By Ben Pearson and Emilie Feil-Fraser

In this September 18, 2023 decision from the British Columbia Supreme Court, the Court struck a civil claim filed by a group of licensed cannabis retailers in BC, seeking damages from the Province for failing to enforce against unlicensed cannabis retailers operating on Indigenous reserves. The Court struck the claim, finding that the Province did not owe a private duty of care to cannabis retailers.

Background

After the federal Cannabis Act and Cannabis Regulations came into force in 2018, the British Columbia provincial government enacted the Cannabis Control and Licensing Act (the “CCLA”) and the Cannabis Distribution Act (the “CDA”) as well as regulations promulgated under the CCLA and the CDA, such as the Cannabis Licensing Regulations.  These instruments establish the licencing and regulatory regime for the retail sale of non-medical cannabis in British Columbia. In particular, licenses to establish and operate recreational cannabis retail stores within British Columbia are issued under the CCLA.

The CCLA also creates a framework for cooperation between the provincial government and Indigenous nations. Subject to the approval of the Lieutenant Governor in Council, the Minister of Public Safety and Solicitor General, on behalf of the provincial government, may enter into agreements with an Indigenous nation with respect to cannabis. Three Indigenous nations entered into such agreements in 2021 and 2022 with the provincial government.  

The Claim

The Plaintiffs, a group of licensed cannabis retailers in BC, sought a declaration that the Province committed the torts of negligence and negligent misrepresentation by failing to adequately enforce the licencing requirements of the CCLA on Indigenous Reserves.

It was the Plaintiffs’ position that the Province failed to enforce licensing requirements of the CCLA by not shutting down certain illegalretail cannabis locations (i.e. that were not licensed under the CCLA) operating on Indigenous Reserves. The Plaintiffs alleged damages of at least $40 million were suffered on account of negligence and/or negligent misrepresentation by the BC government.

The plaintiffs further alleged that the Province made representations that it would ensure a viable retail cannabis industry in BC by, among other things, ensuring that the CSU would take enforcement action against unlicensed retailers on Indigenous Reserves. They asserted that they relied on these representations to their detriment. 

The Province moved to strike the statement of claim, asserting it was plain and obvious that it has no reasonable prospect of success.

No Private Law Duty of Care Exists

The BC Supreme Court ruled in favour of the Province and struck the Plaintiffs’ claim. In finding that it was plain and obvious that the claim had no reasonable prospect of success, the decision turned on whether or not the Province owed a private law duty of care to the Plaintiffs.

In order for a duty of care to be owed by a government regulator, the Court conducted a two-stage proximity analysis:

  1. the task at the first stage is to “determine whether the statutory scheme discloses the legislative intention to exclude or confer a private law duty of care”; and
  • at the second stage, if the legislation is not determinative, courts must look to the interaction(s) between the regulator and the plaintiff to determine whether a sufficiently close and direct relationship exists to impose a prima facie duty of care.

Where a statutory purpose is to promote a public good, and the regulator’s actions involve the administration and enforcement of the statutory scheme, and it does not stray from that role, a private law duty of care will generally not arise.

The Court held that the broad purposes identified by the Minister in the Legislature when discussing the CCLA confirmed that its aim was to promote the public good.

Further, the Court was not persuaded that the Minister intended to induce retailers to enter into a potentially lucrative new market with promises of specific, ongoing, and targeted use of its discretionary enforcement powers.

Relying on jurisprudence from the Patented Medicines (Notice of Compliance) regime, the Court held that interactions between the Province and the Plaintiffs did not create a special relationship. These were nothing more that regular interactions between the Province as a regulator and the Plaintiffs as licensees and members of the public.

In disposing of the claim, the Court held that even if it were to conclude that the Province owed the Plaintiffs a prima facie duty of care, such duty would be negated by residual policy concerns outside of the relationship between the parties. This was because such a duty would expose the government to indeterminate liability of an indeterminate class. Since the government has no control over the number of individuals that may seek to unlawfully sell cannabis, it cannot control the number of individuals who sell through unlicensed dispensaries.

The Court relied on Weninger Farms Ltd. v Canada, 2012 ONSC 4533, in support of this principle. In that case, the Court similarly found a duty of care did not exist where tobacco products were being sold on Indigenous reserves. The claim was dismissed with costs to the Province.

Read the full decision on Canlii.

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