* Ruling means Ottawa not liable for billions in damages
* Tobacco companies wanted government to share costs
* Several provinces plan big law suits
By David Ljunggren
OTTAWA, July 29 (Reuters) - Tobacco companies suffered a major defeat in Canada on Friday when the Supreme Court ruled the federal government is not liable for damages from health-related lawsuits, possibly amounting to many billions of dollars.
The tobacco industry -- facing suits from several Canadian provinces seeking to recoup healthcare costs -- had argued that Ottawa had allowed and regulated the use of tobacco and should therefore take at least some of the responsibility.
In a unanimous 9-0 judgment, the court disagreed.
"When Canada directed the tobacco industry about how it should conduct itself, it was doing so in its capacity as a government regulator that was concerned about the health of Canadians," the judgment said.
"Under such circumstances it is unreasonable to infer that Canada was implicitly promising to indemnify the industry for acting on its request."
The case deals with a suit by the province of British Columbia against R.J. Reynolds Tobacco Co , Japan Tobacco's JTI-Macdonald unit, Rothmans Benson & Hedges Inc, which is partly owned by Philip Morris , and Imperial Tobacco Canada Ltd, a unit of British American Tobacco .
The Supreme Court said the tobacco companies had failed to prove Ottawa had any liability in British Columbia.
Imperial Tobacco said the court had decided the federal government was not accountable for its decisions and actions.
"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," spokesman Donald McCarty said in a release.
Anti-smoking campaigners welcomed what they said was a massive setback for the tobacco companies.
"The rewards for provinces at the end of the day are very significant," said Rob Cunningham, a spokesman for the Canadian Cancer Society.
In Canada, the public healthcare system is administered by each of the 10 provinces. Several of them have sued or say they will sue the tobacco industry but British Columbia filed first and Canadian courts are using its case as the lead case. None of the suits has come to trial yet.
British Columbia has declined to say how much money it is seeking in damages. Ontario, Canada's most populous province, launched a suit against the companies in 2009 seeking C$50 billion ($53 billion).
In a separate but similar case, the Supreme Court also ruled against Imperial Tobacco, which wanted Ottawa to be liable for any damages awarded in suits alleging the company wrongly marketed some tobacco products as "mild" or "light".
The court dismissed Imperial's argument that Canada should be responsible for any damages awarded because it had urged the companies to develop mild and light tobacco products.
The judges said this had been a "core government policy decision" that could not be challenged in court.
(The main case is Attorney General of Canada v. Her Majesty the Queen in Right of British Columbia et al, case no 33563