The Supreme Court of Canada ruled Friday that the federal government cannot be drawn into lawsuits against tobacco companies and held liable for damages.

The unanimous decision marks a victory for Ottawa in two cases where it could have been on the hook for potentially billions of dollars if the tobacco industry loses once the cases proceed.

Imperial Tobacco Canada Ltd., and a number of other major tobacco companies were trying to have the Supreme Court declare the federal government a third party in the cases. That would have forced Ottawa to act as a co-defendant.

Friday's decision covers two appeals from British Columbia's Court of Appeal and it rejects all of the arguments put forward in both cases by the tobacco companies.

Imperial Tobacco says it is "disappointed" with the decision.

"Unfortunately, the Supreme Court of Canada has decided that the federal government is not accountable for its decisions and actions," said Donald McCarty, Imperial Tobacco Canada's vice-president of law. "We nonetheless intend to set the record straight and believe it is important for the government of Canada to answer for its long and sustained involvement in the tobacco industry."

Health Minister Leona Aglukkaq issued a statement Friday afternoon saying the government is pleased Canadian taxpayers will not be liable for the claims made against tobacco companies. Aglukkaq said Canada is considered a world leader in tobacco control, thanks to a variety of government initiatives to reduce smoking.

Imperial Tobacco is facing a class-action lawsuit from smokers who bought so-called light and mild brands of cigarettes and want their money back. They argue the levels of tar and nicotine listed on Imperial's packages did not reflect the actual toxic emissions from the cigarettes and that the smoke produced from them was just as harmful as regular cigarettes.

In the other case, British Columbia wants tobacco companies to pay for the health-care costs associated with smoking-related illnesses. The province passed legislation, the Costs Recovery Act, to allow it to try to hold tobacco companies accountable for health-care costs. The B.C. government argues that by 1950, the companies knew or ought to have known that cigarettes were hazardous to health and that they failed to warn the public about the health risks of their products.

Provinces follow B.C.'s lead

The legal wrangling in the case began 13 years ago, and other provinces have since followed B.C.'s lead. All 10 provinces have now passed legislation similar to the Costs Recovery Act, another three (Ontario, New Brunswick and Newfoundland and Labrador) have initiated court proceedings and Alberta, Manitoba, Quebec and Nova Scotia have said they intend to take legal action against tobacco companies. The Ontario case alone could amount to $50 billion.

Imperial Tobacco and the other companies (including Rothmans, Benson & Hedges Inc., Philip Morris International Inc., and others) argued that the federal government should be a third party on several grounds.

They argued the government was negligent in its duties both to consumers and to the tobacco companies on a number of fronts, including by telling the public that low-tar cigarettes are less hazardous than other cigarettes. It also said the government made negligent misrepresentations to the tobacco companies about the low-tar strains of tobacco that the government had designed and licensed.

"The federal government has known about the risks associated with smoking for decades and they have instigated and promoted the development and sale of 'light and mild' products in Canada," McCarty said in Friday's statement. "It is astounding that the government of Canada can step away from its responsibilities and leave tobacco producers to bear the full brunt of these allegations, when it has been fully complicit in all aspects of the manufacturing and marketing of tobacco products for decades," he said.

The Supreme Court of Canada ruled Friday that tobacco companies could not draw the federal government into the cases against them. (Adrian Wyld/Canadian Press)

The Supreme Court judges agreed that the federal government had a "duty of care" in some instances, but ruled that Ottawa was acting in good faith and was following a government policy of encouraging people who continued to smoke to switch to cigarettes with less tar.

That policy was developed out of concern for the health of Canadians and is therefore protected from legal action, the court decided.

The tobacco companies had asked the Supreme Court to still declare the federal government a third party even if it decided it wasn't liable financially, because they wanted Ottawa to be part of the lawsuits regardless and bound by court rules, including those that govern the production of evidence.

The Supreme Court rejected that request also, saying the tobacco companies' ability to mount defences would not be impeded if the federal government were not a third party.

'A very bad day' for tobacco companies

Health and anti-smoking advocates were pleased with the blow delivered to the tobacco industry.

"The tobacco industry received a very significant defeat today at the hands of the Supreme Court," said Rob Cunningham, who represents the Canadian Cancer Society. "The tobacco industry has caused a tobacco epidemic through their wrongful behaviour over many decades and it's the tobacco industy that should pay the damages."

He and others say the tobacco industry was trying to shift blame and has been mounting one legal challenge after another to block the lawsuits against it.

Cynthia Callard, executive director of Physicians for a Smoke-Free Canada, said the companies' attempts to draw the federal government into their cases was viewed as the last major card they had to play, and they lost.

"I think this has been a very good day for the federal government and a very bad day for tobacco companies. But whether or not it's a good day for the public is yet to be seen," she said.

Had the federal government lost, it would have made it more difficult for the provinces to take the tobacco companies to court, she said, because in effect they would then be fighting the federal government and that is not their intention.

She's relieved Ottawa is off the hook in these cases, she said. "The federal government getting out of this, the major significance is that.… the real litigation efforts can begin," she said.

Callard is worried, however, about the provinces' cases against the tobacco companies and says they need to be more open and transparent about what they intend to achieve with the legal action. If it's just to get money, that's not good enough, both Callard and Cunningham say.

"We need some health reforms so that the behaviour of the tobacco industry in the future does not repeat what has occurred in the past," Cunningham said.