to injure a person or class of persons. Category B involves a public
    officer who acts with knowledge both that she or he has no power to do the act
    complained of and that the act is likely to injure the plaintiff. It is
    important, however, to recall that the two categories merely represent two
    different ways in which a public officer can commit the tort; in each instance,
    the plaintiff must prove each of the tort's constituent elements. It is thus
    necessary to consider the elements that are common to each form of the tort.

In my view, there are two such elements. First, the public
    officer must have engaged in deliberate and unlawful conduct in his or her
    capacity as a public officer. Second, the public officer must have been aware
    both that his or her conduct was unlawful and that it was likely to harm the
    plaintiff. What distinguishes one form of misfeasance in a public office from
    the other is the manner in which the plaintiff proves each ingredient of the
    tort. In Category B, the plaintiff must prove the two ingredients of the tort
    independently of one another.
In Category A, the fact that the public
    officer has acted for the express purpose of harming the plaintiff is
    sufficient to satisfy each ingredient of the tort, owing to the fact that a
    public officer does not have the authority to exercise his or her powers for an
    improper purpose, such as deliberately harming a member of the public.
In
    each instance, the tort involves deliberate disregard of official duty coupled
    with knowledge that the misconduct is likely to injure the plaintiff. [Emphasis
    added.]

[81]

On my reading of the relevant paragraphs from
Odhavji
,
    there is no requirement for a breach of a statutory duty to make out a claim
    for misfeasance in public office. Conduct by a public officer may be unlawful
    even where there is no positive duty to act, provided that the conduct was done
    with the intent to harm. Similarly, a refusal to exercise a power with a
    specific intent to injure might satisfy the test for misfeasance in public
    office.

Here, the respondents plead that the
    Ministers continuous course of conduct (including their failure to act)  was
    deliberate and unlawful in the exercise of their public functions: they
    knowingly acted for an improper purpose as described above and knowingly
    exceeded their authority: para. 43 of the Fresh Statement of Claim. Thus, I
    reject the Crowns argument that the misfeasance claim should have been struck
    because the respondents did not plead a failure to act in the face of a clear
    statutory duty.

(2)

Sufficiency of Particulars

[82]

The Crown also alleges that the respondents failed to plead sufficient
    particulars of misfeasance in two ways  in failing to identify the Ministers
    responsible for the alleged misfeasance, and in failing to properly plead bad
    faith.

[83]

The Crown points to r. 25.06(8) which requires full particulars of
    malice or intent:

Where fraud, misrepresentation, breach of trust, malice or
    intent is alleged, the pleading shall contain full particulars, but knowledge
    may be alleged as a fact without pleading the circumstances from which it is to
    be inferred.

[84]

The Crown also relies on this courts decision in
Gratton-Masuy
    Environmental Technologies Inc. v. Ontario
, 2010 ONCA 501, 101 O.R. (3d)
    321, in support of the following propositions:

1.

An
    express plea of actual malice in the form of a specific intent to injure a
    person or class of persons is required.

2.

A
    bald plea of malice is insufficient to defeat a r. 21 motion. The pleading must
    meet a stringent standard of particularity.

3.

Broadly
    cast allegations of bad faith, malice and bias merely on assumptions and
    speculations about the motivations underlying the conduct of government
    officials do not satisfy the rules of pleading.

Identity of Public Officers

[85]

The Crown says that an essential element of a claim framed in
    misfeasance is a mental element, which must, by its very nature, involve a
    particular person or persons. Here, the Fresh Statement of Claim does not
    identify, by name, each of the Ministers alleged to have committed misfeasance.
    Rather, it states that [t]he Ministers responsible for implementing and
    administering the
Initiative
have been the Minister of National Revenue,
    the Solicitor General of Canada, the Minister of Public Safety and Emergency
    Preparedness, the Minister of Justice: para. 35. According to the Crown, more than
    34 Ministers have held those positions during the period covered by the claim.

[86]

The Crown submits that if the allegation is that each of the 34
    Ministers maliciously failed to enforce the law, material facts grounding those
    allegations must be pleaded. If it is alleged that only certain Ministers
    committed misfeasance, then the bare assertion that the
Initiative
was
    not properly implemented by the Ministers does not meet the requisite degree
    of particularity.

a)

Analysis

[87]

In my view the fact that not all Ministers are identified by name is not
    fatal to this claim.

[88]

This courts decision in
Granite Power

Corp. v. Ontario
(2004)
,
72 O.R. (3d) 194 (C.A.), leave to appeal refused, [2004] S.C.C.A No. 409, supports
    the argument that the failure to name specific people within an organization
    may not necessarily result in a misfeasance claim being struck. In
Granite
    Power
, it was simply pleaded that the Minister and/or his offices and
    staff had acted with misfeasance. This court concluded the claim should not be
    struck even though it suffered from a lack of clarity and precision: para.
    34. This court held that there existed a narrow window of opportunity for
    Granite to make out its claim of misfeasance and that [r]egardless of how
    difficult it may be to establish, Granite should not be driven from the
    judgment seat at that juncture of the proceeding": paras. 40, 42.

[89]

Cases such as the following reflect an acknowledgment that, at the
    outset of litigation, a plaintiff may not be privy to information about the
    internal workings of an organization and which particular individual or
    individuals within an organization may have taken or failed to take a
    particular action:
Capital Solar Power Corp. v. Ontario Power Authority
,
    2015 ONSC 2116, at paras. 13-14;
Swift Current (City) v. Saskatchewan Power
    Corp.
, 2007 SKCA 27, 293 Sask. R. 6, at para. 29; and
Georgian Glen
    Development Ltd. v. Barrie (City)
(2005), 13 M.P.L.R. (4th) 194 (Ont.
    S.C.), at para. 11.

[90]

This is such a case. The respondents have identified the group of
    individuals said to be responsible for misfeasance in public office by title
    instead of by name. Similar to
Granite Power,
the respondents have
    identified a class of persons. It is difficult to expect the respondents to be
    more specific at the pleadings stage. As the motion judge acknowledged, much
    will depend on the evidence that emerges.

(3)

Allegations of Bad Faith

[91]

The Crown also submits that bad faith was not properly pleaded. The only
    purported motive ascribed to the Ministers is found at para. 44 of the Fresh
    Statement of Claim: [T]he Ministers knew that it was unlawful because, as
    described below, they knowingly breached their duty of care to the Plaintiffs.
    The Crown submits that such logic is circular, and that it is not enough to use
    conclusory words such as deliberately and knowingly.

[92]

The Crown also submits that the only paragraphs of the pleading the
    motion judge identified as relating to bad faith and the alleged failure to
    enforce deal with
knowledge

of harm as opposed to
intent

to harm. It is argued that the motion judge erred to the extent he took the
    pleading of knowledge of harm to be sufficient.

a)

Analysis

[93]

I agree with the Crown that knowledge of harm, without intent to harm,
    is insufficient to establish misfeasance. This court made that point in
Pikangikum
    First Nation v. Nault
, 2012 ONCA 705, 298 O.A.C. 14, at para. 77, leave to
    appeal refused, [2013] S.C.C.A. No. 10:

The tort of misfeasance in public office is difficult to
    establish. The plaintiff must prove more than mere negligence, mismanagement or
    poor judgment. To succeed, the plaintiff must demonstrate that the defendant
    knowingly acted illegally and in bad faith chose a course of action
    specifically to injure the plaintiff.

[94]

A similar point was made in
Odhavji
, at para. 28:

The requirement that the defendant must have been aware that
    his or her conduct was unlawful reflects the well-established principle that
    misfeasance in a public office requires an element of bad faith or
    dishonesty.
In a democracy, public officers must retain the authority to
    make decisions that, where appropriate, are adverse to the interests of certain
    citizens. Knowledge of harm is thus an insufficient basis on which to conclude
    that the defendant has acted in bad faith or dishonestly
. A public officer
    may in good faith make a decision that she or he knows to be adverse to
    interests of certain members of the public. In order for the conduct to fall
    within the scope of the tort, the officer must deliberately engage in conduct
    that he or she knows to be inconsistent with the obligations of the office.
    [Emphasis added.]

[95]

Thus the issue is whether, on a generous reading of the Fresh Statement
    of Claim as a whole, the respondents have failed to adequately plead bad faith.

[96]

The Crown bifurcates forced incorporation and the failure to enforce and
    argues that [t]he only paragraphs of the pleading identified by the motion
    judge regarding malice in respect of the failure to enforce relate to
knowledge

(namely, that the inaction was harming the plaintiffs business): Although
    the motion judges list of facts relevant to bad faith and improper purpose
    starts at para. 68 (m) and goes to (y), the Crown says that only (u) to (w) are
    relevant:

(u) starting in February 2003, GRE has on a frequent and
    recurring basis brought to the attention of the Ministers and their
    representatives their failures in combating the problem of contraband on
    Reserve, and complained about the increased availability of contraband on
    Reserve  paras. 36, 39;

(v) notwithstanding these communications, and while GRE was
    paying $50 to $60 million in a year in taxes and duties, the Ministers have
    done virtually nothing to address the issue of contraband on the Reserve 
    paras. 38, 39, 40, 41;

(w) the Ministers knew that the sales of GREs products in
    Ontario were restricted to reserves where contraband products were most readily
    available and knew the particular vulnerability that these restrictions on
    GREs sales markets caused to GRE  para. 45;

[97]

I agree that these paragraphs deal with knowledge of harm, which on its
    own is insufficient to establish bad faith. However, in my view, these
    paragraphs should not be read in isolation. The respondents appear to allege
    that it is the cumulative effect of the Crowns course of conduct, starting
    with the alleged forced incorporation that amounts to bad faith. It is through
    the entire course of conduct that the respondents have been singled out. The claim
    is that the alleged failure to enforce is problematic because GRE, having
    incorporated, has to pay taxes, and other on-Reserve tobacco suppliers have
    avoided doing so. Accordingly, it is arguable that a pre-existing malice or bad
    faith at the forced incorporation stage could be said to underlie the later
    failure to enforce.

[98]

In conclusion, I am not satisfied that the motion judge, looking at the
    pleading as a whole, erred in concluding that bad faith was sufficiently
    particularized at this early stage of the proceeding.

(4)

Conclusion

[99]

I see no reason to interfere with the motion judges conclusion that the
    respondents misfeasance in public office claim, based on the alleged failure
    to enforce, should be allowed to proceed to trial.

II.

NEGLIGENCE

[100]

Section 8 of the Fresh Statement of Claim provides as follows:

THE MINISTERS BREACHED THEIR DUTY OF CARE

45.  Further, the
Initiative
has not been properly
    implemented or administered by the Ministers. This includes the failure to
    properly enforce existing laws relating to the manufacture and sale of tobacco
    products and trademark and intellectual property rights on the Reserve. The
    full particulars of the failure to properly implement or administer the
Initiative
,
    including enforcing the law, are known to the Defendants and will be provided
    after the examinations for discovery. Execution of the
Initiative
is an
    operational matter which requires the Ministers to act reasonably and with due
    care in the execution of the
Initiative
. The Ministers beached this duty
    of care in that their implementation and administration of the
Initiative
fell below the applicable standard of care. It was and is a foreseeable
    consequence of the Ministers failure to reasonably and properly execute the
Initiative
that GRE would suffer financial harm and loss. Indeed, GREs financial losses
    are made all the more severe since sales of its products in its chief market
    Ontario are restricted to reserves where Contraband products are most readily
    available. This limitation on GREs sales markets, and the particular
    vulnerability that such restrictions cause to GRE, were at all material times
    known to the Ministers.

46.  The Defendant cannot rely on any policy decision to negate
    the duty of care owed to the Plaintiffs because the Ministers continued
    reliance on the 1994
Initiative
was improper. This is because the
Initiative
has been shown to be inadequate and ineffective since at least June 2002, or,
    in the alternative, has not been appropriately implemented or administered. As
    a result, the continued reliance on this failed program demonstrates a lack of
    good faith on the part of the Ministers and is completely irrational and
    unreasonable.

47. In addition, the Ministers duty of care was heightened
    because of the fiduciary duty owed by the Crown and the honour of the Crown
    as set forth below.

48.  The failure to properly implement and administer the
Initiative
has now been admitted. On May 7, 2008, the Minister of Public Safety and
    Emergency Preparedness with the Assistant Commissioner of the RCMP announced
    the launching of a new strategy: the RCMPs
Contraband Tobacco Enforcement
    Strategy
. While acknowledging the existence of the earlier
National
    Action Plan to Combat Smuggling
and
Comprehensive Tobacco Control
    Strategy
, the Commissioner of the RCMP described the new Strategy as 
the
    first step in what will be a strategically driven process to tackle the growing
    illicit contraband tobacco market in Canada
. [Emphasis in original.]

A.

Motion
    Below

[101]

In its notice of motion, the Crown claimed that the respondents
    negligence claim ought to be struck as disclosing no reasonable cause of
    action. The Crown asserted that it owed no private law duty of care to the
    respondents with respect to the deployment of law enforcement resources. These
    are public law functions, the duties in relation to which are owed to the
    public. The Crown owes no duty to protect the respondents commercial
    interests.

[102]

The Crown also took the position that even if a
prima facie
duty
    of care could be found, policy reasons militated against imposing a private law
    duty in these circumstances.

[103]

The motion judge disagreed. He concluded that the negligence claim should
    not be struck for the following reasons, at paras. 58-66:

Since
Cooper
, it has become increasingly difficult for
    plaintiffs to establish a relationship of proximity and avoid policy reasons
    militating against recognition of the duty of care.

Assuming the facts pleaded to be true, as I must at this early
    stage, the discussions and interactions of the parties lead to the possibility
    of finding a special relationship did exist. The alleged agreement regarding
    the requirements to obtaining a license under the
Excise Act
and the
    enforcement of the
Initiative
support such a conclusion. If so, a
prima
    facie
duty of care would be established.

Proximity, however, is difficult to establish having regard to
    the weighing of competing interests by Government and its duties to the public
    as a whole.

Granite Power
and
Imperial Tobacco
indicate the
    detail in the analysis. In this case, the interactions, in my view, are more
    persuasive given, in particular, the resulting agreement.

The forced incorporation complaint, in my view, is not a strong
    one. The partnership was represented by counsel and had remedies it could have
    then pursued. Failure to enforce the
Initiative
, however, is different. The
    interest of the plaintiffs in the enforcement of the legislation coincides with
    the interests of the public at large. The discretion regarding investigation
    and prosecution is a doubtful application, at least at this stage, as
    abdication, essentially as pleaded, is not the exercise of discretion.

Policy considerations are a greater challenge for the
    plaintiffs. I am unaware of any comparable case that succeeded on this part of
    the test.
Imperial Tobacco
is demonstrative of the difficulty in
    success.

In support of the plaintiffs is the lack of conflict with a
    statutory duty. I am not persuaded there is any concern for indeterminate
    liability as the fact situation is unique. What is at issue is enforcement of
    the legislation, whether as a result of the
Initiative
or otherwise.
    This is not, in my view, a matter of policy.

What obviously is in dispute is the discretion to enforce
    versus the refusal to enforce. The latter is pleaded, in essence, which begs
    the question as to whether the Government can effectively amend legislation by
    avoidance. Presumably, the public has the same interest as the plaintiffs in
    the enforcement of legislation on the basis of equal treatment.

While the facts as pleaded are more strong in terms of the
    misfeasance claim, it would be premature to dismiss the plaintiffs negligence
    claim. The plaintiffs face an uphill struggle but it is not plain and obvious
    the claim discloses no reasonable cause of action. Indeed, I conclude the
    issues raised in this claim are of such importance a trial is required.

B.

Appeal to
    this Court

(1)

Legal Principles

[104]

As the respondents assert a novel duty of care, the two-part
Cooper/Anns
test applies. It is described at para. 30 of
Cooper v. Hobart
, 2001
    SCC 79, [2001] 3 S.C.R. 537, in the following terms:

At the first stage of the
Anns

test,
    two questions arise: (1) was the harm that occurred the reasonably foreseeable
    consequence of the defendants act? and (2) are there reasons, notwithstanding
    the proximity between the parties established in the first part of this test,
    that tort liability should not be recognized here? The proximity analysis
    involved at the first stage of the

Anns

test
    focuses on factors arising from the

relationship

between the
    plaintiff and the defendant. These factors include questions of policy, in the
    broad sense of that word. If foreseeability and proximity are established
    at the first stage, a

prima facie

duty of care arises. At the second
    stage of the

Anns

test, the
    question still remains whether there are residual policy considerations outside
    the relationship of the parties that may negative the imposition of a duty of
    care. [Underlining in original.]

(2)

Proximity


i.     Specific Interactions

[105]

As
    noted in
Imperial Tobacco
, at para. 43, two situations may be
    distinguished when determining whether a government actor owes a
prima
    facie
duty of
    care: (1) the situation where the alleged duty of care is said to arise
    explicitly or by implication from the statutory scheme; and (2) the situation
    where the duty of care is said to arise from interactions between the claimant
    and the government, and is not negated by statute.

[106]

This case
    falls within the second category. The motion judge found that [a]ssuming the
    facts pleaded to be true  the discussions and interactions of the parties lead
    to the possibility of finding a special relationship did exist: para. 59.

[107]

The
    Crown submits that the record of meetings and contacts is insufficient to
    establish proximity. The Crown relies on this courts decision in
Granite
    Power.

(a)


Analysis

[108]

I
    agree with the respondents that it is not plain and obvious that the claim
    cannot succeed based on
Granite Power.


[109]

Granite Power
involved a small private utility that had
    enjoyed a monopoly in the supply, distribution and sale of electricity to the
    inhabitants of Gananoque. In the late 1990s, the government announced a policy
    to open Ontarios electricity market to competition. The shift in government
    policy was a matter of concern to Granite, and eventually Granite sued the
    government, claiming negligence and misfeasance.

[110]

Granite
    pleaded that from 1997 to 2002, it wrote to the Minister of Energy, Science and
    Technology on numerous occasions seeking clarification as to the effect of the
    new policy, and that meetings were arranged with Ministry personnel. Granite
    claimed it did not know where it stood because of mixed messages (para. 13) from
    the Minister and his staff. It claimed that it was harmed as a result.
    Eventually Granite was advised that it had been granted an exemption, but
    Granite claimed that this was too little, too late (para. 16).

[111]

Granite
    pleaded that a duty of care arose under the relevant legislation and a web of
    relationships. The Court set out the relevant part of the pleadings, at para.
    18:

Granite says that under the
Electricity
    Act 1998
and the
Ontario Energy Board Act, 1998
, there was
    determined a sufficiently close relationship between Granite and the Minister
    and/or his offices and staff such that it was in the reasonable contemplation
    of the Minister and/or his staff that carelessness on his or their part might
    injure and cause damage to Granite
.
    Granite says that the Minister and/or his offices and staff owed a duty to
    Granite not to act carelessly in the implementation and administration of the
    legislation as it affected Granite, and that this duty was breached. Granite
    has been and continues to be injured thereby.
Granite says that there was a
    web of relationships developed that the Minister and/or his offices and staff
    could not ignore, and that the web of relationships imposed on the Minister a
    duty of care
. [Emphasis added.]

[112]

This
    court held that the defendants did not owe a duty of care to Granite, and
    struck its negligence claim. The court held, at para. 24, that [m]anifestly,
    under the legislative scheme, the Minister did not owe a duty of care
    exclusively to Granite but rather owed a duty of care to the public as a
    whole. It also noted that Granites efforts to have the Minister protect its
    interests by recommending that it be fully exempted from the open-market regime
    are clearly understandable but were not sufficient to saddle the Minister
    with a duty of care that did not otherwise exist: para. 23.

[113]

This
    case is different than
Granite Power
in two material ways. First, the
    respondents do not rely on the legislative scheme as a basis for imposing a
    duty of care. Second, although Granite sought the Ministers assistance, it was
    not alleged that the Minister agreed or undertook to take any particular action
    on Granites behalf. Rather, it was alleged that Granite received mixed
    messages. In contrast, the respondents in this case plead that there was a
    clear agreement or implied undertaking to enforce the
Initiative
so
    as to level the playing field: Fresh Statement of Claim, para. 28.

[114]

The
    opposite result from
Granite
was reached in a case the respondents rely
    on:
Paradis Honey Ltd. v. Canada (Attorney General)
, 2015 FCA 89, 382 D.L.R.
    (4th) 720, leave to appeal refused, [2015] S.C.C.A. No. 227. In that case the
    plaintiffs negligence claim was allowed to proceed to trial. The case involved
    a proposed class action by a group of commercial beekeepers who challenged the
    ban on the importation of honey bees from the United States. The beekeepers
    pleaded that the government owed a duty of care based on the statutory scheme
    in question, representations made to the beekeeping industry, consultations
    with the beekeeping industry about the bee import policy, and the governments
    knowledge of the hardship the ban would impose on beekeepers.

[115]

The
    Federal Court of Appeal concluded that, given the pleaded interactions, the
    negligence claim should not be struck for want of proximity. Stratas J.A.,
    writing for the majority stated, at paras. 90-91:

The beekeepers plead that in specific interactions,
Canada
    assured them that imports affecting their economic interests would be banned
    only as long as there was scientific evidence of risk
: see paragraph 26 of
    the statement of claim, as particularized by the proposed amended statement of
    claim. Absent that evidence of risk and but for the blanket guideline, Canada
    had to issue importation permits under section 160 of the
Health of Animals
    Regulations
, above. In light of these considerations, the relationship
    between Canada and the beekeepers is sufficiently close and direct to make it
    fair and reasonable that Canada be subject to a duty to respect the beekeepers
    interests, at least to the extent of making rational, evidence-based decisions
    following proper legislative criteria:

Cooper
, above at paragraphs
    32-36;

Hill
,
    above at paragraph 29;

Sauer v. Canada (Attorney General)
, 2007
    ONCA 454, 225 O.A.C. 143

(Ont. C.A.).

Put another way, the relationship between the beekeepers and
    Canada, as pleaded, is one of well-defined rights and entitlements based on
    specific legislative criteria, alongside specific interactions and assurances
    between the two. It is not one where someone is seeking a general benefit that
    may or may not be granted depending on a subjective weighing and assessment of
    policy factors. [Emphasis added

[116]

Similarly,
    in this case, it is alleged that the respondents were assured by a government
    representative that action would be taken to enforce the
Initiative,
in order to
level
    the playing field between GRE and other on-Reserve tobacco manufacturers.

[117]

As
    the Supreme Court warned in
Imperial Tobacco
, at para. 47, 
where
    the asserted basis for proximity is grounded in specific conduct and
    interactions, ruling a claim out at the proximity stage may be difficult
. A generous approach
    should be taken:

So long as there is a reasonable prospect that the asserted
    interactions could, if true, result in a finding of sufficient proximity, and
    the statute does not exclude that possibility, the matter must be allowed to
    proceed to trial, subject to any policy considerations that may negate the
prima
    facie
duty of care at the second stage of the analysis.

[118]

In my view, this is a case in which a generous approach is called for.


ii.     Role of Ministers

[119]

The Crown also argues that as the Ministers duties do not engage them
    in the day-to-day conduct of law enforcement, there can be no private law duty
    to properly implement or administer the
Initiative
. On this point,
    the Crown relies on
Odhavji Estate.
The Crown also relies on
Weninger
    Farms
in support of the proposition that there is no private law duty to
    enforce federal excise legislation.

(a)


Analysis


[120]

I agree with the respondents that the two cases relied on by the Crown
    do not make it plain and obvious that the Ministers do not owe any private law
    duty of care.

[121]

In
Odhavji
, it was alleged that the Solicitor General had
    breached a private law obligation to institute policies and procedures for the
    purpose of ensuring the police cooperated with the Special Investigation Unit
    (SIU). The Supreme Court concluded that the negligence claim against the
    Solicitor General ought to be struck because there was insufficient proximity
    between the parties: para. 69. It noted that the Solicitor General was not
    directly involved in the day-to-day conduct of members of the police force and
    the lack of direct involvement was compounded by the fact that the responsible
    minister [was] not under a statutory obligation to ensure that police officers
    cooperate[d] with the SIU: para. 71. The plaintiffs did not allege that there
    was any other basis for establishing proximity.

[122]

In this case, it is alleged that there were interactions between the
    respondents and at least some specific Ministers, creating a sufficiently
    proximate relationship between the parties.

[123]

I also note that in
Odhavji
the court left open the possibility
    that, despite the Solicitor Generals lack of any direct involvement in the
    day-to-day conduct of police officers, the Minister could have the statutory
    obligation to address widespread or systemic misconduct of a particularly
    serious nature: para. 71. Here, it is alleged that there was a systemic
    failure to act.

[124]

Weninger
involved tobacco growers who claimed that the federal
    and provincial governments allowed the sale of contraband tobacco products in
    contravention of federal and provincial legislation. They sued for misfeasance
    and negligence. Canada and Ontario brought r. 21 motions.

[125]

The motion judge concluded that there was no proximity between the
    Minister of National Revenue and the plaintiffs. He noted that the statement of
    claim made no mention of any dealings between the plaintiffs and the federal or
    provincial governments. That meant the only possible basis for imposing a duty
    of care was the statutory scheme. The motion judge held that the legislation
    was clearly aimed at the general public and there was no private duty of care.

[126]

In discussing the misfeasance claim, the motion judge noted that the
    plaintiffs reliance on s. 8 of the
Excise Act
was misguided as it did
    not obligate the Minister to enforce every section of the statute.

[127]

Here, the Crown argues that [t]here is no basis to come to a different
    conclusion  as the identical considerations apply and that [i]n addition to
    section 8, the powers conferred on Ministers  by the various statutes, provide
    for the discretion to enforce or not enforce the law in the public interest.

[128]

I would not place reliance on
Weninger
as the Crown urges.
    First, of course, as a decision of a judge of the Superior Court, it is not
    binding on this court. Furthermore, in that case, the only alleged basis for
    imposing a duty of care was the statutory scheme. In contrast, in this case it
    is alleged that proximity arises from specific interactions, not the statutory
    framework.


iii.     No Private Duty to Enforce the Law

[129]

The Crown argues that discretionary public duties to enforce the law
    cannot give rise to a private law duty sufficient to ground an action in
    negligence and that, accordingly, courts have consistently rejected attempts to
    seek compensation for insufficient or inadequate enforcement of the law.

[130]

The Crown refers to para. 40 of
Odhavji
 and, in particular,
    the underlined passage  in support of that proposition:

In the defendant officers submission, the essence of the
    plaintiffs claim is that they were deprived of a thorough, competent and
    credible investigation. And owing to the fact that no individual has a private
    right to a thorough, competent and credible criminal investigation, the
    plaintiffs have suffered no compensable damages. If this were an accurate
    assessment of the plaintiffs claim, I would agree.
Individual citizens
    might desire a thorough investigation, or even that the investigation result in
    a certain outcome, but they are not entitled to compensation in the absence of
    a thorough investigation or if the desired outcome fails to materialize.
This, however, is not an accurate assessment of the plaintiffs submission. In
    their statement of claim, the plaintiffs also allege that they have suffered
    physically, psychologically and emotionally, in the form of mental distress,
    anger, depression and anxiety as a direct result of the defendant officers failure
    to cooperate with the SIU. [Emphasis added.]

(a)

Analysis

[131]

The above paragraph was not discussing a private law duty of care. It is
    part of Iacobucci J.s discussion of the misfeasance claims. It addresses
    whether the damages that the plaintiffs claim to have suffered as a
    consequence of the [alleged] misconduct are compensable: para. 39. In the
    particular case, Iacobucci J. was satisfied that [a]t the pleadings stage, it
    is sufficient that the statement of claim allege[d] that the plaintiffs have
    suffered mental distress, anger, depression and anxiety as a consequence of the
    alleged misconduct: para. 41. Thus, the misfeasance claims against the
    officers, based on an alleged failure to cooperate with the SIU, were allowed
    to proceed.

[132]

The Crown also relies on several other cases in support of the
    proposition that there is no private law duty to victims to investigate crime,
    which I shall summarize.

[133]

In
Norris v. Gatien
(2001), 56 O.R. (3d) 441 (C.A.), leave to
    appeal refused, [2002] S.C.C.A. No. 54, an OPP officer struck and killed a
    cyclist. The cyclists family sued the police officer who investigated the
    accident for negligent investigation. It was alleged that he owed a duty to
    enforce the criminal law and that he neglected to do so by failing to properly
    collect evidence, including failing to administer a breathalyser test. The
    plaintiffs claimed that, as a result of the negligence, they suffered emotional
    distress.

[134]

This court upheld the motion judges decision striking the claim as the
    plaintiffs had no legal interest in the investigation or prosecution of [the
    OPP officer]; that investigation and prosecution were matters of public law and
    public interest: para. 18. It was not enough that the plaintiffs might derive
    some personal satisfaction from the verdict. Satisfaction would have been a
    purely personal matter and would have had no reality in law: para. 18.

[135]

In
Wellington v. Ontario
, 2011 ONCA 274, 105 O.R. (3d) 81,
    leave to appeal refused, [2011] S.C.C.A. No. 258, Duane Wellington was shot and
    killed by police. His family sued the Deputy Director of the SIU for negligent
    investigation. On an appeal from a motion to strike, the question for this
    court was do victims of crime committed by police officers have the right to
    sue the Special Investigation Unit (SIU) for negligent investigation?: para.
    1.

[136]

The court concluded that the SIU did not owe a duty of care based on the
Police Services Act
, R.S.O. 1990, c. P-15. It held that when the SIU
    investigates allegations of criminal misconduct by the police, its duties are
    overwhelmingly public in nature and that [e]very member of society has an
    interest in the thorough and effective investigation of police misconduct and
    in the apprehension and prosecution of any police officer who commits a crime:
    para. 43. Nor did the fact the victims mother had been interviewed as part of
    the investigation give rise to a duty of care. Sharpe J.A. stated that the SIU
    does not and should not conduct criminal investigations to advance the private
    interest of any individual citizen: para. 45. Recognizing a duty of care in
    favour of victims and their families could, he said, interfere with the SIU
    heeding its primary duty to the public at large.

[137]

The case of
Holmes v. White
, 2014 ONSC 5809, 329 O.A.C 81 (Div.
    Ct.), did not involve a tort claim. Rather, the applicant brought an
    application for judicial review, seeking an order in the nature of
mandamus
to compel three police forces to undertake criminal investigations. He sought
    the assistance of the police to investigate the conduct of the Canadian
    National Police Service, which had pursued criminal charges against him. His
    application for judicial review was quashed on the basis that
mandamus
was not an available remedy. In affirming that decision, the Divisional Court
    noted that the police do not owe either a public law or private law duty to
    any individual to investigate crime: para. 16.

[138]

In my view, it is not plain and obvious that the negligence claim should
    be struck on the basis of
Norris, Wellington
or
Holmes
, given
    differences between this case and those cases
.
First, in this case the
    respondents are not suing the authorities for failure to investigate any
    particular case. Their claims, brought against Ministers, deal with a systemic
    failure to enforce legislation, and they allege that specific interactions gave
    rise to the alleged duty of care. Second, the respondents allege that they have
    suffered tangible financial losses.


iv.     Conflict

[139]

According to the authors of
Canadian Tort Law
, [o]ne leading
    reason for denying proximity is the existence of a conflict of interest for the
    defendant in considering the risk to the plaintiff: Allen M. Linden &
    Bruce Feldthusen,
Canadian Tort Law
, 10th ed. (Toronto: LexisNexis
    Canada Inc., 2015), at ¶9.60, citing
Syl Apps Secure Treatment Centre v.
    B.D.
, 2007 SCC 38, [2007] 3 S.C.R. 83. 
Where an alleged duty of care is found to conflict with an overarching
    statutory or public duty, this may constitute a compelling policy reason for
    refusing to find proximity. Such a conflict will arise where the imposition
    of the proposed duty of care would prevent the defendant from effectively
    discharging its statutory duties
:
Syl Apps
, at para. 28.

[140]

The motion judge summarily rejected the Crowns conflict argument at
    para. 64, where he agreed with the respondents that there was a lack of conflict
    with a statutory duty.

[141]

On appeal, the Crown takes issue with this conclusion, alleging that imposing
    a private law duty would give rise to two types of conflicts  a conflict
    between public law and private law duties, and a conflict between the private
    law duty and police/prosecutorial discretion.

Conflict  Public v. Private Duties

[142]

The Crown submits that a private law duty of care would directly
    conflict with the ability of Ministers and law enforcement agencies to
    effectively discharge their statutory duties in the public interest. Policy goals
    would be compromised if a private duty were imposed. These goals include
    ensuring public safety and fostering Crown-Aboriginal relations. In short, the
    Crown submits that the motion judge failed to appreciate the complexity of
    considerations informing government policy and specific enforcement decisions.

(a)

Analysis

[143]

Conflicting duties have been the deciding factor in some cases. For
    instance, in discussing proximity in
Syl Apps
,
at para. 41,
    Abella J. found that the potential for conflicts was decisive:

The deciding factor for me, as in

Cooper

and

Edwards
,
    is the potential for conflicting duties: imposing a duty of care on the
    relationship between the family of a child in care and that childs
    court-ordered service providers creates a genuine potential for serious and
    significant conflict with the service providers transcendent statutory duty
    to promote the best interests, protection and well-being of the children in
    their care.

[144]

But public duties need not always conflict with private duties. For
    instance, in
Imperial Tobacco
, at para. 50, the court noted the
    complementary nature of the duties in that case:

At the same time, the governing statutes do not foreclose the
    possibility of recognizing a duty of care to the tobacco
    companies. Recognizing a duty of care on the government when it makes
    representations to the tobacco companies about the health attributes of tobacco
    strains would not conflict with its general duty to protect the health of the
    public.

[145]

Similarly, in
Hill v. Hamilton-Wentworth Regional Police Services
    Board
, 2007 SCC 41, [2007] 3 S.C.R. 129, the court recognized, at para.
    40, that a duty of care to suspects in conducting an investigation would not
    conflict with public duties imposed on the police:

It is argued that recognition of liability for negligent
    investigation would produce a conflict between the duty of care that a police
    officer owes to a suspect and the polices officer duty to the public to
    prevent crime, that negates the duty of care. I do not agree. First, it seems
    to me doubtful that recognizing a duty of care to suspects will place police
    officers under incompatible obligations. Second, on the test set forth in

Cooper
and
    subsequent cases, conflict or potential conflict does not in itself negate a

prima
    facie
duty of care; the conflict must be between the novel duty
    proposed and an overarching public duty, and
it must pose a real potential
    for negative policy consequences
. Any potential conflict that could be
    established here would not meet these conditions. [Emphasis added.]

[146]

Moreover, a duty of care in tort law should not be denied on
    speculative grounds: para. 43. McLachlin C.J. described the potential for
    negative policy repercussions in that case as dubious, at para. 43:

Requiring police officers to take reasonable care toward
    suspects in the investigation of crimes may have positive policy
    ramifications. Reasonable care will reduce the risk of wrongful
    convictions and increase the probability that the guilty will be charged and
    convicted. By contrast, the potential for negative repercussions is
    dubious. Acting with reasonable care to suspects has not been shown to
    inhibit police investigation.

[147]

In my view, it is not plain and obvious at this stage of the proceedings
    that there is a real potential for negative consequences between the Crowns
    public duties and the alleged private duty to properly enforce the
Initiative
.
    Without the benefit of an evidentiary record, it is speculative to say that
    there is a conflict.

Conflict  Police/Prosecutorial Discretion

[148]

At para. 62, the motion judge stated that [t]he discretion regarding
    investigation and prosecution is a doubtful application, at least at this
    stage, as abdication, essentially as pleaded, is not the exercise of
    discretion.

[149]

The Crown argues that imposing a private law duty would be inconsistent
    with police and prosecutorial discretion. In particular, the Crown says that
    the principle of police discretion precludes the relevant Ministers from even
    attempting to direct the RCMP, which is responsible for taking enforcement
    action against contraband. Police must have broad discretion to decide whether
    or not to investigate a matter, conduct searches, lay charges, and proceed with
    charges or enter a stay. They say that maintaining police discretion is especially
    important in the on-Reserve context.

[150]

The Crown also takes issue with the motion judges statement that
    [p]resumably, the public has the same interest as the plaintiffs in the
    enforcement of legislation on the basis of equal treatment: para. 65. The
    Crown says that this statement is at odds with the notion of police and
    prosecutorial discretion, which may result in two individuals who have
    committed the same offence being treated differently.

(a)

Analysis

[151]

I am not persuaded that the motion judge erred in his characterization
    of the pleading or his conclusion that it is not plain and obvious that, as
    pleaded, a private duty on the Ministers would conflict with police or
    prosecutorial discretion. Although the Fresh Statement of Claim references a
    particular situation where the RCMP and the Canada Border Services Agency
    failed to act, I read these paragraphs as merely illustrative of what is
    alleged to be a broader systemic problem. In the motion judges words, there
    was effectively an abdication of discretion.

[152]

Reading the pleading generously as a whole, I do not think that the
    characterization of the Crowns conduct as an abdication is an unfair
    characterization. For instance, para. 39 states that notwithstanding many
    communications, the Ministers have done virtually nothing to address the issue
    of Contraband on the Reserve. It must be remembered that we do not yet have a
    statement of defence. We do not know the Crowns response to any of the
    respondents allegations. At trial, evidence will show whether there was a
    failure to act and, if so, the reason for such a failure. In the meantime, I
    consider it premature to strike the respondents claim on the basis of an
    alleged conflict with police and prosecutorial discretion.

(3)

Residual Policy Factors

[153]

The second stage of the
Anns/Cooper
test is not concerned with
    the relationship between the parties, but with the effect of recognizing a duty
    of care on other legal obligations, the legal system and society more generally:
Cooper
, at para. 37, cited with approval in
Odhavji
, at para.
    51.

[154]

The motion judge acknowledged that policy considerations could pose a
    hurdle for the respondents but concluded that it was premature to strike the
    negligence claim based on residual policy concerns at this early stage.

[155]

The Crown advances two residual policy reasons as to why a duty of care
    should not be recognized: (1) the actions challenged in this case constitute
    core policy decisions; and (2) doing so would result in indeterminate liability.


i.

Core Policy

[156]

The Crown again makes the point that Ministers are not responsible for
    carrying out enforcement action under relevant statutes and that their role in
    relation to policing and prosecution is confined to seeing that law enforcement
    agencies and prosecutors operate within established policy. Moreover,
    determinations on issues such as the rate of taxation, the amount of funds to spend,
    and the number and kind of officers to deploy and where, are policy decisions.

[157]

I agree that determinations on such issues are core policy issues.
    However, the respondents do not allege that the resources (e.g. budget and
    personnel) allocated to the
Initiative

were inadequate. Rather,
    what is pleaded is that the
Initiative

was not properly
    implemented or administered, and that the Ministers have done virtually nothing
    to ensure that the issue of contraband is addressed. This may or may not be
    denied in the statement of defence. It may be that there was a policy decision
    not to make enforcement a priority. On the other hand, it may be that if there
    was inaction, the inaction was for an improper reason in which case the
    inaction would not constitute a policy decision that is immune from review.
    Core policy decisions are protected from suit, provided they are neither
    irrational nor taken in bad faith:
Imperial Tobacco
, at para. 90.

[158]

In
Imperial Tobacco
, the Supreme Court acknowledged that [t]he
    question of what constitutes a policy decision that is generally protected from
    negligence liability is a vexed one, upon which much judicial ink has been
    spilled: para. 72. While the court tried to clarify what was meant by a policy
    decision, it acknowledged that [d]ifficult cases may be expected to arise from
    time to time where it is not easy to decide whether the degree of policy
    involved suffices for protection from negligence liability: para. 90. The
    court warned, at para. 70, that a court should be hesitant to strike a claim
    where a matter may turn out not to be a matter of policy:

Unless it is plain and obvious that on those facts the action
    has no reasonable chance of success, the motion to strike must be refused. To
    put it another way,
if there is a reasonable chance that the matter as
    pleaded may in fact turn out not to be a matter of policy, then the application
    to strike must be dismissed. Doubts as to what may be proved in the evidence
    should be resolved in favour of proceeding to trial.
The question for
    us is therefore whether, assuming the facts pleaded to be true, it is plain and
    obvious that any duty of care in negligent misrepresentation would be defeated
    on the ground that the conduct grounding the alleged misrepresentation is a
    matter of government policy and hence not capable of giving rise to liability
    in tort. [Emphasis added.]

[159]

In my view, in this case there is a reasonable chance that the matter as
    pleaded may turn out not to be a matter of policy. It would therefore be
    premature to strike the claim on the basis that the Ministers actions or
    inaction reflect policy choices.


ii.     Indeterminate Liability

[160]

The motion judge was not persuaded that there is any concern for
    indeterminate liability as the fact situation is unique: para. 64.

[161]

The Crown submits that he erred because the Crowns liability is
    theoretically limitless, as was the case in
Weninger

where the
    motion judge held that the potential exposure of government to lawsuits [would
    be] endless if a duty of care were to be recognized in that case: para. 68.

[162]

In my view, the Crowns argument ignores differences between the negligence
    claim in
Weninger
and the claim in this case. In
Weninger
, the
    plaintiffs alleged that the defendants owed a duty of care not only to the
    plaintiffs but also to other tobacco producers:

[T]he Canada Crown Servants and the Ontario Crown servants each
    owe a duty of care to the Plaintiffs and others dependent upon the lawful
    production, marketing and sale of tobacco and tobacco products to ensure that
    all tobacco marketed in Ontario is marketed in accordance with and pursuant to
    the provisions of the
Excise Act,
the
Excise Tax Act,
    2001,
the
Excise Tax Act,
the
Retail Sales
    Tax Act
and the
Tobacco Tax Act.

[163]

As the motion judge in
Weninger
noted, [t]obacco producers are
    not a narrow and clearly-defined group: para. 65. And the duty was not said
    to be confined to a particular group on the basis of specific interactions.
    Rather, as the motion judge noted, the claim does not mention any dealings
    between the plaintiffs and the federal or provincial government: para. 59.

[164]

Here, the respondents claim is narrower. It is alleged that the
    respondents were owed a duty based on specific interactions. Instead of
    claiming that all tobacco producers have been hurt, the respondents claim that
    they have been singled out.

[165]

Thus, in my view, a concern about indeterminate liability is not
    a basis for striking the claim at this stage of the proceeding.

(4)

Conclusion

[166]

For these reasons, I am of the view that the motion judge did not err in
    concluding that the negligence claim should be permitted to proceed to trial. It
    is not plain and obvious the negligence claim should be struck on the basis of
    a lack of proximity at the first stage of the
Anns/Cooper
test, or on
    the basis of residual policy reasons at the second stage.

III.

FIDUCIARY DUTY

[167]

Section 9 of the Fresh Statement of Claim reads as follows:

THE
    CROWN BREACHED ITS FIDUCIARY DUTY

49.

The Crown owes a fiduciary duty to the former
    partners of the Partnership as Indians. By means of the unlawful scheme set
    forth above of the Minister of National Revenue to deprive the aboriginal
    Plaintiffs of their rights under section 87 of the
Indian Act
and their
    aboriginal rights, the Crown assumed and exercised discretionary control over
    the ability of the aboriginal Plaintiffs to earn their livelihood on the
    Reserve and to employ other aboriginal persons.

50. The requirement that the Partnership incorporate in order
    to obtain an Excise Licence and the later refusal of the Ministers to properly
    implement and administer the
Initiative
were breaches of the Crowns
    fiduciary duty to the Plaintiffs and a failure to abide by the standard of
    honourable dealings mandated by the honour of the Crown. As stated earlier,
    the Minister required the Partnership to incorporate their manufacturing business
    located on the Reserve in order to deprive the aboriginal Plaintiffs of their
    rights as Indians to be free from taxation and thereby impose liability for the
    payment of excise taxes and duties that would not otherwise have existed. These
    acts and omissions have caused loss and harm to the Plaintiffs and have had the
    consequence of GRE being deprived of its ability to operate as a partnership
    and to burden it with the payment of excise taxes and duties. The Crown had the
    fiduciary duty to ensure that the Plaintiffs were not put at a disadvantage
    vis-à-vis other Indians manufacturing tobacco on reserves. As a consequence of
    the Ministers refusals to properly implement and administer the
Initiative
,
    GRE has been forced to compete in on reserve sales with unlicensed Contraband
    manufacturers on reserves which pay no such taxes and duties.

[168]

Paragraphs 49 and 50 blend a number of different concepts  the
    existence of a fiduciary duty, the nature of any such duty, and the breach of
    any such duty.
As to the existence
    of a duty, para. 49 asserts that
the Crown owes a fiduciary duty
    to the individual partners as Indians. Neither para. 49 nor para. 50 assert
    that the Crown owes a fiduciary duty to GRE, the corporation. However, para. 50
    asserts that the Crown breached its fiduciary duty to the Plaintiffs, which
    includes GRE. In other words, while it is not expressly pleaded that the Crown
    owes a fiduciary duty to GRE, it is pleaded that the Crown breached its
    fiduciary duty to the individual plaintiffs and GRE.

[169]

Although these paragraphs deal with both forced incorporation and the
    failure to enforce, the Crowns appeal in this respect deals only with the
    failure to enforce.

A.

Motion
    Below

[170]

The motion judges reasons on the fiduciary issue are found at paras.
    101-131 of his reasons. The motion judge reviewed the relevant portions of the
    pleading and set out the two tests for establishing a fiduciary duty in the
    aboriginal context: para. 102. He noted that the law pertaining to aboriginal
    rights is still evolving, which was a factor that must be taken into account:
    para. 103. He explained that a fiduciary relationship has long been recognized
    as between the Crown and aboriginal peoples but not every aspect of the
    relationship gives rise to a fiduciary duty: para. 104. After discussing the
    tests for establishing a fiduciary duty, the motion judge described the
    positions of the parties at some length. Finally, starting at para. 126, the
    motion judge set out his analysis of the issues as follows:

Having regard to the ongoing development of aboriginal law, I
    am satisfied the Fresh as Amended Statement of Claim satisfactorily addresses
    the necessary elements for breach of fiduciary duty. Amendments may become
    necessary at a later date, even at trial, as the evidentiary record is
    developed.

The plaintiffs argument on the second test
[
[3]
]
is stronger than on the first, in my view, based on the pleaded facts.
    Discretionary control, with reference to the forced incorporation, is not a
    compelling submission as it relates to GRE. However, the position may become
    more clear after discoveries.

The pleaded agreement regarding enforcement of the
Initiative
,
    with respect to the second test, and the other pleaded facts, gives an air of
    reality to the argument an undertaking was made by the Crown. It is logical and
    consistent with the Crowns obligation of equal treatment and in the interests
    of the public to see legislation enforced with respect to all on-reserve
    manufacturers of tobacco projects, not just some of them.

Assuming the pleaded facts to be true, the partners were
    beneficiaries and they have suffered financial harm.

The honour of the Crown principle helps to inform regarding the
    relationships between the parties, in general, and their negotiations, in
    particular. Clearly, there was consultation by the government with the partners
    concerning the request for an Excise license. What is not clear is how those
    negotiations were handled and whether such were done with utmost good faith and
    due diligence. There are a multitude of unanswered questions that result from
    existing caselaw and the pleaded facts in this case. 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.

In result, I conclude it is not plain and obvious that the
    claim for breach of fiduciary duty will fail.

B.

Appeal to
    this Court

(1)

Legal Principles

[171]

The Supreme Court has clarified that in the aboriginal context a fiduciary
    duty may arise in two ways:
Manitoba Metis Federation Inc. v. Canada
    (Attorney General)
, 2013 SCC 14, [2013] 1 S.C.R. 623. At paras. 49-50,
    McLachlin C.J. and Karakatsanis J. described the two tests as follows:

In the Aboriginal context, a fiduciary duty may arise as a
    result of the Crown [assuming] discretionary control over specific Aboriginal
    interests:
Haida Nation v. British Columbia (Minister of Forests)
, 2004
    SCC 73, [2004] 3 S.C.R. 511, at para. 18. The focus is on the particular
    interest that is the subject matter of the dispute:
Wewaykum Indian Band v.
    Canada
, 2002 SCC 79,

[2002] 4 S.C.R. 245, at para. 83. The content
    of the Crowns fiduciary duty towards Aboriginal peoples varies with the nature
    and importance of the interest sought to be protected:
Wewaykum
, at
    para. 86.

A fiduciary duty may also arise from an undertaking, if the
    following conditions are met:

(1) an undertaking by the alleged fiduciary to act in the best
    interests of the alleged beneficiary or beneficiaries; (2) a defined person or
    class of persons vulnerable to a fiduciarys control (the beneficiary or beneficiaries);
    and (3) a legal or substantial practical interest of the beneficiary or
    beneficiaries that stands to be adversely affected by the

alleged
    fiduciarys exercise of discretion or control.

(
Alberta v. Elder
    Advocates of Alberta Society
, 2011 SCC 24, [2011] 2 S.C.R. 261, at para.
    36)

[172]

As explained by McLachlin C.J. in
Elder Advocates
,
it will be rare that a Crown actor will owe a
    fiduciary duty. As she noted at para. 37, [t]he special characteristics of
    governmental responsibilities and functions mean that governments will owe
    fiduciary duties only in limited and special circumstances.

[173]

After discussing the special nature of the governmental context and
    how it impacts on the requirements of a fiduciary relationship (para. 41),
    McLachlin C.J. concluded her discussion with the following admonition, at para.
    54 of
Elder Advocates
:

It thus emerges that
a rigorous application of the general
    requirements for fiduciary duty will of necessity limit the range of cases in
    which a fiduciary duty on the government is found. Claims against the
    government that fail to satisfy the legal requirements of a fiduciary duty
    should not be allowed to proceed in the speculative hope that they may
    ultimately succeed
. The truism that the categories of fiduciary duty are
    not closed (as Dickson J. noted in
Guerin
, at p. 384) does not justify
    allowing hopeless claims to proceed to trial: see M. V. Ellis,
Fiduciary
    Duties in Canada
(loose-leaf), at pp. 19-3 and 19-24.10.
Plaintiffs
    suing for breach of fiduciary duty must be prepared to have their claims tested
    at the pleadings stage, as for any cause of action
. [Emphasis added.]

[174]

Thus, the court should apply a rigorous approach in assessing the
    respondents fiduciary claims at the pleadings stage.

(2)

Principles Applied


i.


Ad Hoc
Fiduciary
    Duty

[175]

Under the second test set out above  the test for establishing an
ad
    hoc
fiduciary duty  the plaintiff must show that the alleged fiduciary
    made an undertaking to act in the best interests of the plaintiff. Here, the
    respondents plead that there was an agreement or implied undertaking given to
    them. For instance, at para. 28, it is pleaded that the government undertook to
    level the playing field between GRE and other tobacco manufacturers:

[T]here was a
clear agreement
that if GRE was given an
    Excise Licence , the Government would carry out intensified enforcement under
    the
Initiative
against Contraband, and take all measures to ensure that
    other on reserve manufacturers of tobacco products were actually operating
    under the same rules under which the Plaintiffs were being required to continue
    operations on the Reserve: in short, that
there would be a level playing
    field
. In the alternative, there was an
implied undertaking
given on
    behalf of the Minister to the same effect: para. 28. [Emphasis added.]

[176]

Paragraph 58 of the Fresh Statement of Claim also makes reference to
    the clear agreement  or in the alternative  the implied undertaking given on
    behalf of the Minister that the Crown would properly implement and administer
    the
Initiative
, thereby combating Contraband on reserves and
not
    putting GRE at a disadvantage
 (emphasis added).

[177]

Similarly, para. 50 says that the Crown had a duty to ensure that the
    Plaintiffs were not put at a disadvantage vis-à-vis other Indians
    manufacturing tobacco on reserves.

[178]

The Crown submits that, even assuming that there was such an agreement
    or implied undertaking, it still does not amount to an undertaking that would
    give rise to a fiduciary duty.

[179]

I agree.

[180]

As McLachlin C.J. explained at para. 30 of
Elder Advocates
, to
    establish an
ad hoc
fiduciary duty, the evidence must show that the
    alleged fiduciary gave an undertaking of responsibility to act in the best
    interests of a beneficiary. Not any undertaking will suffice. The party
    asserting the duty must be able to point to a forsaking by the alleged
    fiduciary of the interests of all others in favour of those of the beneficiary,
    in relation to the specific legal interest at stake: para. 31. The nature of
    the duty is said to be one of utmost loyalty to the beneficiary: para. 43.

[181]

McLachlin C.J. warned that the nature of that duty  to put the
    beneficiarys interests first  is at odds with the role of the Crown, and so
    the requirement of an undertaking to act in the alleged beneficiarys interest
    will typically be lacking where what is at issue is the exercise of a
    government power or discretion: para. 42. She made a similar point, at para.
    44:

Compelling a fiduciary to put the best interests of the
    beneficiary before their own is thus essential to the relationship. Imposing
    such a burden on the Crown is inherently at odds with its duty to act in the
    best interests of society as a whole, and its obligation to spread limited
    resources among competing groups with equally valid claims to its assistance:
Sagharian
    (Litigation Guardian of) v. Ontario (Minister of Education)
, 2008 ONCA 411,
    172 C.R.R. (2d) 105, at paras. 47-49.
The circumstances in which this will
    occur are few. The Crowns broad responsibility to act in the public interest
    means that situations where it is shown to owe a duty of loyalty to a
    particular person or group will be rare
: see
Harris v. Canada
, 2001
    FCT 1408, [2002] 2 F.C. 484, at para. 178. [Emphasis added.]

[182]

Manitoba Metis
illustrates that, even in the aboriginal
    context, there is a requirement for an undertaking of loyalty to establish an
ad
    hoc
fiduciary duty. The plaintiffs in that case said an undertaking arose
    from the wording of the relevant legislation. In concluding that there was no
    undertaking that would give rise to a fiduciary duty, the court emphasized that
    there must be an undertaking of loyalty to act in the beneficiaries best
    interests in the nature of a private law duty: para. 61. In that case, the
    legislation in question did not amount to an undertaking to act in the
    plaintiffs best interests in priority to other legitimate concerns: para.
    62.

[183]

In this case, assuming that the facts as pleaded are true, I have
    difficulty seeing how the alleged agreement or implied undertaking amounts to
    an undertaking of loyalty to act in the beneficiaries best interests or that
    there was forsaking  of the interests of all others in favour of those of the
    beneficiary. While there was, according to the Fresh Statement of Claim, an
    undertaking, it was an undertaking to treat everyone equally  to level the
    playing field  not to
prefer
the interests of the respondents over
    the interests of other on-Reserve tobacco manufacturers.

[184]

The Crown suggests that the motion judge appears to have accepted the
    plaintiffs arguments that an undertaking was made by the Crown, and that the
    undertaking need not be one of loyalty. I would agree that the motion judge
    seems to have ignored the requirement that the undertaking be one of utmost
    loyalty.

[185]

In setting out the test for establishing an
ad hoc
fiduciary
    duty at para. 102 of his reasons, the motion judge failed to mention that there
    must be an undertaking by the alleged fiduciary
to act in the best
    interests of the alleged beneficiary or beneficiaries
:
Manitoba Metis
,
    at para. 50 (emphasis added). Rather, he simply asked [w]as there an
    undertaking that gave rise to a fiduciary duty? In summarizing the position of
    the respondents, the motion judge noted their argument that there was no need
    for an express pleading that the Crown was forsaking the interests of the
    public: para. 124. However, later in his analysis section, the motion judge
    simply noted the pleaded agreement regarding enforcement of the
Initiative
,
    with respect to the second test, and the other pleaded facts, gives an air of reality
    to the argument an undertaking was made by the Crown: para. 128.

[186]

I agree with the respondents that there is no need for an express
    pleading that the Crown was forsaking the interests of the public. It would be
    enough if it could be implied. However, here it is alleged that there was an
    undertaking to level the playing field, which is contrary to the notion of
preferring
the interests of the respondents over the interests of others.

[187]

That disposes of the
ad hoc
fiduciary duty claim. There is no
    need to proceed further on this issue. However, for the sake of completeness I
    will comment briefly on the last prong of the test for establishing an
ad
    hoc
fiduciary duty, which is also at issue on the appeal.

[188]

The Crown argues that there can be no
ad hoc
fiduciary duty imposed
    on the Crown because, as pleaded, neither the nature of the interests in
    question nor the nature of the discretionary control satisfy the third prong of
    the test.

[189]

As will be recalled, under the third prong of the test for establishing an
ad hoc
fiduciary duty, there must be a legal or substantial practical
    interest of the beneficiary or beneficiaries that stands to be adversely
    affected by the alleged fiduciarys exercise of discretion or control:
Elder
    Advocates
, at para. 36;
Manitoba Metis
, at para. 14.

[190]

As McLachlin C.J. explained in
Elder Advocates
, it may be
    difficult to establish that the government power affects a legal or significant
    practical interest. She described what type of interest must be affected for
    the third prong of the test to be met, at para. 51:

The interest affected must be a specific
private law
interest to which the person has a pre-existing distinct and complete legal
    entitlement
. Examples of sufficient interests include property rights,
    interests akin to property rights, and the type of fundamental human or
    personal interest that is implicated when the state assumes guardianship of a
    child or incompetent person. The entitlement must not be contingent on future
    government action. In other circumstances, a statute that creates a complete
    legal entitlement might also give rise to a fiduciary duty on the part of
    government in relation to administering the interest. [Italics in original;
    underlining added.]

[191]

She also described the degree of control necessary to meet the test, at
    para. 53:

[T]he 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
. Otherwise, fiduciary
    obligations would arise in most day to day government functions making general
    action for the public good difficult or almost impossible. [Emphasis added.]

[192]

In this case, the respondents plead at para. 49 of the Fresh Statement
    of Claim that the Crown, by means of the Crowns "unlawful scheme",
    exercised discretionary control over the ability of the aboriginal Plaintiffs
    to earn their livelihood on the Reserve and to employ other aboriginal
    persons. There is no other mention of discretionary control in paras. 49 or
    50.

[193]

The motion judge had concerns about the issue of discretionary control.
    He noted, as set out above that [d]iscretionary control, with reference to the
    forced incorporation, is not a compelling submission as it relates to GRE.
    However, the position may become more clear after discoveries.

[194]

In my view, it is difficult to see how a failure to enforce public laws
    is anything more than [t]he type of legal control over an interest that arises
    from the ordinary exercise of statutory powers:
Elder Advocates
, at
    para. 53. In other words, agreeing to enforce laws against third parties is not
    analogous to the direct administration of a specific private law interest to
    which the person has a pre-existing distinct and complete legal entitlement.

[195]

The parties also dispute the nature of the interests at stake  whether
    the interests at stake are GREs commercial interests or the individual
    respondents aboriginal interests. I discuss that issue below.


ii.     Fiduciary Duty under the
Wewaykum
Test

[196]

As noted above, to establish a fiduciary duty under what the parties
    refer to as the 
Wewaykum
test, a plaintiff must prove that the Crown
    assumed discretionary control over a specific or cognizable aboriginal
    interest:
Manitoba
Métis
, at paras. 49, 51.

[197]

In
Wewaykum
, the court observed that where it exists, [the
    fiduciary duty] is called into existence to facilitate supervision of the high
    degree of discretionary control gradually assumed by the Crown over the lives
    of aboriginal peoples: para. 79. However, not all obligations between the
    Crown and aboriginal peoples are fiduciary in nature: para. 83. Each situation
    must be assessed on its particular facts.

[198]

The court also in noted in
Wewaykum
that the existence of a
    public law duty does not necessarily exclude the creation of a fiduciary
    relationship, provided there is a cognizable aboriginal interest and the
    Crown undertakes discretionary control of the interest in a way that invokes
    responsibility in the nature of a private law duty: para. 85.

[199]

In
Manitoba Metis
, the court applied the
Wewaykum

test,
    striking the fiduciary claim on the basis that the Métis did not have a
    specific or cognizable Aboriginal interest giving rise to a fiduciary duty.
    In that case, there was little dispute that the Crown undertook discretionary
    control of the administration of lands set aside for the Métis people under the
Manitoba Act
. Rather, the issue was the nature of the Métis interest
    in the land. The Supreme Court held that [t]he fact that the Métis are
    Aboriginal and had an interest in the land is not sufficient to establish an
    Aboriginal interest in land: para. 53. The interest was not distinctly Aboriginal
    because, as a collective, the Métis did not have a specific aboriginal interest
    in the land. While individual Métis held interests in land, those interests
    arose from their personal history, not their shared Métis identity: para. 56.

(a)

Analysis

[200]

Here, the motion judge did not identify the nature of the cognizable
    aboriginal interest in his analysis, although in his summary of the parties
    positions he stated, at para. 121, that the plaintiffs identify the specific
    aboriginal interest as the partners aboriginal right to trade tobacco
    commercially and their right under s. 87,
Indian Act
, to be exempt
    from taxation.

[201]

In my view, the problem with the breach of fiduciary duty claim based on
    the failure to enforce theory is that the claim relates to GRE, not the
    individual respondents who are said to have aboriginal rights. Reading the
    pleading as a whole, the breach of the individual respondents right to be
    exempt from taxation is said to be as a result of the forced incorporation, not
    the failure to enforce. The breach of the individual respondents right to
    trade in tobacco is also said to be as a result of forced incorporation. To the
    extent there is said to be harm flowing from the failure to enforce, it is harm
    flowing to GRE, which was required to compete against contraband tobacco manufacturers.
    As for GRE, it is not expressly pleaded that a fiduciary duty was owed to GRE
    or that the corporation has any aboriginal interests. Thus, as pleaded, it is
    plain and obvious that, in failing to enforce excise legislation, the Crown did
    not assume discretionary control over specific aboriginal interests, even if
    one assumes that failing to enforce legislation vis-à-vis third parties amounts
    to assuming discretionary control over the individual respondents aboriginal
    interests, and assuming the alleged interests amount to cognizable aboriginal
    interests.

[202]

In my view, the fact that aboriginal law is an evolving area is not sufficient
    to save this claim. The words of this court in
Lafrance Estate v. Canada
    (Attorney General)
, (2003), 64 O.R. (3d) 1, at
    paras. 32-33, remain apt:

Further, as Binnie J.s review of the law in
Wewaykum
    Indian Band
reveals, fiduciary law in Canada, particularly in respect
    of the Crown's relationship with aboriginal peoples, is a very dynamic area of
    Canadian law. The nature and extent of the particular obligations that may
    arise out of this relationship are matters that remain largely unsettled in the
    jurisprudence.

This state of the law does not mean, of course, that any claim
    for breach of fiduciary duty arising out of the relationship between the Crown
    and the aboriginal peoples of Canada must necessarily survive the pleading
    stage. The same test under Rule 21 applies to this kind of action. It does
    mean, however, that more claims of this nature may be, as of yet, unprecedented
    but nonetheless tenable at law within the meaning of Rule 21.

(3)

Conclusion

[203]

As noted by McLachlin C.J. in
Elder Advocates
, it will be rare
    that a Crown actor will owe a fiduciary duty. In her words [c]laims against
    the government that fail to satisfy the legal requirements of a fiduciary duty
    should not be allowed to proceed in the speculative hope that they may ultimately
    succeed: para. 54.

[204]

In this case, I am of the view that it is plain and obvious that the
    fiduciary claims, as pleaded, do not satisfy either test for establishing a
    fiduciary duty and, with respect, the motion judge erred in concluding
    otherwise.

DISPOSITION

[205]

On the basis of these reasons, I would allow the appeal in part and strike
    out the respondents breach of fiduciary duty claims based on the failure to
    enforce. In all other respects I would dismiss the appeal.

[206]

At the conclusion of the hearing, counsel indicated that, upon being
    advised of this courts disposition of the appeals, they anticipated being able
    to resolve costs. If this is not possible, I would order the parties to make
    submissions as to costs within 20 days of the release of these reasons.

Released: June 23, 2017
    (KF)

Gloria Epstein J.A.

I agree. K. Feldman J.A.

I agree. B.W. Miller J.A.





[1]

Since the case goes back 20 years, both the
Excise Act,
    2001
and its predecessor legislation are relevant. I use the term 
Excise
    Act
 to refer to both the current and predecessor legislation.



[2]

In 2007, GRE appealed 23 assessments of excise duty under the
Excise
    Act
to the Tax Court. The pleading initially included allegations
    pertaining to the aboriginal right to trade in tobacco and exemption from
    taxation, but was later amended so as to just challenge the correctness of the
    assessments. The appeal was dismissed by the Tax Court in 2011, and the Federal
    Court of Appeal in 2012.



[3]
I take the reference to the second test to be a reference to the test for
    determining whether there is an
ad hoc
duty based on an undertaking,
    since that is the test the motion judge mentions second at para. 102 of his
    reasons.


