Edwards et al. v. Law Society of Upper Canada et al. [Indexed as: Edwards v. Law Society of Upper Canada (No. 2)]

48 O.R. (3d) 329

[2000] O.J. No. 2085

Docket No. C29106

Court of Appeal for Ontario

Finlayson, Moldaver and Goudge JJ.A.

June 7, 2000

• Note: An appeal to the Supreme Court of Canada (McLachlin C.J.C., Gonthier, Major, Bastarache, Binnie, Arbour and LeBel JJ.) was dismissed on November 16, 2001. S.C.C. File No. 28108. This information was noted at 2001 SCC 80, 56 O.R. (3d) 456. Full text of the SCC appeal is available at [2001] S.C.J. No. 77 (2001 SCC 80) in the SCJ database.

Torts -- Negligence -- Duty of care -- Considerations negating duty of care -- Plaintiffs depositing funds in lawyer's trust account to invest in scheme to purchase gold delivery contracts -- Scheme proving to be fraudulent and plaintiffs suffering loss -- Plaintiffs suing Law Society for negligence in failing to properly investigate complaint against lawyer -- Statement of claim struck out for failing to disclose cause of action -- Law Society in exercise of its investigatory and disciplinary power immune from negligence suits.

In an intended class action, the plaintiffs sued to recover for losses suffered from investments in a fraudulent scheme for the purchase of gold delivery contracts. The scheme involved investors depositing funds into the trust account of the law firm of Palmer, Mills, under the management and control of the late M. Deposits by up to 260 investors were made from May 1989 to July 1990. The investors were not clients in the traditional sense, but it was alleged that they were "persons from whom or on whose behalf a member of the Law Society in connection with his practice receives money" and, therefore, "clients" within the definition for accounting purposes set out in s. 13(a) of Reg. 573, R.R.O. 1980 under the Law Society Act, R.S.O. 1990, c. L.8. During the period in which money was being deposited, a solicitor who had been consulted by two potential investors wrote M by a letter received September 1, 1989 to express concern about the propriety of the scheme and to indicate that the matter should be reported to the Law Society.

M forwarded the letter to the Law Society, and it commenced an investigation. The plaintiffs alleged that the Law Society owed them a duty as clients and beneficiaries of a trust account to, amongst other things, ensure that M was not connected with a scheme that violated his fiduciary duties as a trustee and solicitor. The plaintiffs pleaded that the Law Society conducted an inadequate investigation contrary to s. 9(1) of Reg. 573, R.R.O. 1980, which provides for a preliminary investigation by the Secretary and, where there are reasonable grounds for doing so, the referral of the matter for further directions. The plaintiffs pleaded that the Law Society breached a duty of care that they owed to the investors. It was alleged that the Law Society had a duty to ensure that M operated his trust account according to regulations or, alternatively, to warn the investors that it had chosen to abandon its supervisory jurisdiction. The plaintiffs pleaded that they would not have suffered loss had the Law Society ful- filled its obligations to reasonably investigate the complaint and warn the investors. The position of the plaintiffs was that the Law Society has the responsibility to control and discipline its members and that this responsibility created a duty of care to all members of the public that deal with members of the Law Society, such that negligence in carrying out this responsibility exposed the Law Society to a claim in damages at the suit of the injured member of the public.

Pursuant to Rule 21, the Law Society moved for an order striking out the statement of claim as against it for failing to disclose a cause of action. Sharpe J. granted the motion and the plaintiffs appealed.

Held, the appeal should be dismissed.

There is a two-part test for determining whether a private or public actor owes a duty of care such that the law can impose liability in a civil action for breach of the duty. First, is there a sufficiently close relationship between the parties so that, in the reasonable contemplation of the private or public actor, carelessness on its part might cause damages to the other? Second, if so, are there considerations that ought to negative or limit the duty? Applying this test to the immediate case, there was a live issue about whether proximity existed, but assuming that it did, there were good reasons to negate a duty of care.

The provisions of the Law Society Act and the regulations confer upon the Law Society the power to regulate the profession in the public interest. The power to regulate includes the power to discipline members. The disciplinary powers are very detailed and provide for procedural fairness, and the case law established that disciplinary proceedings are judicial in nature. The case law further established that in relation to its disciplinary power, the Law Society is immune from negligence suits and the only claim for damages that can be made is one based on bad faith or malice. The jurisprudence established a judicial immunity from negligence for the Law Society's discipline process, including the preliminary investigative function. The Law Society's disciplinary powers must respond to its statutory mandate and the requirements of due process, not to a private law duty of care. It was important to note that immunity to civil suit was extended to officials of the Law Society pursuant to s. 9 of the Law Society Act. It was to be presumed that knowing the law the legislature recognized that the Law Society itself has been traditionally immunized from civil actions by the common law.

In so far as the plaintiff's allegations related not to the hearing process but to the conduct of the Secretary in not following through on the complaint received by the Law Society, the plaintiffs also failed to disclose a cause of action. The plaintiffs' argument was that once the Secretary commenced an investigation, no matter how limited its scope, he had entered an operational area with a duty of care as contrasted to the policy area for which there would be a private duty of care. However, this argument was problematic because it did not make sense to disassociate the functions of the Secretary in the discipline area from that of the Benchers who conduct the hearings. In undertaking a duty of care analysis, the court cannot ignore the statutory immunity provided by s. 9 of the Law Society Act to the Law Society's employees who are charged with the responsibility of investigating and processing the discipline complaints. The court should be hesitant to accept the notion that the elaborate procedure involving the Secretary before the formal institution of a complaint was operational as opposed to a policy or discretionary matter. The Secretary was required to make difficult discretionary decisions in the public interest. The public interest, however, was not synonymous with the interests of the investors. There were very sound policy reasons for not burdening the process with a private law duty of care. Indeed, the existence of such a duty would undermine the Law Society's ability to act in the public interest. It could not carry out its obligations if it were required to act according to a private duty of care to specific individuals. The best way in which the Law Society could serve the public in carrying out its mandate to govern the profession in the public interest was to deal fairly and appropriately with its member lawyers. The plaintiffs, who had not pleaded a lack of bona fides on the part of the Law Society, had not disclosed a cause of action and, accordingly, the appeal shoul d be dismissed.

APPEAL from a judgment of Sharpe J. (1998), 1998 14637 (ON SC), 37 O.R. (3d) 279, 156 D.L.R. (4th) 348, 41 C.C.L.T. (2d) 241, 19 C.P.C. (4th) 43 (Gen. Div.) striking out a statement of claim for failing to disclose a cause of action.

Cases referred to Anns v. Merton London Borough Council, [1978] A.C. 728, [1977] 2 W.L.R. 1024, 121 Sol. Jo. 377, 75 L.G.R. 555 (H.L.); Calvert v. Law Society of Upper Canada (1981), 1981 1726 (ON SC), 32 O.R. (2d) 176, 121 D.L.R. (3d) 169 (H.C.J.); Carnegie v. Rasmussen Starr Ruddy (1994), 1994 7283 (ON SC), 19 O.R. (3d) 272 (Gen. Div.); Cooper v. British Columbia (Registrar of Mortgage Brokers), 2000 BCCA 151, [2000] B.C.J. No. 426 (C.A.), revg (1999), 1999 5682 (BC SC), 68 B.C.L.R. (3d) 274 (B.C.S.C.) (sub nom. Cooper v. Hobart); French v. Law Society of Upper Canada (1975), 1975 40 (ON CA), 9 O.R. (2d) 473, 61 D.L.R. (3d) 28 (C.A.); Garland v. Consumers' Gas Co. (1995), 1995 7179 (ON SC), 22 O.R. (3d) 767, 17 B.L.R. (2d) 239n (Gen. Div.) [supp. reasons to 1995 7164 (ON SC), 22 O.R. (3d) 451, 122 D.L.R. (4th) 377, 17 B.L.R. (2d) 239 (Gen. Div.), affd (1996), 1996 1022 (ON CA), 30 O.R. (3d) 414n, 155 D.L.R. (4th) 671, 28 B.L.R. (2d) 278 (C.A.), revd 1998 766 (SCC), [1998] 3 S.C.R. 112, 40 O.R. (3d) 479n, 165 D.L.R. (4th) 385, 231 N.R. 1, 129 C.C.C. (3d) 97, 49 M.P.L.R. (2d) 77, 20 C.R. (5th) 44]; Harris v. Law Society of Alberta, 1936 18 (SCC), [1936] S.C.R. 88, [1936] 1 D.L.R. 401; Harrison v. Camgoz (1996), 1996 6816 (SK QB), 151 Sask. R. 127, [1997] 2 W.W.R. 615, 7 C.P.C. (4th) 331 (Q.B.); Hercules Managements Ltd. v. Ernst & Young, 1997 345 (SCC), [1997] 2 S.C.R. 165, 115 Man. R. (2d) 241, 146 D.L.R. (4th) 577, 211 N.R. 352, 139 W.A.C. 241, [1997] 8 W.W.R. 80, 31 B.L.R. (2d) 147, 35 C.C.L.T. (2d) 115; Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959, 49 B.C.L.R. (2d) 273, 74 D.L.R. (4th) 321, 117 N.R. 321, [1990] 6 W.W.R. 385, 4 C.C.L.T. (2d) 1, 43 C.P.C. (2d) 105 (sub nom. Hunt v. T & N plc); Ingles v. Tutkaluk Construction Ltd. (2000), 2000 SCC 12, 46 O.R. (3d) 736n, 183 D.L.R. (4th) 193, 2000 SCC 12 (S.C.C.); Just v. British Columbia, 1989 16 (SCC), [1989] 2 S.C.R. 1228, 41 B.C.L.R. (2d) 350, 64 D.L.R. (4th) 689, 103 N.R. 1, [1990] 1 W.W.R. 385, 1 C.C.L.T. (2d) 1, 18 M.V.R. (2d) 1; Kamloops (City) v. Nielsen, 1984 21 (SCC), [1984] 2 S.C.R. 2, 66 B.C.L.R. 273, 10 D.L.R. (4th) 641, 54 N.R. 1, [1984] 5 W.W.R. 1, 29 C.C.L.T. 97, 26 M.P.L.R. 81, 26 M.P.L.R. 81; Klein v. Law Society of Upper Canada (1985), 1985 3086 (ON SCDC), 50 O.R. (2d) 118, 8 O.A.C. 161, 16 D.L.R. (4th) 489, 13 C.R.R. 120 (Div. Ct.); Lalonde v. Law Society of Upper Canada (1998), 27 C.P.C. (4th) 196 (Ont. Gen. Div.); Lee v. Law Society of Upper Canada, [1994] O.J. No. 1468 (Gen. Div.); R.D. Belanger & Associates Ltd. v. Stadium Corp. of Ontario (1991), 1991 2731 (ON CA), 5 O.R. (3d) 778 (C.A.); Ryan v. Victoria (City), 1999 706 (SCC), [1999] 1 S.C.R. 201, 59 B.C.L.R. (3d) 81, 168 D.L.R. (4th) 513, 234 N.R. 201, [1999] 6 W.W.R. 61, 44 C.C.L.T. (2d) 1, 40 M.V.R. (3d) 1, 50 M.P.L.R. (2d) 1; Schilling v. Certified General Accountants Assn. of British Columbia (1996), 1996 621 (BC CA), 20 B.C.L.R. (3d) 144, 29 C.C.L.T. (2d) 44, 135 D.L.R. (4th) 669, [1996] 7 W.W.R. 268 (C.A.) [leave to appeal to S.C.C. dismissed (1997), 208 N.R. 77n]; Voratovic v. Law Society of Upper Canada (1978), 1978 1460 (ON SC), 20 O.R. (2d) 214, 87 D.L.R. (3d) 140 (H.C.J.); Web Offset Publications Ltd. v. Vickery (1999), 1999 4462 (ON CA), 43 O.R. (3d) 802n (C.A.); Welbridge Holdings Ltd. v. Greater Winnipeg (Municipality), 1970 1 (SCC), [1971] S.C.R. 957, 22 D.L.R. (3d) 470, [1972] 3 W.W.R. 433 Statutes referred to Class Proceedings Act, 1992, S.O. 1992, c. 6, s. 31(1) Courts of Justice Act, R.S.O. 1990, c. C.43, s. 131(1) Judicial Review Procedure Act, R.S.O. 1990, c. J.1 Law Society Act, R.S.O. 1990, c. L.8, ss. 9, 42(1) (am. 1998, c. 21, s. 21), 59.1-59.5 (en. 1992, c. 7) Law Society Amendment Act (Class Proceedings Funding), 1992, S.O. 1992, c. 7 Statutory Powers Procedure Act, R.S.O. 1990, c. S.22 Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rules 21, 57 General Regulation, R.R.O. 1980, Reg. 573 (Law Society Act), ss. 9(1), (2), 13(a), 18(1), (2) County and District Law Associations Regulation, R.R.O. 1990, Reg. 708 (Law Society Act)

David E. Wires and Lisa D. La Horey, for appellants, John and Nancy Edwards. W. Ross Murray, Q.C., and Carole A. Lindsay, for respondent, Law Society of Upper Canada. Leonard Ricchetti, for intervenor, The Law Foundation of Ontario.

The judgment of the court was delivered by

[1] FINLAYSON J.A.: -- The appellants appeal from the judgment of the Honourable Mr. Justice Sharpe dated January 19, 1998 [reported 1998 14637 (ON SC), 37 O.R. (3d) 279, 156 D.L.R. (4th) 348] wherein he granted a motion pursuant to Rule 21 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, striking out the statement of claim as against the respondent Law Society of Upper Canada ("Law Society") as failing to disclose a cause of action against it.

[2] The statement of claim is a proceeding commenced under the Class Proceedings Act, 1992, S.O. 1992, c. 6, on behalf of up to 260 individuals who claim to have lost money in a fraudulent gold scheme. The motion to certify the class has not yet been held. The appellants propose to represent by way of this proceeding all individuals who deposited money from May 1989 to July 1990 into the trust account of the law firm Palmer Mills, under the management and control of the late John Mills. The moneys were to be held in trust against the delivery of gold by a company incorporated in Ontario called Sisto Consultants Inc. ("Sisto") pursuant to the terms and conditions of Gold Delivery Contracts. These contracts were delivered to Sisto which acted purportedly as an agent for various gold producers. The appellants made their funds payable not to Sisto, but to the client trust account of Palmer Mills. The investment program was that the plaintiffs could purchase gold at a discount if they agreed to pay up-front and wait 90 days for the gold. At the end of the allotted time, and despite repeated requests, the plaintiffs did not receive any gold; in fact no mines or gold existed. Mills, it is alleged, was using his trust account to provide banking services for this venture. He held the appellants' money in trust for the appellants and others in their proposed class pending receipt by them of the gold called for in the contracts and deducted certain amounts for expenses and commissions prior to such delivery.

[3] The appellants allege that they were victimized by a fraud organized and facilitated by certain of the defendants other than Mills but which was permitted to continue by the negligence and breach of duty of Mills and the Law Society. Each of the members of the proposed class seeks: the return of funds deposited in trust with Mills and Palmer Mills; damages; and an accounting of the trust funds held by Mills as trustee in the Palmer Mills trust accounts from the date the account was created to approximately May 15, 1990, when the trust funds were seized by the Ontario Securities Commission. The amounts of the individual class member deposits range from $1,733 U.S. to $303,110 U.S.

[4] Mills had referred two individuals who wished to become involved in some undefined way with Sisto to another law firm because, as the solicitor for Sisto, he felt that he could not act for them. On September 1, 1989, Mills received a letter from a senior member of the law firm which he in turn forwarded to the Law Society with his own covering letter. The letters are not set out in full in the statement of claim, but the parties agreed to make them available to the court. Since they were referred to in some detail in the pleading they can be considered by the court on a motion under Rule 21: see Web Offset Publications Ltd. v. Vickery (1999), 1999 4462 (ON CA), 43 O.R. (3d) 802 at p. 803 (C.A.).

[5] As it turned out, the solicitor to whom Mills had referred the two persons had a conflict of interest in his own firm and could not act. However, as he put it, "the matters which came to our attention in the course of familiarizing ourselves with the terms of the transaction have created grave concerns about the propriety of the operations of Sisto Consultants Inc." He then summarized them as follows:

1. The method of distribution of gold-related securities to investors appears not to be in compliance with applicable securities legislation including the registration and prospectus requirements thereof. We would have anticipated that the forward sale of gold, backed subsequently by a performance bond from Sisto International Inc., would be construed as the distribution of an investment contract, and not a commodity.

2. The use of your firm's trust account as the "bank" for the operations of Sisto Consultants Inc., even though intended as a temporary measure since May, appears to contravene the rules governing the use of solicitors' trust accounts in Ontario, which are not used for the conduct of business enterprises. The paying of commissions and expenses out of such trust account upon confirmation that the investor has received the performance bond in our view goes beyond what is necessary to preserve your client's interests on a temporary basis. The position is exacerbated by the fact that investors may well seek to claim over against your firm in the event that delivery of the gold, or payment under the performance bond, is not effected. This practice may well expose your firm, and the compensation fund, to needless risk.

[6] The letter concluded that the writer felt under an obligation to report the matter to the Law Society unless Mills took such action himself. As indicated, Mills forwarded the letter to the Law Society the same day. In his covering letter, he stated that he thought the writer of the letter was mistaken in his conclusions but closed by saying that "I will be very pleased to settle this matter on my return [from Huntsville] and will make our books and records available to your staff if you call on or after September 12".

[7] One of the issues in this case, which was not fully addressed by counsel, is the impact of the nature of the relationship between Mills and the appellants on the duty of care, if any, that the Law Society owes to the appellants. It is not expressly alleged that the appellants, or any members of the class that they propose to represent, were clients of Mills in the traditional sense. The closest they come is the allegation that they are "persons from whom or on whose behalf a member of the Law Society in connection with his practice receives money" and are therefore "clients" within the definition for accounting purposes set out in s. 13(a) of Reg. 573, R.R.O. 1980 under the Law Society Act, R.S.O. 1990, c. L.8. As I understand their position, the appellants take a larger view of the duty of the Law Society and allege that it goes beyond a concern for the protection of clients in the traditional sense and extends to the public generally. In particular, in their statement of claim, the appellants plead:

32. The Law Society commenced an investigation based on Mills' disclosure in respect of the use of his trust account. However, the Law Society failed to take any effective steps to ensure that Mills was operating his trust account in the prescribed manner. Mills and the Law Society knew or ought to have known that trust funds in Mills' client trust account were being used in an unauthorized manner and that the Gold Delivery Contracts and Class members' funds were being disbursed in a scheme contrary to Ontario securities laws, contrary to the terms of the trust and in furtherance of a fraud.

33. The plaintiffs plead that, once the Law Society received the complaint against Mills, it owed a duty to the plaintiffs and the Class as clients of a member of the Law Society and beneficiaries of a trust held by a member of the Law Society to ensure that Mills was operating his trust account in a manner consistent with its requirements and to ensure that he was not connected with the operation of a scheme in violation of applicable Ontario laws and his fiduciary duties as a trustee and solicitor. The plaintiffs plead that the Law Society conducted an inadequate investigation of the complaint, contrary to the provisions of the Law Society Act R.S.O. 1990, c. L.8, and, in particular, Regulation 573, section 9(1) thereof. As a result, the Law Society breached its duty of care owed to the plaintiffs and the Class. The plaintiffs plead that they and the Class are the very persons the Law Society is empowered and obliged to protect with its regulatory, licensing, disciplinary and investigatory powers. The Law Society had a duty to ensure that Mills operated his trust account according to regulations or alternatively to warn the plaintiffs and the Class that it had chosen to abandon its supervisory jurisdiction to allow the plaintiffs and the Class to take steps to protect their own interests.

34. The plaintiffs plead that they would not have suffered the losses alleged herein or to the extent alleged herein had the Law Society fulfilled its obligation to reasonably investigate the complaint made against Mills and warn the plaintiffs and members of the Class. Members of the Class were an identifiable group who might reasonably suffer harm as a result of the disclosed and unrestrained activities of Mills and Palmer Mills in that members of the Class were the beneficiaries of a trust that the Law Society knew or ought to have known was wrongfully used and Mills was acting for clients with conflicting interests without advising them of the conflicts or that their interests were not protected. The Law Society had a sufficient relationship of proximity with members of the Class that it was or ought to have been within the reasonable contemplation of the Law Society that carelessness on its part would likely cause damage and loss to the Class. The plaintiffs plead that their damages were caused or contributed to by the failure of the Law Society to take any effective steps to protect the plaintiffs and the Class from Mills' negligence, breach of trust and breach of contract.

[8] The appellants thereupon pleaded that the Law Society is liable for the negligence, breach of trust and breach of contract of Mills and was negligent in its own right in that it failed to do a number of things which are detailed in the statement of claim. On analysis, the particulars pleaded are not allegations of misfeasance or non-feasance on the part of the Law Society but rather a recital of all the things that it was empowered to do in response to a complaint. For instance, the appellants allege that the Law Society commenced an investigation with respect to the use of Palmer Mills' trust account by Mills, but that it negligently failed to take any effective steps to ensure that he was operating his account according to Law Society rules and that the Law Society owed a duty to the appellants as clients of a member of the Law Society to ensure that Mills was operating his trust account properly. However, counsel for the appellant very candidly stated to this court that he had no idea what the Law Society did or did not do in response to the letter of Mills and its enclosure. He hoped to find this out on discovery. His ultimate position was that the Law Society's "inadequate" investigation was contrary to the Law Society Act and, in particular, to s. 9(1) of Reg. 573, R.R.O. 1980. It provides as follows:

9(1) Where information comes to the notice of the Society that indicates that a member may have been guilty of professional misconduct or of conduct unbecoming a barrister and solicitor, the Secretary shall make such preliminary investigation of the matter as he considers proper, and where in his opinion there are reasonable grounds for so doing, he shall refer the matter promptly to the Committee or the chairman or vice-chairman for further directions.

(Emphasis added)

[9] The regulation then goes on to state that the Secretary shall, "subject to the directions of the Committee, the chairman or the vice-chairman" prepare and complete under oath a complaint and serve it on the member whose conduct is being investigated. Since there is no pleading that a complaint was ever sworn, we must assume that the investigation alleged to have been commenced by the Secretary fell somewhere short of formalizing the complaint and engaging the full disciplinary process. The pleadings are also silent as to what response, if any, the Law Society made to Mills' letter of September 1, or to the solicitors' letter which was enclosed. The persons named in the letter of complaint do not appear to be within the aggrieved class that the appellants propose to represent.

[10] The allegation in the statement of claim that the Law Society was liable for the negligence of Mills and for his breach of trust was not argued before us and does not appear to have been argued before the motions judge. Certainly there is no provision in the Law Society Act or at common law which would make the Law Society vicariously liable for the misconduct of one of its members: see Carnegie v. Rasmussen Starr Ruddy (1994), 1994 7283 (ON SC), 19 O.R. (3d) 272 at p. 279 (Gen. Div.). Rather the position of the appellants is that the Law Society has the responsibility to control and discipline its members and that this responsibility creates a duty of care to all members of the public that deal with members of the Law Society, such that negligence in carrying out this responsibility exposes the Law Society to a claim for damages at the suit of the injured member of the public.

The Anns/Kamloops Test

[11] The case relied upon by the appellants as determining that the Law Society, as a government agency or body, owes a private law duty of care to members of the public having dealings with member lawyers is Kamloops (City) v. Nielsen, 1984 21 (SCC), [1984] 2 S.C.R. 2, 10 D.L.R. (4th) 641. In that case, the defendant city, although aware through its building inspector of the defect, failed to prevent the construction of a house with defective foundations and its occupation by the people for whom the house had been built, a city alderman and his wife. After they had occupied it for three years, the original owners sold the house to the plaintiff who brought suit against the city for the cost of repairs. Writing for the majority of the court, Wilson J. adopted the reasoning of Lord Wilberforce in Anns v. Merton London Borough Council, [1978] A.C. 728, [1977] 2 W.L.R. 1024 (H.L.). Specifically, Wilson J. adopted the two- step test used by Lord Wilberforce to determine whether or not a private law duty o f care existed:

(i) Is there a sufficiently close relationship between the parties so that, in the reasonable contemplation of the public body, carelessness on its part might cause damage to that person?

(ii) If so, are there any considerations which ought to negative or limit the duty?

[12] Wilson J. also agreed with Lord Wilberforce that this analysis must include (presumably in the second part of the test) a consideration of whether the powers exercised by the body from which liability is claimed to arise can be termed "policy" as opposed to "operational" decisions. At p. 9 S.C.R., p. 661 D.L.R. of the judgment in Kamloops, Wilson J. cited this passage from p. 754 of Anns:

Most, indeed probably all, statutes relating to public authorities or public bodies, contain in them a large area of policy. The courts call this "discretion" meaning that the decision is one for the authority or body to make, and not for the courts. Many statutes also prescribe or at least presuppose the practical execution of policy decisions: a convenient description of this is to say that in addition to the area of policy or discretion, there is an operational area.

[13] It is instructive to examine how Wilson J. applied these principles in Kamloops. She first examined the statute that authorized the city council to regulate construction (the Municipal Act of British Columbia, R.S.B.C. 1960, c. 255), and found that it stated that the council "may" regulate construction and require building permits. The council decided to exercise its regulatory power and passed a by-law that prohibited construction without a building permit, provided for inspection at various stages of construction, prohibited occupancy without an occupancy permit and imposed on the building inspector the duty to enforce its provisions. According to Wilson J., this meant that the city was acting in its operational sphere, as opposed to its policy sphere, when it allowed the house to be built because its policy or discretionary decision was exercised when the council decided to use the B.C. legislature's grant of authority to regulate construction. When the city failed to respond to its building inspector, it was then acting in the operational sphere or, in other words, in the implementation of its earlier higher-level policy decision to regulate. In discharging this operational duty, the city was under a duty of care to the plaintiffs and could therefore be held liable in negligence.

[14] The Supreme Court's latest applications of Kamloops have greatly assisted in clarifying the test. In Ryan v. Victoria (City), 1999 706 (SCC), [1999] 1 S.C.R. 201, 168 D.L.R. (4th) 513, the court was dealing with the effect of statutory authority on the civil liability of railways. Major J., speaking for the court stated (at p. 219 S.C.R., p. 524 D.L.R.) that the duty of care owed by a railway with respect to public crossings is determined, as it is for other private and public actors, under the two-step test in Anns as adopted by the court in Kamloops "and numerous subsequent decisions". He then stated that the first step of the Anns/Kamloops test presented a relatively low threshold, namely whether a relationship of "proximity" existed between the parties such that it was reasonably foreseeable that a careless act by the railway could result in injury to the plaintiff.

[15] The second step is an analysis of the duty of care established in the first step to determine if any factors exist, such as statutory or judicial impediments, which should eliminate or limit the duty found under the first branch of the test. As Major J. stated at p. 220 S.C.R., p. 525 D.L.R.:

The existence of a duty of care must be considered in light of all relevant circumstances, including any applicable statutes or regulations. Thus, a legislative exemption from liability can negate a duty of care in circumstances where that duty would otherwise arise. The same holds true for immunities created by the courts. A policy decision is made in such cases to prevent the law of negligence from regulating certain relationships or relieving certain injuries, notwithstanding a finding of proximity between the parties.

(Emphasis added)

[16] In the most recent case of Ingles v. Tutkaluk Construction Ltd. (2000), 183 D.L.R. (4th) 193, 2000 SCC 12, Bastarache J. for the Supreme Court of Canada (at para. 16) stated that the court affirmed in Ryan v. Victoria (City) that the two-part Anns/Kamloops test is the appropriate test for determining whether a private or public actor owes a duty of care such that the law can impose on the public authority a private law liability in a civil suit for breach of that duty. In Ingles, a municipality had been sued for negligent inspection of buildings. Bastarache J. found sufficient proximity and then, because he was dealing with an inspection scheme, went on to examine the statute to find whether the scheme represented a policy decision or the implementation of a policy decision at the operational level. He found it to be the latter and therefore found that the municipality owed a duty of care.

[17] Accordingly, the Anns/Kamloops analysis calls for two findings: (1) proximity and (2) an absence of factors such as statutory or judicial immunity which would negative or limit liability. The motions judge in appeal found that there was a judicial immunity to suit in negligence against the Law Society and this holding was central to the argument in appeal. However, it may well be that proximity is a live issue as well because the appellants in this case do not appear to have been involved with Mills in a traditional lawyer-client relationship, but rather dealt with him as part of an investment scheme. Although the plaintiffs plead at para. 33 of their statement of claim that they are owed a duty of care "as clients of a member of the Law Society", as I earlier indicated, I do not think that the facts as pleaded bear out the casting of the relationship in that light. Mills served as the repository and trustee of their money, but does not appear to have acted as a solicitor in dispens ing legal advice. This, to my mind, weakens any claim that the plaintiffs may have because it seems reasonable to argue that, at the very least, the Law Society should not serve as the insurer for every person that is swindled by a lawyer in any fashion. However, assuming proximity exists, there are good reasons to negate a duty of care in the circumstances of this case.

Judicial Immunity for the Discipline Process

[18] The provisions of the Law Society Act and the regulations passed thereunder confer upon the Law Society the power to regulate the profession in the public interest: see Klein v. Law Society of Upper Canada (1985), 1985 3086 (ON SCDC), 50 O.R. (2d) 118, 16 D.L.R. (4th) 489 (Div. Ct.) where in dissent (but not on this point) Henry J. stated, at p. 132:

Whatever the original position of the Law Society, the contemporary enactment of the Law Society Act brought the Society into the public domain by conferring on it the authority to regulate the profession. The statute does not confer rights; it confers powers (and corresponding duties) to regulate the profession in the public interest. Its powers to make regulations are the delegation of legislative authority which is subject to the approval of the Lieutenant- Governor in Council. Its disciplinary powers are subject to the procedural safeguards in the Statutory Powers Procedure Act, R.S.O. 1980, c. 484.

(Emphasis added)

[19] The power to regulate includes the power to discipline members of the Society. The discipline process and the hearings that may flow from them are presently subject to the Law Society Act, R.S.O. 1990, c. L.8; Reg. 708, R.R.O. 1990; and the Statutory Powers Procedure Act, R.S.O. 1990, c. S.22. While there have been some changes in the Law Society Act and its regulations from the dates that are material to this action, I do not regard them as having any significance to the issues that this court has to decide.

[20] The provisions relating to discipline are very detailed and provide for procedural fairness at both the investigative stage and at any hearings following the filing of a complaint under oath in the office of the Secretary. The nature of these proceedings is described by Hockin J. in Lalonde v. Law Society of Upper Canada (1998), 27 C.P.C. (4th) 196 (Ont. Gen. Div.) in the following language: "The ability of the Law Society to investigate and discipline its members is a judicial power since it consists of the independent and impartial application of predetermined rules and standards" (at para. 23). This finding follows an established body of case law that the disciplinary proceedings of the Law Societies of Canada are judicial or at least quasi-judicial in nature and that, in relation to them, the Law Society is immune from negligence suits.

[21] The Supreme Court held in Harris v. Law Society of Alberta, 1936 18 (SCC), [1936] S.C.R. 88, [1936] 1 D.L.R. 401, that a statutory professional body (i.e., the Law Society) could not be liable for damages for wrongful disbarment because the investigative and decision-making function was "not merely ministerial, but discretionary and judicial" (at pp. 104-05 S.C.R., p. 414 D.L.R.). The only claim for damages that could be made would be one based on bad faith or malice.

[22] The leading Ontario case for this proposition is French v. Law Society of Upper Canada (1975), 1975 40 (ON CA), 9 O.R. (2d) 473, 61 D.L.R. (3d) 28 (C.A.), in which this court held at pp. 476-77:

We are all satisfied that the acts of the Society's functionaries, complained of as being tainted with negligence, were part of the performance of a quasi-judicial function of the respondent Society. As Chief Justice Laskin said in his dissenting judgment [(1974), 1974 24 (SCC), 49 D.L.R. (3d) 1 at p. 6]:

That the Discipline Committee in the exercise of its statutory function was an adjudicative body is clear from the governing statute. Equally apparent from that statute is that Convocation was engaged in a judicial exercise in its consideration of the report, findings and recommendations of the Discipline Committee.

The investigative function of the Law Society and the preparation and swearing of the complaints against the appellant solicitor were discretionary and quasi-judicial acts pursuant to a statutory duty and called for the exercise of discretion and judgment on the part of the officials concerned.

[23] This case was applied by Cromarty J. in Voratovic v. Law Society of Upper Canada (1978), 1978 1460 (ON SC), 20 O.R. (2d) 214, 87 D.L.R. (3d) 140 (H.C.J.), where Voratovic had sued the Law Society for mental anguish arising out of the Law Society's decision to take no steps beyond investigating another lawyer (against whom Voratovic had filed a complaint with the Law Society). After citing French, Cromarty J. held at p. 217:

In the case at bar the Secretary in investigating Voratovic's complaint and in deciding not to take further proceedings, was exercising a quasi-judicial discretion. The Law Society is not liable for the erroneous exercise of its discretion so long as it acted bona fide and without malice; it could not be sued for negligence.

[24] A similar argument was accepted in Calvert v. Law Society of Upper Canada (1981), 1981 1726 (ON SC), 32 O.R. (2d) 176, 121 D.L.R. (3d) 169 (H.C.J.), in which the plaintiffs brought suit against the Law Society for negligence in permitting their lawyer to practise law. The clients had entrusted money to their lawyer, and he had fraudulently not repaid them in full. The claim against the Law Society was based on the fact that the lawyer was admitted to the bar despite allegations of impropriety, and that the Law Society failed to investigate further allegations of impropriety after the lawyer was called to the bar. Steele J. allowed the Law Society's motion to strike out the statement of claim as disclosing no reasonable cause of action. In assessing the claim, Steele J. stated the following, at p. 182:

It may be that there is a duty owed to the plaintiffs by the Law Society for its negligence in not properly undertaking its function of investigating complaints and making a decision or in failing to exercise such duty to the public and to these plaintiffs in a bona fide manner: Anns [citation omitted].

[25] Steele J. went on, however, to agree with the statement in Voratovic that liability would only attach to acts done by the Law Society in bad faith rather than merely negligent acts and he dismissed the claim because no bad faith was alleged. While it does pre-date Kamloops, this case specifically considered and rejected the idea that the principles in Anns changed the common law rule as to the Law Society's immunity from suit. It stands for the proposition that the principles in that case do not open the Law Society to liability for mere negligence arising out of its investigative function.

[26] It is also important to note that immunity to civil suit is codified in s. 9 of the Law Society Act. While it applies only to actions against officials of the Society and not the Law Society itself, the legislature is presumed to know the law and must be taken to have recognized that the Society itself has been traditionally immunized from civil actions by the common law. Section 9 reads:

9. No action or other proceedings for damages shall be instituted against the Treasurer or any bencher, official of the Society or person appointed in Convocation for any act done in good faith in the performance or intended performance of any duty or in the exercise or in the intended exercise of any power under this Act, a regulation, a by-law or a rule of practice and procedure, or for any neglect or default in the performance or exercise in good faith of any such duty or power.

[27] It would be easy to dismiss the above authorities as being pre-Kamloops and, therefore, out of date, but this line of cases has been applied up to nearly the present day. In Lee v. Law Society of Upper Canada, [1994] O.J. No. 1468 (Gen. Div.), for example, Chilcott J. held that "in the absence of bad faith or malice, the Law Society of Upper Canada cannot be sued for the negligent exercise of an investigation into the conduct of a solicitor." This decision did not mention Kamloops.

[28] In Lalonde v. Law Society of Upper Canada, supra, Lalonde was Hastings' client in relation to a sale of real estate, and had instructed Hastings to keep the net proceeds of the sale in Hastings' trust account. When Lalonde requested the funds, Hastings did not have them. When Lalonde discovered that Hastings had been the subject of an ongoing Law Society investigation arising out of previous fraud charges, he brought suit against the Law Society claiming that it failed to exercise its duty to warn him about Hastings. The argument before Hockin J. on behalf of Lalonde was made on the basis that the Law Society was so grossly negligent that the negligence amounted to bad faith. Hockin J. found that the Law Society had exercised its discretion correctly in this case and that there was no evidence of a lack of good faith. He therefore dismissed the claim as providing no genuine issue for trial. Hockin J. did cite both French and Voratovic, but he did not me ntion Kamloops.

[29] This same analysis in which the distinction is made between quasi-judicial functions and operational or administrative ones has been made by the Supreme Court of Canada with respect to other public bodies. In Welbridge Holdings Ltd. v. Greater Winnipeg (Municipality), 1970 1 (SCC), [1971] S.C.R. 957 at pp. 968-69, 22 D.L.R. (3d) 470 at p. 478, Laskin J. held that a municipality could be liable in tort or contract (including in negligence) when it exercised its administrative or ministerial powers, but not when it exercised legislative or quasi-judicial powers. In this case, the municipality was rehearing a zoning application. Speaking for the court, Laskin J. said:

A municipality at what may be called the operating level is different in kind from the same municipality at the legislative or quasi-judicial level where it is exercising discretionary statutory authority. In exercising such authority, a municipality (no less than a provincial Legislature or the Parliament of Canada) may act beyond its powers in the ultimate view of a Court, albeit it acted on the advice of counsel. It would be incredible to say in such circumstances that it owed a duty of care giving rise to liability in damages for its breach. . . .

Moreover, even if the quasi-judicial function be taken in isolation, I cannot agree that the defendant in holding a public hearing as required by statute comes under a private tort duty, in bringing it on and in carrying it to a conclusion, to use due care to see that the dictates of natural justice are observed. Its failure in this respect may make its ultimate decision vulnerable, but no right to damages for negligence flows to any adversely affected person, albeit private property values are diminished or expense is incurred without recoverable benefit.

[30] This jurisprudence clearly establishes a judicial immunity from negligence for the Law Society's discipline process, including the investigative function at the front end. The Law Society's disciplinary powers must respond to its statutory mandate and the requirements of due process, not to a private law duty of care. In the case in appeal, the status of the appellants in the disciplinary process is not at all clear. The lis is between the Law Society and the solicitor whose conduct is called into question. The concern of the courts is that the member be treated fairly in a judicial setting. There is no role for the appellants. We do not even know when they became aware of the complaint. The notion that they have some stake in the investigation of the specific complaint and that the Law Society was obliged to keep their interests in mind in dealing with Mills is foreign to the judicial process. The Law Society should not feel obliged to press forward with a prosecution to protect the appellants and others, rather, its concern should be to ensure fairness to Mills in the investigative process and natural justice in any hearing that became necessary.

The Operational/Policy Dichotomy

[31] However, as I understand the focus of the complaint of the appellants, it relates not to the hearing process, which is clearly quasi-judicial if not judicial, but to the conduct of the Secretary in not following through on the complaint received by the Law Society. It is asserted that since Kamloops, the Secretary cannot shelter under s. 9 of the Law Society Act, supra, or find protection in the language of French, supra, as a "functionary" whose acts "were part of the performance of a quasi-judicial function of the respondent Society". It is said that the Secretary had a discretion (as a matter of policy) whether to commence an investigation, but once he started it, no matter how limited its scope, he had no discretion to discontinue it. He was now in an operational, rather than a policy, area.

[32] The difficulty with this approach is illustrated by one of the specific acts of negligence alleged against the Secretary. It is said that a properly conducted investigation at this level would have included an ex parte application to a judge of the Superior Court of Justice under s. 42(1) of the Law Society Act (as it then was) for an order freezing the Palmer Mills trust account, thereby avoiding at least future harm. But, before he can undertake such a significant interference with a member's practice, the Secretary must meet the requirement of s. 42(1) that he have "reasonable cause to believe that [the] member has been or may be guilty of misconduct in connection with any property in the member's possession or under the member's control".

[33] I find troublesome the concept that Anns/Kamloops requires the court to disassociate the functions of the Secretary in the discipline area from that of the Benchers who conduct the hearings. If Convocation has judicial immunity to a civil suit in negligence, I do not see how an Anns/Kamloops analysis can ignore the statutory immunity provided by s. 9 of the Law Society Act to the Society's employees who are charged with the responsibility of investigating and processing the complaints that end up in the discipline arena. In the case of the Secretary, his functions in this area are circumscribed by s. 9(1) of Reg. 573 and he is protected under s. 9 of the Act "for any act done in good faith in the performance or intended performance of any duty or in the exercise or in the intended exercise of any power under this Act, a regulation a by-law or a rule . . .". Under s. 9(1) of the regulation, where information is brought to the attention of the Secretary that a member of the Society has committed misconduct, the Secretary "shall make such preliminary investigation of the matter as he considers proper" and he shall only refer the matter to the Discipline Committee where "in his opinion there are reasonable grounds for so doing". The next step is under s. 9(2) where the Secretary is instructed by the Chairman of the Committee to prepare a complaint under oath and serve it on the member under investigation. This triggers the full panoply of protection for the member against whom an allegation of impropriety has been made to ensure that he will be dealt with fairly.

[34] While arguably a careless investigation leading to a failure to seek a freeze order is not aptly described as a quasi-judicial act requiring insulation from a duty of care to the public, I am reluctant to accept the notion that this elaborate procedure preceding the formal institution of a complaint is "operational" as opposed to "discretionary", within the meaning of Kamloops. The Secretary is dealing with an investigation that impacts on the reputation and livelihood of a member of an honourable profession, not the pocket books of municipalities where damages are allegedly arising out of some problem in the inspection and maintenance of highways: see Just v. British Columbia, 1989 16 (SCC), [1989] 2 S.C.R. 1228, 64 D.L.R. (4th) 689. Even "an invitation to attend" for what are described in s. 10 of the regulations as "a minor breach of discipline" requires a preliminary investigation by the Secretary. The appellants made much of the power of the Discipline Committee to require an investigation to be made of the books and records of a member under s. 18(1) of Reg. 573 but they omitted reference to s. 18(2) which requires "prima facie evidence that a ground of complaint exists" before such power can be exercised.

[35] The problem of the limits that policy can impose on a duty of care was addressed in a slightly different context by the British Columbia Court of Appeal in Cooper v. British Columbia (Registrar of Mortgage Brokers), 2000 BCCA 151, [2000] B.C.J. No. 426 (C.A.) reversing the Chambers judge below ((1999), 1999 5682 (BC SC), 68 B.C.L.R. (3d) 274). [See Note 1 at end of document] The question in that case was whether the Registrar owed 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. The court found that no such duty existed because there was not a sufficiently proximate relationship between the Registrar and investors and, even if there was, policy concerns dictated that the Registrar should not be subject to indeterminate liability. The following passage from the reasons of Newbury J.A. for the majority of the court (at para. 53) is instructive. Having stated that the statutory scheme constituting the Mortgage Brokers Act, R.S.B.C. 1996, c. 313 and Regulations thereto did not create a private law duty but seeks to improve and maintain the standard of offering in the market generally, she then stated:

If it were otherwise, the potential liability would be virtually indeterminate, given that the Act imposed no limitation 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. The defendants would effectively become guarantors of the losses of an indeterminate class of persons for an indeterminate amount. It simply cannot be, in my view, a "matter of simple justice" [citation omitted] that investors should be entitled to look to the Province to make good risks which they undertook voluntarily and without relying in any real sense on a regulator who did not control the day-to-day activities of the broker.

[36] This reference by Newbury J.A. to "an indeterminate class of persons for an indeterminate amount" is taken from the language of La Forest J. in Hercules Managements Ltd. v. Ernst & Young, 1997 345 (SCC), [1997] 2 S.C.R. 165, 146 D.L.R. (4th) 577. Here, La Forest J., for the court, applied the two-part Anns/Kamloops test to determine the liability of accountants who had audited financial statements for a company that were relied on by the plaintiffs in deciding to invest in the company. He first found that there was a prima facie duty of care owed by the accounting firm to shareholders of two corporate clients arising out of the corporate audit and then applied a policy consideration to negate that duty of care. That policy consideration centred on the possibility that the accounting firm might be exposed to a "liability of indeterminate amount for an indeterminate time to an indeterminate class".

[37] Returning to Cooper, supra, I find that the reasoning of Huddart J.A. in her concurring opinion is applicable to this appeal. She follows on the comments of Newbury J.A. regarding the responsibilities of the Registrar and states (at para. 62):

These responsibilities require him to make difficult discretionary decisions in the public interest, some of which are suggested by Madam Justice Newbury in her reasons. The public interest is not synonymous with the interest of investors. The very nature of the marketplace the Registrar is given some power to regulate requires his decisions to be multi-factorial.

[38] In Cooper, the respondent had submitted in its factum that the Registrar had a duty of care in language that is quite similar to that used by the appellant in this case:

Despite owing a duty to persons such as the plaintiff, Hobart [the Registrar] did not take steps to properly investigate Eron [an investment company] and its principals or warn the public about Eron and its principals.

[39] The response of Huddart J.A. is as follows (at paras. 65 and 72):

It is well to recall that the wisdom or reasonableness of the exercise of a statutory discretion by an officeholder with regulatory, quasi-judicial powers has not traditionally been considered to be a justiciable question. In appropriate circumstances a superior court might issue a prerogative writ to such an officeholder in the exercise of its supervisory power, or more recently, an order under the Judicial Review Procedure Act, R.S.B.C. 1996, c. 241, to ensure legality and fairness. If an office was exercised for an improper purpose, the court would intervene in an action for abuse of office, as that concept was explained by various members of the Supreme Court of Canada in Roncarelli v. Duplessis, 1959 50 (SCC), [1959] S.C.R. 121. Otherwise an officeholder answered only to the Crown who could deprive him of his office, at pleasure until recently: Wells v. Newfoundland (1999), 1999 657 (SCC), 177 D.L.R. (4th) 73 (S.C.C.).

The courts should not view the private duty of care as floating above such an officeholder, to be crystallized whenever harm comes to an individual that might have been prevented had the officeholder exercised a discretion differently. If that were so, the courts would be using the remedy of tort law to exercise the discretion itself rather than supervising its exercise, since some individual interest will almost certainly be harmed.

[40] Following on from the above remarks of Huddart J.A., it seems to me that there are very sound policy reasons for not burdening this judicial or quasi-judicial process with a private law duty of care. The public is well-served by refusing to fetter the investigative powers of the Law Society with the fear of civil liability. The invocation by the plaintiffs of the "public interest" role of the Law Society seems to be misconceived as it actually works to undermine their argument. This "public interest" role was stressed by both Henry J. for the minority in Klein, supra, and Callaghan J. for the majority (at p. 157). As I earlier indicated, the Law Society cannot meet this obligation if it is required to act according to a private law duty of care to specific individuals such as the appellants. The private law duty of care cannot stand alongside the Law Society's statutory mandate and hence cannot be given effect to. In my opinion, the motions judge in the case in appeal accurately stated the policy considerations for this immunity to suit as follows:

A body charged with the exercise of quasi-judicial powers must act in the public interest and must take into account a number of factors, only one of which will be the private interest of individuals such as the plaintiff. The threat of a suit for damages by a disgruntled individual would not leave the body free to exercise its discretion in the manner it considers to comport with the broader public interest.

[41] A lack of bona fides on the part of the Law Society has not been pleaded in the case in appeal. The above passage reinforces the conventional proposition that the appellants would have to plead a total misuse of the Law Society's discretion to follow up on the complaint it received amounting to bad faith before being able to claim damages against the Law Society for its failure to shut down the operations of its member Mills. That leads to the conclusion that this claim, which neither explicitly nor implicitly pleads bad faith, does not disclose a cause of action.

Conclusion

[42] The Anns/Kamloops formulation, in my view, does not purport to impose an overarching private law duty of care on public bodies. It simply propounds a two-step test to determine if the statute creating or controlling the public body permits a finding that there is a private law duty of care. The first step is to determine proximity and the second is to determine if the duty of care created by that proximity has been restricted by statute or judicial exemption or should be restricted for other reasons. I think it is very clear that judicial or quasi-judicial functions are subject to judicial exemption. The suggestion that the second part of the test is restricted to breaking down the functions of the public body into policy and operational spheres to determine if a given action is discretionary or not is overly simplistic. It is clear from Kamloops and the cases in the Supreme Court of Canada that have followed, that whether the function is operational or not, it may still be discretionary and as such negate any private law duty of care.

[43] Over and above all the legal arguments that I have touched on above, I am very reluctant to impose an exposure to civil suit for negligence upon a regulatory body that is acting in good faith and within its statutory parameters. While we are only concerned in this case with the disciplinary function of the Law Society, the Law Society Act and the Regulations enacted thereunder authorizes a far broader mandate. The Law Society is responsible for the admission standards of the profession, the continuing education of its members, and the formulation and enforcement of a code of professional ethics. It protects the public generally by continuing to maintain a compensation fund to relieve or mitigate loss sustained by any person in consequence of dishonesty on behalf of a member. It has established arrangements for its members respecting indemnity for professional liability including prescribing levies for the payment of the premiums thereof. The Society is governed by members of the profession el ected at large and by lay members appointed by the government of Ontario. In the exercise of its powers it is subject to the Statutory Powers Procedure Act and the Judicial Review Procedure Act, R.S.O. 1990, c. J.1.

[44] In all of its activities, the Law Society's decision- making process is multi-factorial, to borrow the phrase of Huddart J.A. in Cooper, supra, and it is an inappropriate exercise to attempt to isolate individual initiatives and categorize them as policy or operational. Almost all of them will have elements of both, as Kamloops acknowledges. For example, and utilizing the example of Lord Wilberforce in Anns, the Secretary in our situation must determine how far to take an investigation and this involves an implicit decision as to allotment of the Law Society's time and money. More important, the activities of the Secretary and the Chair and vice-Chair of the Discipline Committee and the Benchers in Convocation involve the quasi-judicial element of investigating and adjudicating the actions of an individual for breach of standards of conduct. This is done in the context of a self- governing profession and has unique considerations that simply do not arise in, for example, carrying out the tasks of physically maintaining roads and highways or inspecting buildings: see Just and Ingles, supra.

[45] In my opinion, the best way in which the Law Society can serve the public in carrying out its mandate to govern the profession in the public interest is to deal fairly and appropriately with its member lawyers. In other words, the public interest is served by the proper carrying out of its role in disciplining and governing the profession. As is inherent in any judicial hearing, the issue is between the Law Society and one of its members to determine if that member has violated the rules of the Law Society. The outcome of the judicial process is the product of many considerations, making it quite unlike the decision to put up a guardrail on a mountain road. It is adjudication by the member's peer group. If the Law Society fails to carry out its duty to conduct its investigation and hearings properly, this failure may make its ultimate decision against Mills vulnerable to attack by Mills, but it does not expose the Law Society to a suit for damages in negligence: see Welbridge Holdings, supra. The appellants have no right to expect as a matter of law that the complaint on behalf of two strangers to them would have produced a given result which, if timely, would have alerted them to re-examine their relationship with Mills.

[46] Finally, the appellants argue that the Law Society cases referred to above should be revisited in the light of Kamloops and that this proposition is at least novel enough to take them past the pleadings stage. Counsel appears to be of the view that cases involving the liability of law societies across Canada are out of step with a more modern concept of the duty of care that the societies hold to the public generally. However, as the motions judge observed, the courts have consistently applied the same standard to other professional organizations where they are dealing with internal disciplinary processes: see Schilling v. Certified General Accountants Assn. of British Columbia (1996), 1996 621 (BC CA), 135 D.L.R. (4th) 669, 20 B.C.L.R. (3d) 144 (C.A.), application for leave to appeal dismissed [1996] S.C.C.A. No. 397; and Harrison v. Camgoz (1996), 1996 6816 (SK QB), 7 C.P.C. (4th) 331, [1997] 2 W.W.R. 615 (Sask. Q.B.). The duty of care to the public is accepted in these cases, but the quasi- judici al nature of the investigative/disciplinary function creates immunity to suits in civil negligence.

Disposition

[47] The motions judge accepted that the test to be applied on a Rule 21 motion is whether it is plain and obvious or beyond reasonable doubt that the statement of claim disclosed no reasonable cause of action: see R.D. Belanger & Associates Ltd. v. Stadium Corp. of Ontario (1991), 1991 2731 (ON CA), 5 O.R. (3d) 778 (C.A.); Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959, 74 D.L.R. (4th) 321. For the reasons stated above, I agree with his decision that the statement of claim in this case disclosed no reasonable cause of action against the Law Society. The investigative and disciplinary functions of the Law Society are inherently judicial or at least quasi-judicial and, absent an allegation of bad faith or malice, do not expose the Law Society to liability for negligence. Accordingly, I would dismiss this appeal.

Costs

[48] The trial judge addressed the cost issue at length after inviting and receiving submissions on the subject. As it affects this appeal, he ordered costs against the appellants payable to the Law Society on a party and party basis. Included among those who made submissions was The Law Foundation of Ontario, a corporation created and governed by the Law Society Amendment Act (Class Proceedings Funding), 1992, S.O. 1992, c. 7 (ss. 59.1-59.5). One of the objects of the Law Foundation is to provide costs assistance to parties to class proceedings and to proceedings commenced under the Class Proceedings Act, 1992 to be financed from a class proceedings fund. In this case, the plaintiffs/appellants received the necessary approval from the Class Proceedings Committee and hence support from the class proceedings fund. This not only allows funding in the discretion of the Committee to the plaintiffs/appellants to support the class action suit, it makes the Law Foundation liable to pay a costs award made to a successful defendant against the plaintiff in the class proceedings. In the result, the Law Foundation is liable to pay the costs awarded by the trial judge in dismissing the action against the Law Society. The Law Foundation has intervened in this appeal to support the appellants' position that no costs should have been awarded below. In the event that this court was to dismiss the appeal, it asks that the same submissions be applicable to an award of costs in this court.

[49] Costs, of course, are in the discretion of the court awarding them "and the court may determine by whom and to what extent the costs shall be paid": see s. 131(1) of the Courts of Justice Act, R.S.O. 1990, c. C.43, as amended and Rule 57 of the Rules of Civil Procedure. Additionally, and most relevant to these proceedings, is s. 31(1) of the Class Proceedings Act. It states:

31(1) In exercising its discretion with respect to costs under subsection 131(1) of the Courts of Justice Act, the court may consider whether the class proceeding was a test case, raised a novel point of law or involved a matter of public interest.

[50] The trial judge gave careful reasons as to why he would not give relief to the appellants under any of these three heads. I can see no error in principle in his treatment of these criteria or in the exercise of his overall discretion. I would add that this is far from a test case or one that is in the public interest. The class represents a limited number of persons who allege that some gold merchants scammed them with the assistance of a particular lawyer who is alleged to have been dishonest. It is a stand-alone action and has no public interest dimension. As it affects the Law Society, it is in the nature of a fishing expedition. The appellants require the assistance of the discovery process to determine what happened after the Secretary received the letter of complaint in question.

[51] The trial judge was correct, also, in holding that the case did not raise a novel point of law. Stripped to its essentials, the appellants are asking the court to over-rule an established line of authority reaching to the Supreme Court of Canada declaring, absent a showing of bad faith, that the Law Society is immune from civil suits for damages. The Anns/ Kamloops vehicle the appellants chose for this purpose excludes statutory and judicial immunity from its analysis. The appellants are threshing old straw.

[52] An additional argument was raised before the trial judge but not, as I recall, in this court. The trial judge was asked by the Law Foundation to consider the effect of what would be a substantial cost award on the viability of the Class Proceedings Fund. In my opinion, the trial judge was correct in following what was said by Winkler J. in Garland v. Consumers' Gas Co. (1995), 1995 7179 (ON SC), 22 O.R. (3d) 767 at p. 772, 17 B.L.R. (2d) 239n (Gen. Div.) to the effect that this was a consideration for the Committee recommending funding, not one for the court in deciding to award costs to an otherwise deserving defendant.

[53] Accordingly, I would dismiss the appellants' appeal against the cost award of the trial judge. In this court, costs should simply follow the event and be payable by the appellants to the respondent Law Society on a party and party basis.

Order accordingly.

Notes

Note 1: The appellate judgment was released following the argument in this court. Counsel for the appellants had relied upon the judgment in the lower court but largely in support of the proposition that the issue of whether a duty of care should be limited by policy considerations is best left to the trial judge.