Widening The Net of Federal Government Liability: Canada (A.G.) v. TeleZone Inc.
The issue in TeleZone arose because of the different grants of jurisdiction in Sections 17 and 18 of the Federal Courts Act. Section 17 provides that the Federal Court has concurrent jurisdiction with the provincial superior courts in all cases in which relief is claimed against the Crown, except as otherwise provided in the Act or another Act of Parliament. However, Section 18 provides that the Federal Court has exclusive jurisdiction to grant certain administrative law remedies against FBCTs (e.g., declarations, injunctions, and the prerogative writs of certiorari, prohibition, mandamus and quo warranto).
Prior to TeleZone, the Federal Court of Appeal decided that the exclusive grant of jurisdiction in Section 18 of the Federal Courts Act meant that the validity of a decision of an FBCT must always be challenged in the first instance by judicial review in the Federal Court. In Canada v. Grenier,  2 FCR 287 (CA), an inmate in a federal penitentiary brought an action against the Federal Crown seeking damages for an administrative segregation under the Corrections and Conditional Release Act (Canada). At trial, the segregation was found to be arbitrary and the inmate was awarded damages. The Federal Court of Appeal overturned the decision. The court held that "Parliament assigned the exercise of reviewing the lawfulness of the decisions of federal agencies to a single court, the Federal Court" and that "This review must be exercised under Section 18, and only by filing an application for judicial review." By bringing an action for damages, the inmate had engaged in an impermissible "collateral attack" of the decision of the prison authority.
Grenier was interpreted to stand for the proposition that neither the Federal Court nor a provincial superior court has jurisdiction to adjudicate a claim for damages arising from an unlawful decision of an FBCT, unless and until the claimant has challenged that decision through an application for judicial review under Section 18. Some courts faithfully adhered to Grenier. Others, including the Ontario Court of Appeal, distinguished or declined to follow it.
In TeleZone, decided along with five companion cases, the Supreme Court of Canada overruled the "Grenier principle" and resolved the conflict in the jurisprudence. The case involved an action against the Federal Crown by TeleZone. TeleZone had responded to a call for telecommunications licence applications by Industry Canada, and asserted that Industry Canada had breached the terms of the alleged tender contract when it failed to award a licence to TeleZone. Rather than bring a judicial review application in the Federal Court, TeleZone sued in the Ontario Superior Court, alleging breach of contract, negligence and unjust enrichment. The Crown moved to stay the action based on the Grenier principle, but was unsuccessful at both first instance and before the Ontario Court of Appeal.
The Supreme Court of Canada affirmed the rulings of the lower courts. Binnie J., writing for a unanimous panel, held that Section 18 of the Federal Courts Act did not grant the Federal Court exclusive jurisdiction over claims against FBCTs, even though the claim might implicate the lawfulness of an FBCT’s decision. Instead, provided that the claimant sought damages rather than a form of administrative law relief listed in Section 18 of the Federal Courts Act, the claim could be brought in the first instance as a civil action in either a provincial superior court or the Federal Court. The Grenier principle was rejected as mandating an unnecessary "detour" to the Federal Court that detracted from government accountability and access to justice. It was also found to be inconsistent with Section 17 of the Federal Courts Act (along with Section 8 of the Crown Liability and Proceedings Act (Canada)), particularly when the statute was interpreted contextually having regard to the broad jurisdiction of provincial superior courts.
At the same time, the Supreme Court articulated three qualifications to the rule laid down in TeleZone. First, the doctrine of collateral attack, though not depriving courts of the jurisdiction to hear civil actions involving the lawfulness of FBCT decisions, may still be used as a defence in such actions by the FBCT. Second, the court noted that an FBCT could raise the doctrine of statutory authority by way of a defence to a damages action so as to preclude the claimant’s right to relief. Third, there is a residual discretion to stay a civil damages action where the claim, in its "essential character," is a claim for judicial review with only a "thin pretence" to a private wrong.
McCarthy Tétrault Notes
The TeleZone test will widen the net of federal government liability by providing litigants with a choice of procedure to challenge the decision-making of federal boards, commissions and tribunals. A party who is aggrieved by the decision of a federal public authority may now elect whether to seek relief by way of judicial review in the Federal Court (to set the decision aside), or by way of a civil action in a provincial superior court or the Federal Court (to obtain damages).
An application for judicial review in the Federal Court may be appropriate where the prime objective is to invalidate the decision of an FBCT quickly, through a summary procedure. Where the prime objective is to seek compensation for the effect of an unlawful decision, and the procedural safeguards of an action (such as pre-hearing discovery and viva voce evidence) are desired or required, a claim for damages in either the Federal Court or a provincial superior court may be advisable.
Litigants proceeding by way of an action should be aware that the courts possess a residual discretion to stay the claim if, in its essential character, it is one for judicial review. Further, if the civil action is allowed to proceed, the claimant should be prepared to face the defences of statutory authority and collateral attack.