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Municipalities - Liability for Non-Enforcement of By-Laws

. Eisenberg v. City of Toronto

In Eisenberg v. City of Toronto (Div Ct, 2021) the Divisional Court considered the law of negligence as it applies to a municipality allegedly not enforcing it's by-laws, here on the issue of proximity and public policy:
[51] While the appellants argue that the motion judge disregarded these pleaded interactions, it is evident that he considered them and did not accept that they create a relationship of proximity between the appellants and the City. For example, at para. 123, the motion judge distinguished between the pleaded interactions in this case and the types of interactions that would be sufficient to give rise to a duty of care such as “advice or directions from government officials” or “commercial dealings”. He held that congratulating licensees on achieving a licence “is not a specific interaction that would give rise to a duty of care”.

[52] I agree with the motion judge’s conclusion. In the cases where courts have found that pleaded interactions between a public authority and a plaintiff were sufficient to give rise to a private law duty of care, the courts have found that the public authority has done something more than fulfilling its statutory role. Where the interactions fall within the scope of the public authority’s statutory role, without anything more, those interactions cannot form the basis for finding that the regulator owes a private law duty of care to parties subject to the regulatory oversight. As held by the motion judge, this principle was clearly articulated in Wu v. Vancouver (City), 2019 BCCA 23, at para. 65:
While the relationship between the parties can be described as “direct and transactional”, this does not materially advance the proximity analysis because such a relationship is both inherent in and an inevitable and necessary part of the regulatory framework, in which individuals apply for permission to undertake a certain activity. The same applies to virtually any licensing or permitting process. I do not think that the inevitable reality of a specific individual making an application to a regulator, and thereby entering into a direct transactional relationship with the regulator, advances the argument that proximity exists in the sense that the regulator has come under an obligation to have particular regard for the interests of the applicant beyond the regulator’s obligation to fulfil his or her statutory duties.
[53] In this case, in my view, the pleaded interactions were nothing more than a manifestation of the regulator/regulated relationship. It goes without saying that a system of transferrable licences creates value in the licences. The City’s acknowledgement that it was aware of this value and its collection of fees for the transfer is not sufficient to create a relationship of proximity. There will necessarily be interactions between a regulator and those who are regulated. A casual comment about the value of a licence cannot be sufficient to create a “special relationship”.

[54] In support of their position, the appellants rely primarily on the decisions in Imperial Tobacco and Grand River Enterprises Six Nations Ltd. v. Attorney General (Canada), 2017 ONCA 526, to argue that their pleaded interactions are sufficient to give rise to a relationship of proximity. However, rather than assisting the appellants, these decisions serve to illustrate the distinction between cases such as this one where the interactions fall within the scope of the regulator’s role as regulator and cases where the interactions go beyond that role and serve to give rise to a relationship of proximity.

[55] In Imperial Tobacco, tobacco manufacturers alleged that Canada owed them a private law duty of care in relation to advice provided by the federal government about the safety of “light” cigarettes and also in relation to the design of strains of tobacco developed by the federal government. In that context, the Supreme Court found that Canada was in a relationship of proximity with the tobacco manufacturers because its role went well beyond the role of a regulator; based on the pleadings, the Court was satisfied that Canada played the role of expert advisor and that it was in a commercial relationship with the tobacco manufacturers. (While the Court held that the parties were in a relationship of proximity, ultimately the Court found that any duty of care was negated for policy reasons). In this case, there is no allegation that the City provided any kind of expert advice or direction to the appellants or that the City was involved in the appellants’ commercial enterprise other than through the collection of fees.

[56] In Grand River Enterprises Six Nations, the Court of Appeal for Ontario found that it was not plain and obvious that the federal government did not owe the plaintiffs a duty of care where the plaintiffs alleged that the federal government had failed to protect their economic interests. In that case, the plaintiffs were a First Nations tobacco manufacturer and four individuals who had been operating without the necessary federal licenses for a number of years. They alleged that they agreed to become licensed when the federal government represented that it would investigate and prosecute competing unlicensed tobacco manufacturers. The plaintiffs claimed that the government was negligent in failing to prosecute the other tobacco manufacturers contrary to its undertaking. In that case, the Court of Appeal accepted that the pleadings supported a relationship of proximity because the plaintiffs pleaded a specific undertaking to investigate and prosecute other manufacturers for their benefit. In this case, there is no allegation that the City gave an undertaking to the appellants to prosecute Uber and other private transportation companies for their benefit, and that they relied on such an undertaking in obtaining their own licences.

[57] The appellants also rely on the British Columbia Court of Appeal’s decision in James v. British Columbia, 2005 BCCA 136. In that case, the Court held that British Columbia may owe a duty of care to a group of employees for failing to include a clause in a forestry licence that would protect their long-term employment. It is important to note that James was decided before Imperial Tobacco and that the Court of Appeal did not analyze what, if any, pleaded interactions would give rise to private law duty of care. In the circumstances, I do not find that decision analogous or helpful to deciding this case.

[58] In this case, there is nothing about the pleaded interactions that take the appellants beyond their status as a regulated industry. They have not pleaded that the City undertook to enforce the City’s by-laws against Uber and other private transportation companies for their benefit and for the purpose of protecting their interests. They have not pleaded that the City and the appellants have any type of separate commercial agreement or arrangement that requires the City to protect their commercial interests. Rather, they rely only on the City’s powers to enforce its by-laws, and the City’s alleged knowledge that a failure to enforce the by-laws would cause them economic harm. This is not sufficient. As held in Imperial Tobacco, if there were facts beyond those pleaded that supported the appellants’ contention that they are in a special relationship with the City, it was incumbent on them to plead those facts. They did not need to prove them; but they needed to plead them. They failed to do so.

[59] Accordingly, I find that the motion judge did not make any errors of law in finding that the claim does not give rise to a relationship of proximity between the parties.

Policy reasons justify finding no duty of care

[60] The appellants argue that the motion judge erred in finding that, even if there was a relationship of proximity, such a relationship would be negated by the prospect of indeterminate liability. They argue that the motion judge should not have decided this issue on the basis of the statement of claim and that it should be left for a trial. I disagree.

[61] At the outset, it is worth pointing out that this finding was not necessary to the motion judge’s determination that the claim does not disclose a cause of action. Without proximity, the claim does not disclose a cause of action regardless of any policy reasons for negating such a claim.

[62] In any event, I agree with the motion judge’s conclusion that indeterminate liability militates against imposing a duty of care on the City to protect the economic interests of the appellants. The City licenses and regulates many businesses in Toronto. Any number of factors may affect the value of those businesses, including competition from unlicensed or unlawful businesses. To impose a duty of care on the City to protect licensed businesses from competition from unlicensed businesses opens municipalities to the spectre of unlimited liability. Municipalities have limited resources. How they choose to allocate their limited resources to enforce by-laws should not be driven by the risk of claims for economic loss by other businesses. This is not an issue that requires a trial.



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