Cooper v. Hobart, [2001] 3 S.C.R. 537,
2001 SCC 79
Mary Francis Cooper Appellant
v.
Robert J. Hobart and Her Majesty the Queen in right of
the Province of British Columbia Respondents
and
The Attorney General of Canada,
the Attorney General for Ontario,
the Attorney General for New Brunswick,
Her Majesty the Queen in right of Alberta,
the Minister of Justice and the Attorney General for Alberta,
the British Columbia Securities Commission,
the Ontario Securities Commission,
and the Alberta Securities Commission Interveners
Indexed as: Cooper v. Hobart
Neutral citation: 2001 SCC
79.
File No.: 27880.
2001: June 20; 2001: November 16.
Present: McLachlin C.J. and Gonthier, Major,
Bastarache, Binnie, Arbour and LeBel JJ.
on appeal from the court of appeal for british columbia
Torts -- Negligence -- Duty of care -- Statutory
regulators -- Registrar of mortgage brokers -- Registered mortgage broker using
funds for unauthorized purposes -- Investors alleging that losses would have
been avoided or diminished if Registrar had acted sooner to suspend broker’s
licence -- Whether Registrar owed private law duty of care to members of
investing public giving rise to liability in negligence for economic losses
that investors sustained -- Role of policy concerns in determining scope of
liability for negligence.
In October 1997, the Registrar of Mortgage Brokers, a
statutory regulator, suspended a registered mortgage broker’s licence and
issued a freeze order in respect of its assets because funds provided by
investors were allegedly used by the broker for unauthorized purposes. The
appellant, one of over 3,000 investors who advanced money to the broker,
brought an action against the Registrar alleging that he breached the duty of
care that he owed to the appellant and other investors. The appellant asserted
that by August 1996 the Registrar was aware of serious violations of the B.C. Mortgage
Brokers Act committed by the broker and should have acted earlier to
suspend its licence and to notify the investors that the broker was under
investigation. According to the appellant, if the Registrar had acted more
promptly, the losses suffered by the investors would have been avoided or
diminished. The appellant applied to have the action certified as a class
proceeding. The trial judge concluded that the pleadings disclosed a cause of
action in negligence and that the plaintiffs should be permitted to bring a
class action. The Court of Appeal reversed the trial judge’s decision, holding
that the pleadings did not disclose a cause of action against the Registrar.
Held: The appeal
should be dismissed. The Registrar did not owe a duty of care to investors.
In assessing whether a duty of care should be imposed,
the approach set out in Anns is still appropriate in the Canadian
context. Different types of policy considerations are involved at each stage
of Anns. At the first stage, the question is whether the circumstances
disclose reasonably foreseeable harm and proximity sufficient to establish a prima
facie duty of care. The proximity analysis focuses on factors arising
from the relationship between the plaintiff and the defendant, including broad
considerations of policy. The starting point for the proximity analysis is to
determine whether there are analogous categories of cases in which proximity
has previously been identified. If no such cases exist, the question then
becomes whether a new duty of care should be recognized in the circumstances.
In order to recognize a new duty of care, mere foreseeability is not enough.
The plaintiff must show proximity -- that the defendant was in a close and
direct relationship to him or her such that it is just to impose a duty of care
in the circumstances. The factors which may satisfy the requirement of
proximity are diverse and depend on the circumstances of the case. They must
be grounded in the governing statute when there is one.
If the plaintiff is successful in establishing a prima
facie duty of care, the question at the second stage is whether there exist
residual policy considerations which justify denying liability. These are not
concerned with the relationship between the parties, but with the effect of
recognizing a duty of care on other legal obligations, the legal system and
society more generally. The second stage of Anns will seldom arise, as
questions of liability will be determined primarily by reference to established
and analogous categories of recovery. Where a duty of care in a novel
situation is alleged, it is necessary to consider the second stage of the Anns
test.
Here, the circumstances do not disclose proximity
sufficient to establish a prima facie duty of care. This case does not
fall within, nor is it analogous to, a category of cases in which a duty of
care has previously been recognized. Furthermore, this is not a situation in
which a new duty of care should be recognized. The Mortgage Brokers Act
does not impose on the Registrar a duty of care to investors with mortgage
brokers regulated by the Act. The regulatory scheme governing mortgage brokers
provides a general framework to ensure the efficient operation of the mortgage
marketplace. Even though to some degree the provisions of the Act serve to
protect the interests of investors, the overall scheme of the Act mandates that
the Registrar’s duty of care is not owed to investors exclusively but to the
public as a whole. Accordingly, although in this case the Registrar might
reasonably have foreseen that losses to investors would result if he were
careless in carrying out his duties under the Act, there was insufficient
proximity between the Registrar and the investors to ground a prima facie
duty of care.
Even if a prima facie duty of care had been
established under the first branch of the Anns test, it would have been
negated at the second stage for overriding policy reasons. The decision of
whether to suspend a broker involves both policy and quasi-judicial elements.
The prima facie duty of care is also negated on the basis of the
distinction between government policy and the execution of policy. Further,
the spectre of indeterminate liability would loom large if a duty of care were
recognized as between the Registrar and investors in this case. Finally, to
impose a duty of care in these circumstances would be effectively to create an
insurance scheme for investors at great cost to the taxpaying public.
Cases Cited
Considered: Kamloops
(City of) v. Nielsen, [1984] 2 S.C.R. 2; Canadian National Railway Co.
v. Norsk Pacific Steamship Co., [1992] 1 S.C.R. 1021; Hercules
Managements Ltd. v. Ernst & Young, [1997] 2 S.C.R. 165; referred to:
Anns v. Merton London Borough Council, [1978] A.C. 728; Endean v.
Canadian Red Cross Society (1998), 48 B.C.L.R. (3d) 90; Dorman Timber
Ltd. v. British Columbia (1997), 40 B.C.L.R. (3d) 230; Comeau’s Sea
Foods Ltd. v. Canada (Minister of Fisheries and Oceans), [1997] 1 S.C.R.
12; Donoghue v. Stevenson, [1932] A.C. 562; Nova Mink Ltd. v.
Trans-Canada Airlines, [1951] 2 D.L.R. 241; Yuen Kun Yeu v.
Attorney-General of Hong Kong, [1988] 1 A.C. 175; Davis v. Radcliffe,
[1990] 2 All E.R. 536; Alcock v. Chief Constable of the South Yorkshire
Police, [1991] 4 All E.R. 907; Hedley Byrne & Co. v. Heller &
Partners Ltd., [1963] 2 All E.R. 575; Rivtow Marine Ltd. v. Washington
Iron Works, [1974] S.C.R. 1189; Just v. British Columbia, [1989] 2
S.C.R. 1228; Swinamer v. Nova Scotia (Attorney General), [1994] 1 S.C.R.
445; Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd.,
[1997] 3 S.C.R. 1210; Edwards v. Law Society of Upper Canada, [2001] 3
S.C.R. 562, 2001 SCC 80.
Statutes and Regulations Cited
Class
Proceedings Act, R.S.B.C. 1996, c. 50, s. 4.
Mortgage Brokers Act, R.S.B.C. 1996, c. 313, ss. 4, 5, 6, 7, 8, 14, 20.
Authors Cited
Street, Harry. The Law of
Torts, 6th ed. London: Butterworths, 1976.
APPEAL from a judgment of the British Columbia Court
of Appeal (2000), 184 D.L.R. (4th) 287, [2000] 6 W.W.R. 8, 135 B.C.A.C. 266, 75
B.C.L.R. (3d) 54, 49 C.C.L.T. (2d) 148, [2000] B.C.J. No. 426 (QL), 2000 BCCA
151, allowing the respondents’ appeal from a decision of the British Columbia
Supreme Court (1999), 68 B.C.L.R. (3d) 274, [1999] B.C.J. No. 690 (QL). Appeal
dismissed.
David P. Church, Andrew J.
Pearson and Ian G. Schildt, for the appellant.
D. Clifton Prowse,
Karen Horsman and Keith L. Johnston, for the respondents.
Donald J. Rennie,
for the intervener the Attorney General of Canada.
Sara Blake, for the
intervener the Attorney General for Ontario.
Written submissions only by Cedric L. Haines,
Q.C., for the intervener the Attorney General for New Brunswick.
Tim Hurlburt, for the
interveners Her Majesty the Queen in right of Alberta and the Minister of
Justice and Attorney General for Alberta.
James A. Sasha Angus and Lorne Herlin, for the intervener the British Columbia
Securities Commission.
Neil Finkelstein and
Johanna M. Superina, for the interveners the Ontario Securities
Commission and the Alberta Securities Commission.
The judgment of the Court was delivered by
The Chief Justice and
Major J. –
1
The present appeal revisits the Anns test (from Anns v. Merton
London Borough Council, [1978] A.C. 728 (H.L.)) and, in particular,
highlights and hones the role of policy concerns in determining the scope of
liability for negligence. The appellant is an investor who alleges that the
Registrar of Mortgage Brokers, a statutory regulator, is liable in negligence
for failing to oversee the conduct of an investment company which the Registrar
licensed. The question is whether the Registrar owes a private law duty of
care to members of the investing public giving rise to liability in negligence
for economic losses that the investors sustained. Such a duty of care is as
yet unrecognized by Canadian courts. For the reasons that follow, we find that
this is not a proper case in which to recognize a new duty of care. In the
course of these reasons, we attempt to clarify the distinctive policy
considerations which impact each stage of the Anns analysis.
I. Facts
2
Eron Mortgage Corporation (“Eron”) was registered as a mortgage broker
under the Mortgage Brokers Act, R.S.B.C. 1996, c. 313 (“the Act”), from
early 1993 until 1997. On October 3, 1997, the respondent, Robert J. Hobart,
in his capacity as the Registrar under the Act, suspended Eron’s mortgage broker’s
licence and issued a freeze order in respect of its assets.
3
Eron acted as a mortgage broker for large syndicated loans. It arranged
for numerous lenders (or investors) to pool their funds for the purpose of
making a single loan to a borrower, which was typically a developer of
commercial real estate. The syndicated loans were made in the name of Eron or
one of its related companies, which held the security in trust for the
investors.
4
It is alleged that the funds provided by the investors were used by Eron
for several unauthorized purposes, such as funding interest payments on other
non-performing mortgages and paying for personal items for the benefit of the
principals of Eron. It is currently estimated that $222 million is outstanding
to the investors on these loans. Investors will likely realize only $40
million from the security taken from the loans, leaving a shortfall of $182
million.
5
Soon after Eron’s mortgage licence was suspended, it went out of
business. The appellant Mary Francis Cooper (“Cooper”), one of over 3000
investors who advanced money to Eron, brought an action against the Registrar.
The Statement of Claim alleged that the Registrar breached the duty of care
that he allegedly owed to the appellant and other investors. The appellant
asserted that by August 28, 1996, the Registrar was aware of serious violations
of the Act committed by Eron but that he failed to suspend Eron’s mortgage
broker’s licence until October 3, 1997 and failed to notify investors that Eron
was under investigation by the Registrar’s office. According to the appellant,
if the Registrar had taken steps to suspend or cancel Eron’s mortgage broker’s
licence at an earlier date, the losses suffered by the investors would have
been avoided or diminished.
6
The appellant applied to have the action certified as a class proceeding
under the Class Proceedings Act, R.S.B.C. 1996, c. 50. Pursuant to s.
4(1)(a), in order to certify an action as a class proceeding, a court must
first determine whether the pleadings disclose a cause of action. The cause of
action alleged in the Statement of Claim is negligence which requires, among
other things, that a duty of care in tort law be owed by the Registrar to the
appellant investor. Therefore, the question was whether the Registrar of
Mortgage Brokers, a statutory regulator, owes a private law duty of care to
members of the investing public for alleged negligence in failing to properly
oversee the conduct of an investment company licensed by the regulator.
II. Judicial
History
A. British
Columbia Supreme Court (1999), 68 B.C.L.R. (3d) 274
7
Tysoe J. held that the plaintiffs should be permitted to bring a class
action. He applied the test cited in Endean v. Canadian Red Cross Society
(1998), 48 B.C.L.R. (3d) 90 (C.A.) that unless it is plain and obvious that no
reasonable cause of action is disclosed, the plaintiff will have met the
requirement set out in s. 4(1)(a) of the Class Proceedings Act that
there is a cause of action.
8
In determining whether there was clearly no cause of action, the trial
judge turned to the test set out by the House of Lords in Anns as
restated by the British Columbia Court of Appeal in Dorman Timber Ltd. v.
British Columbia (1997), 40 B.C.L.R. (3d) 230, at p. 247:
(a) Should the defendant have foreseen that
damage was likely to result from the negligent actions? If yes, then there is
a prima facie duty of care.
(b) Are there any considerations which would
negative or limit the prima facie duty of care?
9
The trial judge answered the first question in the affirmative, as the
Registrar would have reasonably contemplated that carelessness on his part was
likely to cause damage to the plaintiff, a person dealing with a mortgage
broker. He went on to answer the second question in the negative, holding that
there were no considerations negativing or limiting the prima facie duty
of care on the basis of four sub-questions:
i) Was the defendant’s action the result of a policy decision of a public body?
ii) Is the defendant protected by statute or
the common law?
iii) Is the defendant exempted from liability
by a ‘good faith’ clause in a statute?
iv) Is the relationship between the parties so
distant and tenuous, or is the plaintiff unknown to the defendant, so that it
can be said that to impose liability would be unjust?
10
The trial judge found that, in order to answer the first three
sub-questions, an appreciation of the “full factual matrix” would be required.
Therefore, a trial was needed. The fourth sub-question raised the potential
problem of indeterminate liability. The trial judge stated that the prospect
of indeterminate liability should negative the prima facie duty of care
unless it is determined that one of the purposes of the Legislature in enacting
the Act was to protect a class of persons, of which the plaintiff is a member.
He concluded that it was not plain and obvious that the Legislature did not
intend to create a private law duty of care owed by the Registrar in favour of
investors dealing with mortgage brokers. In reaching this conclusion, the
trial judge referred to various powers and duties of the Registrar which
suggested that the Act was intended to protect investors.
11
The trial judge concluded that the pleadings disclosed a cause of
action. On June 10, 1999, he certified the action as a class proceeding and
stayed the third party proceedings until the conclusion of the trial on the
common issues.
B. British
Columbia Court of Appeal (2000), 75 B.C.L.R. (3d) 54, 2000 BCCA 151
12
The Court of Appeal reversed the trial judge’s decision, holding that
the pleadings did not disclose a cause of action against the Registrar.
(1) Newbury J.A. (Southin J.A. concurring)
13
Newbury J.A. for the majority considered the Anns test as it was
applied by the Supreme Court of Canada in Kamloops (City of) v. Nielsen,
[1984] 2 S.C.R. 2. First, “is there a ‘sufficient relationship of proximity or
neighbourhood’ such that, in the reasonable contemplation of the Registrar,
carelessness on his part might be likely to cause damage to the latter; and if
so, are there considerations that ought to negative, reduce or limit the scope
of the duty or the class of persons to whom it is owed or the damages to which
it may give rise?” (para. 32)
14
Under the first branch of the Anns/Kamloops test, Newbury J.A.
was not satisfied that the test for a prima facie duty of care was met.
Even though the Registrar might reasonably have foreseen that losses to
investors would result if he was careless in carrying out his duties under the
Act, it cannot be said that there was a sufficiently close relationship between
the parties. In fact, according to Newbury J.A., there was “no ‘relationship’”
between the plaintiff Cooper and the Registrar as the plaintiff was not even
aware of the Registrar’s existence.
15
Newbury J.A. turned to the second branch of the Anns/Kamloops
test in the event that she erred on the first branch of the test. She
concluded that there are substantial factors that militate against finding a
duty of care in this case. Specifically, the statutory scheme was not intended
to create a private law duty of care owed by the Registrar to investors. If it
were otherwise, the potential liability would be virtually indeterminate given
that the Act imposed no limit on, and the Registrar had no means of
controlling, the number of persons who could invest or lend money via a
mortgage broker or the amount of money that could be advanced.
(2) Huddart J.A.
16
While Huddart J.A. agreed with the result reached by Newbury J.A., she
approached the conclusion from a slightly different perspective. The starting
point for her analysis was the nature of the Registrar’s office, an office
created and defined by statute.
17
The Registrar’s responsibilities under the Act require him to make
difficult discretionary decisions in the public interest. The public interest
is not synonymous with the interest of investors. The Registrar’s decisions
must be “multi-factorial”, taking into account various interests.
18
The question to be answered was whether the Act itself indicates that
the taxpayers through their elected representatives agreed to be responsible
for private loss to persons in the situation of the investors. Huddart J.A.
could not find that intention in the Act, particularly in the face of s. 20
which precludes an action against the Registrar for the performance of duties
under the Act or Regulations “unless it was done in bad faith” (para. 82).
19
Huddart J.A. concluded that the only duty that the Registrar owed to the
plaintiff Cooper was the duty to exercise due care in ascertaining the scope of
his authority (from Comeau’s Sea Foods Ltd. v. Canada (Minister of Fisheries
and Oceans), [1997] 1 S.C.R. 12, at paras. 52-54). He interpreted his
statutory authority correctly.
III. Issue
20
Does a statutory regulator owe a private law duty of care to members of
the investing public for (alleged) negligence in failing to properly oversee
the conduct of an investment company licensed by the regulator?
IV. Analysis
21
Canadian courts have not thus far recognized the duty of care that the
appellants allege in this case. The question is therefore whether the law of
negligence should be extended to reach this situation. While the particular
extension sought is novel, the more general issue of how far the principles of
liability for negligence should be extended is a familiar one, and one with
which this Court and others have repeatedly grappled since Lord Atkin
enunciated the negligence principle in Donoghue v. Stevenson, [1932]
A.C. 562 (H.L.), almost 70 years ago. That case introduced the
principle that a person could be held liable only for reasonably foreseeable
harm. But it also anticipated that not all reasonably foreseeable harm might
be caught. This posed the issue with which courts still struggle today: to
what situations does the law of negligence extend? This case, like so many of
its predecessors, may thus be seen as but a gloss on the case of Donoghue v.
Stevenson.
22
In Donoghue v. Stevenson the House of Lords revolutionized the
common law by replacing the old categories of tort recovery with a single
comprehensive principle – the negligence principle. Henceforward, liability
would lie for negligence in circumstances where a reasonable person would have
viewed the harm as foreseeable. However, foreseeability alone was not enough;
there must also be a close and direct relationship of proximity or
neighbourhood.
23
But what is proximity? For the most part, lawyers apply the law of
negligence on the basis of categories as to which proximity has been recognized
in the past. However, as Lord Atkin declared in Donoghue v. Stevenson,
the categories of negligence are not closed. Where new cases arise, we must
search elsewhere for assistance in determining whether, in addition to
disclosing foreseeability, the circumstances disclose sufficient proximity to
justify the imposition of liability for negligence.
24
In Anns, supra, at pp. 751-52, the House of Lords, per
Lord Wilberforce, said that a duty of care required a finding of proximity
sufficient to create a prima facie duty of care, followed by
consideration of whether there were any factors negativing that duty of care.
This Court has repeatedly affirmed that approach as appropriate in the Canadian
context.
25
The importance of Anns lies in its recognition that policy
considerations play an important role in determining proximity in new
situations. Long before Anns, courts in Canada and elsewhere had
recognized that the decision of how far to extend liability for negligence
involved policy considerations. As H. Street put it in The Law of Torts
(6th ed. 1976), at p. 108, citing a Canadian case, Nova Mink Ltd. v.
Trans-Canada Airlines, [1951] 2 D.L.R. 241 (N.S.C.A.), at pp. 254-55:
. . . it cannot be too strongly stressed that the use of [the] test of
foreseeability in order to determine whether there is a duty-relationship
between the parties conceals the true judicial process -- that test is in fact
a conclusion embracing within it, and yet concealing the identity of, the
several considerations of policy, and the balancing of interests which have led
the court to decide that a duty is owed.
26
The House of Lords in Anns for the first time expressly
recognized the policy component in determining the extension of the negligence
principle. However, it left doubt on the precise content of the first and
second branches of the new formulation of the negligence principle. This gave
rise to debate -- debate which the submissions in this case revive. Was the
first branch concerned with foreseeability only or foreseeability and
proximity? If the latter, was there duplication between policy considerations
relevant to proximity at the first stage and the second stage of the test?
27
To some extent, these concerns are academic. Provided the proper
balancing of the factors relevant to a duty of care are considered, it may not
matter, so far as a particular case is concerned, at which “stage” it occurs.
The underlying question is whether a duty of care should be imposed, taking
into account all relevant factors disclosed by the circumstances. Anns
did not purport to depart from the negligence test of Donoghue v. Stevenson
but merely sought to elucidate it by explicitly recognizing its policy
component.
28
We continue in the view, repeatedly expressed by this Court, that the
Anns two-stage test, properly understood, does not involve duplication
because different types of policy considerations are involved at the two
stages. In our view, Anns continues to provide a useful framework in
which to approach the question of whether a duty of care should be imposed in a
new situation.
29
Nevertheless, it is important from the point of view of methodology and
clarity in the law to be clear on what falls to be considered at each stage of
the Anns test. In this connection, it is useful to consider the leading
English case on that question. The Judicial Committee of the Privy Council held
in Yuen Kun Yeu v. Attorney-General of Hong Kong, [1988] 1 A.C. 175,
that to find a prima facie duty of care at the first stage of the test
there must be reasonable foreseeability of the harm plus something more. As
will be seen, we agree with this conclusion. The Privy Council went on to
opine that Anns’ second branch, negation for policy reasons,
would seldom come into play. If this is read as a suggestion that policy is
not important in determining whether the negligence principle should be extended
to new situations, we would respectfully differ. As Street points out, the
Donoghue v. Stevenson foreseeability-negligence test, no matter how it is
phrased, conceals a balancing of interests. The quest for the right balance is
in reality a quest for prudent policy. The difference in the two positions, if
there is one, may turn on how one defines policy; the Privy Council in Yuen
Kun Yeu appears to regard policy as confined to practical considerations
dictating immunity despite a close relationship and foreseeability.
30
In brief compass, we suggest that at this stage in the evolution of the
law, both in Canada and abroad, the Anns analysis is best understood as
follows. At the first stage of the Anns test, two questions arise: (1)
was the harm that occurred the reasonably foreseeable consequence of the
defendant’s act? and (2) are there reasons, notwithstanding the proximity
between the parties established in the first part of this test, that tort
liability should not be recognized here? The proximity analysis involved at
the first stage of the Anns test focuses on factors arising from the relationship
between the plaintiff and the defendant. These factors include questions of
policy, in the broad sense of that word. If foreseeability and proximity are
established at the first stage, a prima facie duty of care arises. At
the second stage of the Anns test, the question still remains whether
there are residual policy considerations outside the relationship of the
parties that may negative the imposition of a duty of care. It may be, as the
Privy Council suggests in Yuen Kun Yeu, that such considerations will
not often prevail. However, we think it useful expressly to ask, before
imposing a new duty of care, whether despite foreseeability and proximity of
relationship, there are other policy reasons why the duty should not be
imposed.
31
On the first branch of the Anns test, reasonable foreseeability
of the harm must be supplemented by proximity. The question is what is meant
by proximity. Two things may be said. The first is that “proximity” is
generally used in the authorities to characterize the type of relationship in
which a duty of care may arise. The second is that sufficiently proximate
relationships are identified through the use of categories. The categories are
not closed and new categories of negligence may be introduced. But generally,
proximity is established by reference to these categories. This provides
certainty to the law of negligence, while still permitting it to evolve to meet
the needs of new circumstances.
32
On the first point, it seems clear that the word “proximity” in
connection with negligence has from the outset and throughout its history been
used to describe the type of relationship in which a duty of care to guard
against foreseeable negligence may be imposed. “Proximity” is the term used to
describe the “close and direct” relationship that Lord Atkin described as
necessary to grounding a duty of care in Donoghue v. Stevenson, supra,
at pp. 580-81:
Who then, in law is my neighbour? The answer seems to be – persons who are
so closely and directly affected by my act that I ought reasonably to have
them in contemplation as being so affected when I am directing my mind to the
acts or omissions which are called in question.
.
. .
I think that this sufficiently states the truth if proximity be
not confined to mere physical proximity, but be used, as I think it was
intended, to extend to such close and direct relations that the act
complained of directly affects a person whom the person alleged to be bound to
take care would know would be directly affected by his careless act. [Emphasis
added.]
33
As this Court stated in Hercules Managements Ltd. v. Ernst &
Young, [1997] 2 S.C.R. 165, at para. 24, per La Forest J.:
The label “proximity”, as it was used by Lord Wilberforce in Anns,
supra, was clearly intended to connote that the circumstances of
the relationship inhering between the plaintiff and the defendant are of such
a nature that the defendant may be said to be under an obligation to be mindful
of the plaintiff’s legitimate interests in conducting his or her affairs.
[Emphasis added.]
34
Defining the relationship may involve looking at expectations,
representations, reliance, and the property or other interests involved.
Essentially, these are factors that allow us to evaluate the closeness of the
relationship between the plaintiff and the defendant and to determine whether
it is just and fair having regard to that relationship to impose a duty of care
in law upon the defendant.
35
The factors which may satisfy the requirement of proximity are diverse
and depend on the circumstances of the case. One searches in vain for a single
unifying characteristic. As stated by McLachlin J. (as she then was) in Canadian
National Railway Co. v. Norsk Pacific Steamship Co., [1992] 1 S.C.R. 1021,
at p. 1151: “[p]roximity may be usefully viewed, not so much as a test in
itself, but as a broad concept which is capable of subsuming different
categories of cases involving different factors” (cited with approval in Hercules
Managements, supra, at para. 23). Lord Goff made the same point in
Davis v. Radcliffe, [1990] 2 All E.R. 536 (P.C.), at p. 540:
. . . it is not desirable, at least in the present stage of
development of the law, to attempt to state in broad general propositions the
circumstances in which such proximity may or may not be held to exist. On the
contrary, following the expression of opinion by Brennan J in Sutherland
Shire Council v Heyman (1985) 60 ALR 1 at 43-44, it is considered
preferable that ‘the law should develop categories of negligence incrementally
and by analogy with established categories’.
36
What then are the categories in which proximity has been recognized?
First, of course, is the situation where the defendant’s act foreseeably causes
physical harm to the plaintiff or the plaintiff’s property. This has been
extended to nervous shock (see, for example, Alcock v. Chief Constable of
the South Yorkshire Police, [1991] 4 All E.R. 907 (H.L.)). Yet other
categories are liability for negligent misstatement: Hedley Byrne & Co.
v. Heller & Partners Ltd., [1963] 2 All E.R. 575 (H.L.), and
misfeasance in public office. A duty to warn of the risk of danger has been
recognized: Rivtow Marine Ltd. v. Washington Iron Works, [1974] S.C.R.
1189. Again, a municipality has been held to owe a duty to prospective
purchasers of real estate to inspect housing developments without negligence: Anns,
supra; Kamloops, supra. Similarly, governmental
authorities who have undertaken a policy of road maintenance have been held to
owe a duty of care to execute the maintenance in a non-negligent manner: Just
v. British Columbia, [1989] 2 S.C.R. 1228, Swinamer v. Nova Scotia
(Attorney General), [1994] 1 S.C.R. 445, etc. Relational
economic loss (related to a contract’s performance) may give rise to a tort
duty of care in certain situations, as where the claimant has a possessory or
proprietary interest in the property, the general average cases, and cases
where the relationship between the claimant and the property owner constitutes
a joint venture: Norsk, supra; Bow Valley Husky (Bermuda)
Ltd. v. Saint John Shipbuilding Ltd., [1997] 3 S.C.R. 1210. When a case
falls within one of these situations or an analogous one and reasonable
foreseeability is established, a prima facie duty of care may be
posited.
37
This brings us to the second stage of the Anns test. As the majority
of this Court held in Norsk, at p. 1155, residual policy considerations
fall to be considered here. These are not concerned with the relationship
between the parties, but with the effect of recognizing a duty of care on other
legal obligations, the legal system and society more generally. Does the law
already provide a remedy? Would recognition of the duty of care create the
spectre of unlimited liability to an unlimited class? Are there other reasons
of broad policy that suggest that the duty of care should not be recognized?
Following this approach, this Court declined to find liability in Hercules
Managements, supra, on the ground that to recognize a duty of care
would raise the spectre of liability to an indeterminate class of people.
38
It is at this second stage of the analysis that the distinction between
government policy and execution of policy falls to be considered. It is
established that government actors are not liable in negligence for policy
decisions, but only operational decisions. The basis of this immunity is that
policy is the prerogative of the elected Legislature. It is inappropriate for
courts to impose liability for the consequences of a particular policy
decision. On the other hand, a government actor may be liable in negligence
for the manner in which it executes or carries out the policy. In our view,
the exclusion of liability for policy decisions is properly regarded as an
application of the second stage of the Anns test. The exclusion does
not relate to the relationship between the parties. Apart from the legal
characterization of the government duty as a matter of policy, plaintiffs can
and do recover. The exclusion of liability is better viewed as an immunity
imposed because of considerations outside the relationship for policy reasons –
more precisely, because it is inappropriate for courts to second-guess elected
legislators on policy matters. Similar considerations may arise where the
decision in question is quasi-judicial (see Edwards v. Law Society of
Upper Canada, [2001] 3 S.C.R. 562, 2001 SCC 80).
39
The second step of Anns generally arises only in cases where the
duty of care asserted does not fall within a recognized category of recovery.
Where it does, we may be satisfied that there are no overriding policy
considerations that would negative the duty of care. In this sense, we agree
with the Privy Council in Yuen Kun Yeu that the second stage of Anns will
seldom arise and that questions of liability will be determined primarily by
reference to established and analogous categories of recovery. However, where
a duty of care in a novel situation is alleged, as here, we believe it
necessary to consider both steps of the Anns test as discussed above.
This ensures that before a duty of care is imposed in a new situation, not
only are foreseeability and relational proximity present, but there are no
broader considerations that would make imposition of a duty of care unwise.
V. Application
of the Test
40
The appellants submit that the Registrar of Mortgage Brokers owed them,
as investors with a firm falling under the Registrar’s administrative mandate,
a duty of care giving rise to liability for negligence and damages for losses
that they sustained. The investors allege that the Registrar should have acted
earlier to suspend Eron or warn them of Eron’s breaches of the Act’s
requirements, and that their losses are traceable to the Registrar’s failure to
act more promptly.
41
The first question is whether the circumstances disclose reasonably
foreseeable harm and proximity sufficient to establish a prima facie
duty of care. The first inquiry at this stage is whether the case falls within
or is analogous to a category of cases in which a duty of care has previously
been recognized. The answer to this question is no.
42
The next question is whether this is a situation in which a new duty of
care should be recognized. It may be that the investors can show that it was
reasonably foreseeable that the alleged negligence in failing to suspend Eron
or issue warnings might result in financial loss to the plaintiffs. However,
as discussed, mere foreseeability is not enough to establish a prima facie duty
of care. The plaintiffs must also show proximity – that the Registrar was in a
close and direct relationship to them making it just to impose a duty of care
upon him toward the plaintiffs. In addition to showing foreseeability, the
plaintiffs must point to factors arising from the circumstances of the
relationship that impose a duty.
43
In this case, the factors giving rise to proximity, if they exist, must
arise from the statute under which the Registrar is appointed. That statute is
the only source of his duties, private or public. Apart from that statute, he
is in no different position than the ordinary man or woman on the street. If a
duty to investors with regulated mortgage brokers is to be found, it must be in
the statute.
44
In this case, the statute does not impose a duty of care on the
Registrar to investors with mortgage brokers regulated by the Act. The
Registrar’s duty is rather to the public as a whole. Indeed, a duty to
individual investors would potentially conflict with the Registrar’s
overarching duty to the public.
45
A brief review of the relevant powers and duties of the Registrar under
the Act confirms this conclusion. Part 1 sets out the Registrar’s regulatory
powers with respect to the operation of mortgage brokers and submortgage
brokers in British Columbia. Specifically, s. 4 provides that the Registrar
must grant registration or renewal of registration to an applicant if, in his
opinion, the applicant is “suitable” for registration and the proposed
registration is “not objectionable”. He may also attach such conditions and
restrictions to the registration as he considers necessary. Once registered, a
mortgage broker must comply with s. 6 of the Regulations which mandates that
registrants maintain proper books and records and file annual financial
statements with the Registrar.
46
Sections 5 and 6 of the Act cover the investigatory powers of the
Registrar. Pursuant to s. 5, the Registrar may, and on receipt of a sworn
complaint must, investigate any matter arising out of the Act or Regulations.
In pursuit of this purpose, the Registrar may examine any records and documents
of the person being investigated. He may summon witnesses and compel them to
give evidence on oath or otherwise and to produce records, property, assets or
things in the same manner as the court does for the trial of civil actions.
Section 7 allows the Registrar to “freeze” funds or securities where he has
made or is about to make a direction, decision, order or ruling suspending or
cancelling the registration of a person under the Act. He may also apply to
the court for an appointment of a receiver, or a receiver and manager, or
trustee of the property of the person.
47
Under s. 8, the Registrar may, after giving a person registered under
the Act an opportunity to be heard, suspend or cancel any registration if, in his
opinion, any of the following or other conditions apply: the person would be
disentitled to registration if the person were an applicant under s. 4; the
person is in breach of a condition of registration; the person is a party to a
mortgage transaction which is harsh and unconscionable or otherwise
inequitable; or the person has conducted or is conducting business in a manner
that is otherwise prejudicial to the public interest. Section 14 prohibits a
broker from making any false, misleading or deceptive statements in any
advertisement, circular or similar material. Part 2 of the Act is directed
towards the protection of borrowers, investors and lenders, mandating in part
specific disclosure requirements by mortgage lenders and their agents. Section
8 of the Regulations provides that every direction, decision, order or ruling
of the Registrar refusing registration, refusing to renew registration,
suspending registration or cancelling registration shall be made in writing and
shall be open to public inspection.
48
Finally, s. 20 exempts the Registrar or any person acting under his
authority from any action brought for anything done in the performance of
duties under the Act or Regulations, or in pursuance or intended or supposed
pursuance of the Act or Regulations, unless it was done in bad faith.
49
The regulatory scheme governing mortgage brokers provides a general
framework to ensure the efficient operation of the mortgage marketplace. The
Registrar must balance a myriad of competing interests, ensuring that the
public has access to capital through mortgage financing while at the same time
instilling public confidence in the system by determining who is “suitable” and
whose proposed registration as a broker is “not objectionable”. All of the
powers or tools conferred by the Act on the Registrar are necessary to
undertake this delicate balancing. Even though to some degree the provisions
of the Act serve to protect the interests of investors, the overall scheme of
the Act mandates that the Registrar’s duty of care is not owed to investors
exclusively but to the public as a whole.
50
Accordingly, we agree with the Court of Appeal per Newbury J.A.:
even though the Registrar might reasonably have foreseen that losses to
investors in Eron would result if he was careless in carrying out his duties
under the Act, there was insufficient proximity between the Registrar and the
investors to ground a prima facie duty of care. The statute cannot be
construed to impose a duty of care on the Registrar specific to investments
with mortgage brokers. Such a duty would no doubt come at the expense of other
important interests, of efficiency and finally at the expense of public
confidence in the system as a whole.
51
Having found no proximity sufficient to found a duty of care owed by the
Registrar to the investors, we need not proceed to the second branch of the Anns
test and the question of whether there exist policy considerations apart from
those considered in determining a relationship of proximity, which would
negative a prima facie duty of care, had one been found. However, the
matter having been fully argued, it may be useful to comment on those
submissions.
52
In our view, even if a prima facie duty of care had been
established under the first branch of the Anns test, it would have been
negated at the second stage for overriding policy reasons. The decision of
whether to suspend a broker involves both policy and quasi-judicial elements.
The decision requires the Registrar to balance the public and private interests.
The Registrar is not simply carrying out a pre-determined government policy,
but deciding, as an agent of the executive branch of government, what that
policy should be. Moreover, the decision is quasi-judicial. The Registrar
must act fairly or judicially in removing a broker’s licence. These
requirements are inconsistent with a duty of care to investors. Such a duty
would undermine these obligations, imposed by the Legislature on the
Registrar. Thus even if a prima facie duty of care could be posited,
it would be negated by other overriding policy considerations.
53
The prima facie duty of care is also negated on the basis of the
distinction between government policy and the execution of policy. As stated,
the Registrar must make difficult discretionary decisions in the area of public
policy, decisions which command deference. As Huddart J.A. (concurring in the
result) found, the decisions made by the Registrar were made within the limits
of the powers conferred upon him in the public interest.
54
Further, the spectre of indeterminate liability would loom large if a
duty of care was recognized as between the Registrar and investors in this
case. The Act itself imposes no limit and the Registrar has no means of
controlling the number of investors or the amount of money invested in the
mortgage brokerage system.
55
Finally, we must consider the impact of a duty of care on the taxpayers,
who did not agree to assume the risk of private loss to persons in the
situation of the investors. To impose a duty of care in these circumstances
would be to effectively create an insurance scheme for investors at great cost
to the taxpaying public. There is no indication that the Legislature intended
that result.
56
In the result the judgment of the British Columbia Court of Appeal is
affirmed and the appeal is dismissed with costs.
Appeal dismissed with costs.
Solicitors for the appellant: Church
& Company, Vancouver.
Solicitor for the respondents: The
Ministry of the Attorney General, Vancouver.
Solicitor for the intervener the Attorney General
of Canada: The Deputy Attorney General of Canada, Ottawa.
Solicitor for the intervener the Attorney General
for Ontario: The Ministry of the Attorney General, Toronto.
Solicitor for the intervener the Attorney General
for New Brunswick: The Attorney General for New Brunswick,
Fredericton.
Solicitor for the interveners Her Majesty the Queen
in Right of Alberta and the Minister of Justice and Attorney General for
Alberta: The Minister of Justice and Attorney General for Alberta,
Edmonton.
Solicitor for the intervener the British Columbia
Securities Commission: The British Columbia Securities Commission, Vancouver.
Solicitors for the interveners the Ontario Securities
Commission and the Alberta Securities Commission: Blake, Cassels
& Graydon, Toronto.