COURT OF APPEAL FOR ONTARIO

CITATION: Williams v. Toronto (City), 2016 ONCA 666

DATE: 20160912

DOCKET: C61705

Sharpe, Lauwers and Miller JJ.A.

BETWEEN

Terence Williams

Plaintiff (Respondent)

and

The Corporation of the City of Toronto

Defendant (Appellant)

Diana Dimmer and Christopher J. Henderson, for the appellant

Brendan van Niejenhuis and Justin Safayeni, for the respondent

Heard: June 23, 2016

On appeal from the judgment of Justice Paul M. Perell of the Superior Court of Justice, dated January 4, 2016, reported at 2016 ONSC 42.

Lauwers J.A.:

[1] In 2003, the Province of Ontario changed the classification of rooming houses for assessment purposes and thereby lowered the property tax rates on them. Legislation required the landlords to reduce rents payable by tenants, and also required municipalities, including the City of Toronto, to provide notices of the rent reduction to the affected rooming house landlords and tenants. The City failed to do so. Mr. Williams, the respondent, brought a class action against the City for damages for negligence, alleging that the class members overpaid rent because the City failed to provide timely notice to the tenants.

[2] Mr. Williams and the other class members are tenants who occupied rooming houses in the Parkdale area of Toronto from 2003 to 2008. Many of Parkdale’s rooming houses did not comply with municipal zoning and by-law requirements. After negotiations with affected parties, the City implemented the Parkdale Pilot Project (“PPP”), which aimed to regularize and improve illegal housing without leaving tenants homeless. The class members are tenants of buildings involved in the PPP, as defined in the certification order:

All those persons residing in Ward 14 in the City of Toronto who, being tenants in rental apartments having seven or more units in respect of which the municipal property tax was reduced by more than 2.49% at any time between January 1, 2003, and December 31, 2008, as a result of the participation of such apartment buildings' owners in the Parkdale Pilot Project, did not receive the notices of tax reduction referred to in section 136 of the Residential Tenancies Act, 2006 and/or section 131 of the Tenant Protection Act.

[3] The tenants moved for summary judgment on the common issues of whether the City owed them a duty of care and whether it had breached the standard of care by failing to notify them of rent reductions. The motion judge found that the tenants’ negligence claim was made out on the facts. He found, at paras. 71-72, that there was foreseeability of harm and a sufficiently proximate relationship between class members and the City for a duty of care to exist, and held, at para. 78, that the City’s failure to send notices breached the standard of care. He granted summary judgment in favour of the class members. According to the litigation plan, an individual issues process will determine the specific financial entitlements of individual tenants.

[4] The key issue in this appeal is whether the motion judge was correct in determining that the process leading to the PPP created sufficient relational proximity between the City and the class members to justify imposing on the City a private law duty of care in addition to its public obligations under the Tenant Protection Act, S.O. 1997, c. 24 and Residential Tenancies Act, 2006, S.O. 2006, c. 17 (“RTA”). For the reasons set out below, I would dismiss the City’s appeal.

The Issues

[5] The certification order certified two common issues:

1. Did the City owe a duty of care to class members to send the notices required by s. 136 of the Tenant Protection Act and s. 131 of the Residential Tenancies Act, 2006?

2. Did the City, by failing to send the notices required by s. 136 of the Tenant Protection Act and s. 131 of the Residential Tenancies Act, 2006, fall below the requisite standard of care?

[6] It is common ground that the City had a statutory obligation to provide notice to the class members and failed to do so.

A. Did the City owe a duty of care to class members to send the notices required by s. 136 of the Tenant Protection Act and s. 131 of the Residential Tenancies Act, 2006?

[7] In order to found a duty of care in negligence, three elements are necessary: (1) The harm complained of must have been reasonably foreseeable; (2) There must have been sufficient proximity between the plaintiff and the defendant that it would be fair and just to impose a duty of care; and (3) There must be no residual policy reasons for declining to impose such a duty: Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537; Edwards v. Law Society of Upper Canada, 2001 SCC 80, [2001] 3 S.C.R. 562; Childs v. Desormeaux, 2006 SCC 18, [2006] 1 S.C.R. 643; Syl Apps Secure Treatment Centre v. B.D., 2007 SCC 38, [2007] 3 S.C.R. 83. See also Anns v. Merton London Borough Council, [1978] A.C. 728 (H.L.) and Kamloops (City of) v. Nielsen, 1984 CanLII 21 (SCC), [1984] 2 S.C.R. 2.

[8] Foreseeability, the first element, is not in dispute. The motion judge held, at para 67: “the City admits it knew that its notices would inform the Class Members of their rights and that the Class Members would likely be adversely affected by the lack of notice.”

[9] This case turns on the second and third elements of the Cooper analysis: whether a duty of care arises from proximity; and whether there are residual policy reasons to decline to impose a duty of care on the City. A tension is in play in considering these elements. It is between the principle, best articulated in Donoghue v. Stevenson, 1932 CanLII 536 (FOREP), [1932] A.C. 562 (H.L.), that victims of negligence ought to be compensated, on the one hand, and, on the other hand, the need to limit the duty of care to avoid the “spectre of unlimited liability to an unlimited class” (Cooper, at para. 37). The Supreme Court observed: “The quest for the right balance is in reality a quest for prudent policy” (Cooper, at para. 29).

(1) The Second Cooper Element: Sufficient Proximity

(a) The Governing Principles

[10] The Supreme Court described the proximity element in Cooper, at para. 31, and explained the starting point is to determine whether the relationship between the parties falls within a recognized category:

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.

[11] In Cooper, at paras. 41-42, the Supreme Court prescribed a proximity analysis that requires the court to address two questions:

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. …

[If not,] [t]he next question is whether this is a situation in which a new duty of care should be recognized.

[12] Since, as the motion judge held, at para. 60, there is no category of analogous cases in which a duty of care has previously been recognized, the focus of this appeal is on the degree of proximity and whether a new duty of care should be recognized. If the court finds a sufficient degree of proximity, then a prima facie duty of care exists, and the court next considers whether there are residual policy reasons for declining to impose such a duty on the defendant in the plaintiff’s favour. This is the third element of the Cooper analysis, which I address later in these reasons.

[13] In Hill v. Wentworth Regional Police Services Board et al, 2007 SCC 41, [2007] 3 S.C.R. 129, McLachlin C.J. stated that while proximity requires that the actions of the wrongdoer have a sufficiently “close and direct” effect on the victim, this does not require physical proximity (at para. 29). The absence of a personal relationship, while an “important factor to consider”, is “not necessarily determinative” (at para. 30). The court specifically invoked the words of Lord Atkin in Donoghue to the effect that the duty of care could extend to situations in which the defendant “would know” the plaintiff “would be directly affected by his careless act”.

[14] The plaintiff must show 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”: Hercules Managements Ltd. v. Ernst & Young, 1997 CanLII 345 (SCC), [1997] 2 S.C.R. 165, at para. 24, cited with approval in Odhavji Estate v. Woodhouse, 2003 SCC 69, [2003] 3 S.C.R. 263, at para. 49.

[15] The Supreme Court noted inCooper courts have determined proximity in new situations, by “looking at expectations, representations, reliance, and the property or other interests involved” in order to “evaluate the closeness of the relationship between the plaintiff and the defendant”, and by asking “whether it is just and fair having regard to that relationship to impose a duty of care in law upon the defendant” (at para. 34). However, “[t]here is no definitive list” of factors: Syl Apps, at para. 30.

[16] When the contact underlying the relationship arises through the operation of a statutory scheme, the statute provides the relevant context for assessing the sufficiency of proximity between the parties: Cooper, at para. 43, Edwards, at para. 9, Syl Apps, at para. 27-29, Fullowka v. Pinkerton's of Canada Ltd., 2010 SCC 5, [2010] 1 S.C.R. 132, at para. 39.

[17] Chief Justice McLachlin identified three types of situation where legislation could play a role in determining whether the governmental actor owes the plaintiff a prima facie duty of care in R. v. Imperial Tobacco, 2011 SCC 42, [2011] 3 S.C.R. 45, at paras. 43-46. The first is where the legislation gives rise to a duty of care explicitly or by implication. The second is “where the proximity essential to the private duty of care is alleged to arise from a series of specific interactions between the government and the claimant. The argument in these cases is that the government has, through its conduct, entered into a special relationship with the plaintiff sufficient to establish the necessary proximity for a duty of care” (emphasis added). In the third type of situation proximity arises from the combination of the legislative scheme and the government’s interactions with the claimant.

[18] Stated summarily: “[T]he proximity inquiry will focus initially on the applicable legislative scheme and secondly, on the interactions, if any, between the regulator or governmental authority and the putative plaintiff”: Taylor v. Canada, 2012 ONCA 479, [2012] 111 O.R. (3d) 161, at para. 75.

(b) The Motion Judge’s Assessment

[19] The motion judge instructed himself appropriately on the legal test for finding a duty of care in negligence. He stated the issue for determination at para. 70:

In the case at bar, this legislation does establish a relationship between the City and tenants in the City and imposes responsibilities on the City to give the required statutory notice to the Class Members and other tenants in Toronto who come within the prerequisites for notice; i.e. a rent reduction of 2.49 percent in a rooming house with seven or more units. However, just having a proximate relationship, once again, is not enough to establish the special relationship; i.e. a relationship of such proximity that it is just and fair to impose a duty of care. Is the relationship one where the imposition of a duty of care is appropriate?

[20] The motion judge found himself in a delicate position. He had originally refused certification of the class action in Williams v. Toronto (City), 2011 ONSC 2832, at para. 83, on the basis that:

[T]here is not a close or direct relationship between the tenants and the local municipality that would make it fair to impose on a local municipality a duty of care to tenants who should receive notices with attendant liability for any failure by the local municipality to comply with the statute.

He had added that there were policy reasons that would negate sufficient proximity and therefore a prima facie duty of care: the prospect of indeterminate liability, and his doubt about the “social utility” of shifting the burden of liability from landlords to the municipalities (at paras. 84-87). He had concluded, at para. 88: “[I]t is plain and obvious that Mr. Williams does not have a cause of action for negligence or for negligent misrepresentation against the City because the City does not have a duty of care to the tenants to send out the statutory notices.”

[21] However, neither the Divisional Court (Williams v. Toronto (City), 2011 ONSC 6987, 346 D.L.R. (4th) 173) nor this court (Williams v. Toronto (City), 2012 ONCA 915, 358 D.L.R. (4th) 69) agreed with the motion judge’s original conclusion that it was plain and obvious that no duty of care exists on the facts as pleaded in this case. This court, at paras. 18-19, adopted the Divisional Court’s conclusion:

We agree with the majority of the Divisional Court that it is not plain and obvious that these pleaded facts, if proven, are insufficient to establish that the City owed Mr. Williams and other class members a private law duty of care as a result of a specific and special relationship between the parties arising from the Parkdale Pilot Project. As the majority of the Divisional Court put it, at paras. 43 and 46, on the facts pleaded: “[Mr. Williams] and the class members fell within a specific group of tenants targeted by the City in the Parkdale Pilot Project” and, “[I]t is arguable that there is sufficient proximity to found a prima facie duty of care when the statutory duty to give notice is considered in light of the facts as pleaded showing the relationship between the City and the Parkdale tenants arising as a result of the Parkdale Pilot Project.” [Emphasis added.]

[22] This court added, at para. 19:

We are also not persuaded, at this early stage, that it is plain and obvious that policy considerations would inevitably operate to negate any private law duty of care otherwise found to attach to the City.

[23] Since neither the Divisional Court nor this court found definitively that the City owed a duty of care to the class members (the issue was only whether it was plain and obvious that there was no such duty), this question was left for future determination, after the anticipated exchange of pleadings and the development of a full evidentiary record. However, there has been no significant development of the evidence by either party. The class representative instead brought a motion for judgment on the record more or less as it existed at the certification hearing, as he was entitled to do.

[24] The motion judge reconsidered the duty of care issue in light of the comments of the Divisional Court and this court. He found, at para. 72, that the City did have a duty of care to the class members, reversing his earlier holding. He expressly adopted the reasons of Swinton J. in the Divisional Court, who had said, at para. 45:

On the facts pleaded, read generously as one is required to do in a case such as this, the appellant and the class members are particularly vulnerable and would not know of their rights without the information in the notices. Indeed, the City had already taken action to protect them with the Parkdale Pilot Project.

[25] The motion judge explained, at para. 71, that he was now “giving legal significance to the distinctive circumstances of the Parkdale Pilot Project that placed the class members in a closer relationship than other tenants in Toronto who are also entitled to receive notices from the City.”

(c) The City’s interactions with the class members

[26] In this section I discuss the conflict resolution process leading to the PPP, which grounded the motion judge’s finding of proximity between the City and the class members. The motion judge set out the context for the PPP in his 2016 decision, at paras. 24, 25:

In the late 1990s, to deal with the high number of illegal rooming houses in the Parkdale area (Ward 14) of the City of Toronto, the City engaged in a series of community consultations for possible solutions to what was a serious and complex social problem. Rooming houses are an important source of housing for many persons who cannot otherwise afford accommodation in Toronto, Ontario, but unlicensed rooming houses escaped the City's regulation of fire and safety standards. In 1998, Toronto Community Council endorsed the creation of a process to achieve consensus on the approach the City should take to the illegal rooming house situation in the Parkdale area. The City invited landlords, representatives of tenants' associations, and representatives of community agencies, to participate in a mediation process. Staff from various City departments provided input into the discussions. In 1998 and 1999, there were 15 meetings.

These consultation efforts culminated in a report authored by City staff, and in February 2000, City Council adopted 18 recommendations, including the creation of the Parkdale Pilot Project. The Project's primary purpose was to address the problem of illegal housing by ensuring tenants would be provided with safe, quality housing through regular municipal inspections and the enforcement of appropriate standards. The Project was designed to bring eligible properties in Ward 14 within the City's existing licensing regime, so they would be inspected and their state of repair and safety would be monitored.

[27] The evidence about the interactions between the City and the class members comes from material filed by the City of Toronto. Lynda MacDonald, then Manager of Community Planning, provided an affidavit including two reports describing the PPP. The first was a copy of the “report and action taken by City Council for the City of Toronto on October 28, 29 and 30, 1998”. It describes the background by which the Toronto Community Council “endorsed the creation of a conflict resolution process to achieve a consensus on the appropriate approach the City should take to the existing bachelorettes and illegal rooming houses in Parkdale, such process to include the appointment of a facilitator who is acceptable to all groups.” This document described a public meeting held on October 14, 1998, attended by representatives of a wide variety of associations, including the Parkdale Tenants’ Association.

[28] The second, more significant City document was the “report and action taken by Council for the City of Toronto on February 1, 2, and 3, 2000” (the “2000 Report”). The Report stated that it was a “joint report” involving a number of high level City officials: the Executive Director/Chief Building Official, South District; Executive Director/Chief Planner; Executive Director, Municipal Licensing and Standards; and the General Manager, Shelter, Housing and Support Division.

[29] The PPP emerged from the Parkdale conflict resolution process. The name suggests conflicts among various stakeholders. The Parkdale Tenants’ Association, representing many of the class members, eventually withdrew from the conflict resolution process. The 2000 Report stated, at p. 106:

The Parkdale Tenants’ Association withdrew from the mediation process, but made their views clear. They take the position that zoning should not discriminate against certain types of housing. Areas that are zoned for residential use should permit all forms of rental housing. They believe that housing standards should be based upon standards such as structural integrity, fire safety and public health; standards should not be used as a means of restricting housing forms. ... Parkdale tenants believe that there should be no evictions, and the City should do repairs as needed to ensure safe living conditions and then bill or tax the property accordingly.

[30] The basic tension in the 2000 Report was between the City, which wanted to regularize illegal housing and improve its quality and safety, and the tenants, who believed the City’s efforts to do so would add expense and would make their housing unaffordable. The Report stated, at p. 117:

During the mediation process a number of groups expressed concern that the normalization and enforcement processes not lead to “de-housing” of existing tenants. The review and assessment process outlined above is intended to provide enough latitude that work necessary to achieve compliance can be completed during the normal turnover of units.

Ideally, units would be vacated through natural turnover, and any displaced tenants would be resettled within the same building. This assumption must be carefully monitored. Overall, there must be a balance between improving the housing quality of these units, and minimizing the impact on tenants in terms of loss of affordable housing.

[31] At pp. 118-119, the 2000 Report advocated a “resettlement” or “relocation” protocol, and set out a number of detailed elements to be considered, including imposing an obligation to report “on relocation issues as they arise and recommending strategies to support vulnerable tenants.”

[32] The 2000 Report noted that in order to maintain the affordability of housing, some financial assistance for capital rehabilitation costs might be necessary from “senior levels of government” (at p. 117). In relation to the affordability issue, the Report noted, at p. 120:

The mediation process only began to consider the issue of affordability. All the participants were concerned with the protection of affordable housing within Parkdale. With the loss of rent control, the City does not have the ability to impose affordability. However, a number of ideas were discussed which merit further consideration.

Among them was “approaching the Province to secure a reduced tax rate for bachelorette buildings which will further assist affordability.”

The tax issue

[33] The tax issue was addressed at p. 116 of the 2000 Report, as a method for providing “a further incentive for property owners to come forward and retain these buildings as a form of affordable housing.” The fear expressed in the 2000 Report was that, as a result of the advent of market value assessment coupled with the improvement of the buildings:

[T]he tax rate will escalate further. The BOA [Bachelorette Owners Association] stated that the increase in taxes will probably be passed on to their tenants, reducing their ability to provide affordable housing. They believe they should qualify for the residential rate that applies to rooming houses.

The Report recommended “that Council pursue the lower tax rate”, and explained, at p. 116:

The City should advocate to the Province a reassessment to reduce the level of taxation. A lower tax rate would provide a further incentive for property owners to come forward and retain these buildings as a form of affordable housing.

The issue of whether bachelorettes should have a separate tax class requires further discussion with the Province. The creation of a new property class for rooming houses and bachelorettes is possible under current legislation, but does require the Minister to specify the new class in a Provincial regulation. Even if a separate class is supported, the tax rate applied is not within the City's jurisdiction to determine, but must fall within provincially defined "ranges of fairness" that were introduced when CVA was implemented in 1998. Further review is required not only with respect to the applicable tax rates, but also to the financial impact that the creation of a new class would have on the City. We therefore recommend that Council pursue the lower tax rate.

(d) Is the proximity test satisfied?

[34] The proximity assessment focuses on the “relational proximity” of the parties, to use the Supreme Court’s evocative expression in Cooper, at para 39. Was there sufficient relational proximity between the class members and the City to attract a duty of care? Was the relationship between the class members and the City of such a nature that the City may be said to have been under an obligation to be mindful of the class members’ legitimate interests in conducting its affairs?

The typical factors are not present

[35] The City submits, and I agree, many of the typical factors that have led courts to find proximity are not present in this case. These factors were gathered by this court in Taylor, at para. 69, and include:

[A]ny representations made by the defendant, especially if made directly to the plaintiff, reliance by the plaintiff on the defendant's representations, the nature of the plaintiff's property or other interest engaged, the specific nature of any direct contact between the plaintiff and the defendant, and the nature of the overall relationship existing between the plaintiff and the defendant.

[36] But as the City correctly concedes, this is “not a closed list.” To use this court’s language in Taylor, what must be assessed are the interactions between the City and the class members. The issue in this case comes down to whether the City’s involvement in conflict resolution process leading to the PPP brought the City into relational proximity to the class members.

[37] The City maintains that, although Mr. Williams bore the onus of proving that he was owed a duty of care, and although the appellate courts had given direction about having a full evidentiary record, there is no evidence Mr. Williams was aware of the PPP’s creation or relied on, or interacted with the City.

[38] I agree with the City that the statutory obligation imposed upon the City by the RTA to provide notice of a tax reduction would be insufficient, standing alone, to establish a relationship of proximity between the City and the class members giving rise to a duty of care. But, as I outline below, the actual relationship between the City and the class members was considerably more complicated.

[39] The Parkdale Residents’ Association, in which the respondent had a role, did interact directly with the City, as the motion judge observed, at para. 30 of his 2011 decision:

In late April 2008, Warren Sheffer, who was then the treasurer of the Parkdale Residents’ Association, asked City officials about whether tenants in Parkdale might have been entitled to a rent reduction because of the amendment to the Assessment Act in 2003.

[40] The respondent’s status as class representative was determined by the motion judge in his 2011 decision, at paras. 28 and 29:

Between April 2004 and November 30, 2005, Mr. Williams, who is an Executive Member of the Parkdale Residents’ Association, was a tenant of a rooming house on Beaty Avenue in Parkdale. Unknown to Mr. Williams, this property enjoyed a tax reduction, which reduction should have, in turn, led to an automatic reduction in Mr. Williams’ rent effective January 1, 2005. Mr. Williams did not receive any rent reduction and overpaid his landlord in 2005.

From December 2005 to date, Mr. Williams has resided at a rooming house at Laxton Avenue in Parkdale. Unknown to Mr. Williams, this property also enjoyed a tax reduction, which reduction should have, in turn, led to a reduction in Mr. Williams’ rent. Mr. Williams did not receive any rent reduction and has overpaid his landlord.

[41] In my view, it is not open to the City to question these findings on the summary judgment motion. They establish a sufficient interaction between Mr. Williams as an individual involved with and directly affected by the dealings between the City and the Parkdale Residents’ Association.

Finding proximity does not require that tax relief be the primary focus of the PPP

[42] I agree with the City that, as the motion judge found at para. 25, the “primary purpose [of the PPP] was to address the problem of illegal housing by ensuring tenants would be provided with safe, quality housing through regular municipal inspections and the enforcement of appropriate standards.” Moreover, as the City argues, “the PPP was not dependent upon the tax class change implemented by the Province.” A large number of the applications went through the PPP and were processed before the tax change.

[43] However, I would reject the implied premise of the City’s argument, which is that to count in the proximity analysis leading to a duty of care regarding notice of rent reductions, tax relief had to be the primary focus of the PPP. The relationship between the City and the class members must be assessed on a more holistic basis. In my view, the prospect of tax relief and rent reductions need be no more than a factor. I agree with the respondent’s submission that “while securing rent reductions for the class members may not have been the primary or sole purpose of the PPP, it was nevertheless an important purpose, an explicitly contemplated result, and an essential component of the consensus reached between various stakeholders groups, and ultimately adopted”.

[44] The City minimizes the role of tax relief in the PPP, pointing out that “only one recommendation discussed property taxes specifically”, which merely saw “the City advocating to the Province for tax changes for rooming houses.” The City argues there is no evidence that “the PPP was created or implemented with the express purpose of conferring a financial benefit to tenants in the form of rent reductions, or that the PPP was dependent upon or linked to regulatory changes to the assessment and classification of rooming houses.” As it turns out, the City did not in fact advocate for tax changes for rooming houses during the process that led to the provincial policy decision.

[45] According to the evidence of Mr. Sheffer, then Treasurer of the Parkdale Residents’ Association, ensuring tenants received their proportionate share of their landlord’s tax reduction was “an essential component of the City’s stated plan for the PPP”. The respondent states that the City did not challenge or contradict this evidence, although the City’s witness did state that “the potential tax savings ... was not a principal objective of the Parkdale Pilot Project and at the time of its creation was uncertain.” The respondent relies on the wording of the Joint Report that “[t]he recommendations in this report carefully balanced the needs of the groups involved. Changing or removing any of the recommendations will damage the effectiveness of the report and disrupt the consensus that has emerged.”

[46] Calling the prospect of tax relief, with the resulting rent reductions, an “essential component” of the PPP goes too far, on the evidence, but I do agree with the respondent’s argument that the City’s commitment to pursuing a lower tax rate on rooming houses “was directly linked to addressing the concern about protecting affordable housing in Parkdale – a recurring theme throughout the Joint Report, the 1998 Report, and the stakeholder meetings leading to the PPP.”

[47] The motion judge cited both the tax reduction recommendation and the explanation for it in the 2000 Report, at paras. 27, 28. While the importance of the tax issue should not be overstated, this link between tax reduction and affordability of rent was plain to the City, and it must factor into the proximity analysis.

The City’s relationship with the class members went beyond the notification role

[48] In my view the motion judge was correct to locate the duty of care in the confluence of the City’s statutory obligations and its involvement in the PPP.

[49] The evidence about the lengthy PPP, summarized above, shows that at a high staff level the City recognized the particular economic and psychological vulnerability of the class members to increases in housing costs. The City knew its efforts to upgrade the rooming house and bachelorette housing stock in Parkdale would negatively affect the affordability of rental housing there. “De-housing” of class members was a real prospect the City proposed to address through a “relocation” protocol, which was to require reports “on relocation issues as they arise and recommending strategies to support vulnerable tenants,” City monitoring, and approaches to senior levels of government to provide capital funding and tax relief to counter upward pressure on rents. From its contacts with the Parkdale Tenants’ Association and through the conflict resolution process leading to the PPP, the City knew intimately the situations of the class members and the nature and extent of their particular vulnerabilities, knew the City’s actions would exacerbate those vulnerabilities, knew that even modest rent relief would be especially meaningful to the class members, and ought to have known that this vulnerable group would be especially hard hit by the City’s failure to perform its statutory notification duties.

[50] The scenario fits well within Lord Atkin’s seminal words in Donoghue, emphasized by McLachlin C.J. in Hill, that the relevant proximity “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.”

(d) Conclusion on the second Cooper element: the sufficiency of proximity

[51] I conclude that the motion judge was correct to find sufficient relational proximity between the class members and the City to attach to the City a prima facie duty of care.

(2) The Third Cooper Element: Are there residual policy reasons to decline to impose a duty of care on the City?

[52] In addressing the third Cooper element, the court focuses on “residual policy considerations”. 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”: Cooper, at para. 37. See Hill, at para. 31, Syl Apps, at para. 32, and Fullowka, at para. 57.

[53] As Cromwell J. explained in Fullowka, at para. 57, in order to oust a prima facie duty of care once the first two Cooper elements have been established, the “residual policy considerations must be more than speculative.” He stated: “They must be compelling; a real potential for negative consequences of imposing the duty of care must be apparent”.

[54] The jurisprudence has identified several relevant policy considerations that weigh against imposing liability on public authorities. I pick out three that are pertinent to this appeal.

(a) Would liability be indeterminate?

[55] The most significant is the problem of indeterminate liability, which Cromwell J. explained in Fullowka, at para. 70:

The concern is that the proposed duty of care, if accepted, would impose “liability in an indeterminate amount for an indeterminate time to an indeterminate class”, to use the often repeated words of Cardozo C.J. in Ultramares Corp. v. Touche, 174 N.E. 441 (N.Y. 1931), at p. 444. At the root of the concern is that the duty, and therefore the right to sue for its breach, is so broad that it extends indeterminately. In this sense, the policy concern about indeterminate liability is closely related to proximity; the question is whether there are sufficient special factors arising out of the relationship between the plaintiff and the defendant so that indeterminate liability is not the result of imposing the proposed duty of care. What is required is a principled basis upon which to draw the line between those to whom the duty is owed and those to whom it is not. [Internal citations omitted; emphasis added.]

[56] The indeterminate liability policy consideration underlies the court’s reluctance to find liability for pure economic loss, as Cromwell J. explained in Fullowka, at para. 70, cautioning that “even in that context, it has not always carried the day to exclude a duty of care.”

[57] A related consideration is the possible impact on the public purse, as the Supreme Court noted in Cooper, at para. 55. The court declined to impose a duty of care for negligent regulation of mortgage brokers, noting that taxpayers “did not agree to assume the risk of private loss to persons in the situation of investors” or to underwrite “an insurance scheme at great cost to the taxpaying public.”

The indeterminate liability factor was rejected during the certification process

[58] The motion judge addressed this issue squarely in his 2011 decision, at paras. 85-87:

The present modest $1 million class action, which is circumscribed by its connection to residences in the Parkdale Pilot Project, belies the potential scope and indeterminate liability that would be imposed on local municipalities across Ontario if there was a general duty of care imposed on local municipalities to tenants who did not receive notices under the Residential Tenancies Act, 2006.

From a policy perspective, it seems undesirable and unnecessary to impose a duty of care on a municipality to be indirectly responsible for a financial liability that directly belongs to landlords to their tenants, many of whom will not be as poor as the tenants in the thirty-three Parkdale residences in the case at bar.

If the law were to impose this duty of care on the local municipality, then the attendant cost of paying rent reductions for rich or poor tenants would be shifted to the public purse subject to the municipality bringing actions against the landlords for contribution and indemnity. The social utility of this sharing or shifting of a financial liability arising from private contracts to the public purse is doubtful.

[59] In overturning that decision, Swinton J. of the Divisional Court said, at para. 49:

The motions judge focused on two main considerations: the danger of indeterminate liability for the City and the inappropriateness of shifting the landlords' financial obligation to taxpayers. There are a number of problems with his conclusion. First, he had no evidence to support his conclusions; second, the City did not make these policy arguments before him; and third, this is not a case where the recognition of a duty to the Parkdale group of tenants would create indeterminate liability to tenants in general. As in Heaslip, above (at para. 33), the motions judge failed to consider the particular claim before him made on behalf of the appellant and a specific group of Parkdale tenants. This is not a case where the appellant was arguing there was a duty of care owed by municipalities to all tenants who should receive a notice.

[60] On appeal, this court took the same approach as the Divisional Court (at para. 20): “The case put against the City is confined to a duty allegedly owed to a discrete subgroup of Toronto tenants - those like Mr. Williams, who were targeted by the City in the Parkdale Pilot Project.”

[61] In the decision under appeal, the motion judge followed the lead of the appellate courts. He stated that “fact specific circumstances can respond to the policy issues and make it fair and just to impose a duty of care and attendant liability on the local municipality”, concluding that “the Parkdale Pilot Project is a fact specific circumstance that justifies the imposition of a duty of care on the City.”

[62] In my view, indeterminate liability is not a policy consideration on which this claim should founder. The claim is limited to the unique circumstances of the PPP and the class members. This serves to limit considerably the extent of the City’s liability and confines it to a very restricted class.

(b) Is the Authority Engaged in Policy-Making?

[63] The second significant policy consideration recognizes the undesirability of inhibiting the policy-making functions of public authorities. This has given rise to a distinction between policy-making, for which public authorities are not liable, and operational decisions, where liability might attach. The Supreme Court noted in Cooper, at para. 38:

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.

See also Imperial Tobacco, at paras. 61-62.

[64] The City submits it is a “mere notifier” in respect of property tax reductions and associated rent reductions, like other municipalities, and points out it had no policy-making function in providing notice to landlords and tenants. I agree. There was no call on the City to make any policy decisions around the provision of notice or the content of notice. Accordingly, this policy consideration does not weigh in favour of denying liability.

(c) Would the Imposition of Liability on the City Lead to a Conflict with its Public Duty?

[65] The third significant policy consideration is whether the imposition of liability for negligence would trigger a conflict with the City’s public duty. The negative policy consequences of such a conflict could provide a compelling reason for refusing to find proximity: Syl Apps, at para. 28; Fullowka, at para. 72. The court declined to impose liability inCooper, where the regulation of mortgage brokers was in issue; in Edwards, respecting the Law Society’s regulation of lawyers’ trust accounts; and in Syl Apps, which concerned the duties of children’s aid societies under child protection legislation.

[66] There is a related argument that imposing liability on a statutory authority could have a chilling effect on an authority’s prudent conduct as a regulator, although this argument was rejected by the Supreme Court on the specific facts in Fullowka, at para. 72, concerning the activities of mining inspectors, and in Hill, at para. 56, in relation to police officers.

[67] By contrast, the Supreme Court has endorsed the extension of a duty of care where doing so would complement, not contradict statutory duties. In Hill, the court recognized the tort of negligent investigation on the part of police officers. In Fullowka, the court recognized the tort of the negligent provision of security services, although in that case the court found no breach of the standard of care.

[68] The City submits the statutory scheme militates against finding a relationship of proximity. It argues that, unlike in inspection cases like Fullowka, the City has no safety obligations or cognate duties or powers under the RTA, but is a “mere notifier” in respect of property tax reductions and associated rent reductions.

[69] I see no basis on which the City’s obligation to provide notice to landlords and tenants could conflict with any of its public duties, since the City had no policy-making function in providing the required notice to landlords and tenants. The City’s public duty was to do just that – to provide notice. As in Fullowka, the imposition of a duty of care would complement the statutory duty, not conflict with it. This policy consideration supports the imposition of liability on the City.

[70] The City also argues the existence of remedies in the RTA for an injured party is an indication “the statutory scheme did not intend to create a private law duty of care against municipalities.” The City’s way of expressing the role of a statute in the creation of a private law duty of care reverses the ordinary understanding. Where, as here, the statute does not expressly create a private law remedy, the question is usually whether there is a conflict between the duties imposed by the statute and any private law duty of care. There is no conflict here. In my view the existence of a statutory remedy by which a tenant or former tenant can apply to the Landlord and Tenant Board under s. 133 of the RTA does not prevent the creation of common law duty of care.

(d) Conclusion on the Third Cooper Element: The Effect of Residual Policy Reasons

[71] I concluded earlier there was sufficient relational proximity between the class members and the City to attach to the City a prima facie duty of care to the class members to provide notices of the tax reduction to the rooming house landlords and tenants affected by the changes in Parkdale, as it was required to do by legislation. None of the residual policy considerations would prevent the imposition of liability in this case.

B. Did the City fall below the requisite standard of care?

[72] The second major issue is whether the City fell below the requisite standard of care by failing to send the notices required by s. 136 of the Tenant Protection Act and s. 131 of the Residential Tenancies Act, 2006.

[73] The motion judge required no evidence about the standard of care to conclude that the City’s conduct fell below it (at para. 78):

The City admitted it made a mistake in not sending out the notices. It cannot be said that the standard of care of the reasonably competent local municipality in the giving of notices would be set so low that a municipality can be absolved from sending out a statutorily required notice without any excuse for its failure to comply with the statute.

[74] The City submits the motion judge made a conclusory finding, and points to two difficulties. First, the City argues that it sent notices to every single building at issue in the claim, albeit late. The City argues that “there is no evidence from the Plaintiff regarding why these notices were insufficient for the Plaintiff or members of the class to obtain relief.”

[75] Second, the City points out that where the property tax reduction occurs because of a successful appeal under the Assessment Act, R.S.O. 1990, c. A.31, it would have been “impossible for the City to have complied with its duty to deliver a rent reduction notice within the timeframe required by the RTA.” There are 11 rooming houses that fall into this category. As an example, the property taxes for one property were reduced for the 2004 taxation year, but the reduction was not posted to the property tax account until November 2005. The reduction was to take effect retroactively to 2004, which meant that to comply with the legislation, “the notice was to have been sent between October 1 and December 15 of 2004”. Obviously the City could not have provided notice of the result of an assessment appeal that was not posted until 11 months later.

[76] I begin by discussing the general standard of care, and then address the two particular difficulties raised by the City.

[77] The overarching standard of care is that of a reasonable person in similar circumstances. In this case, as the motion judge stated, the standard is that of a reasonably competent local municipality.

[78] What did this standard of care require in the circumstances? As the Supreme Court held in Ryan v. Victoria (City), 1999 CanLII 706 (SCC), [1999] 1 S.C.R. 201, at para. 29, statutory obligations are “relevant to the common law standard of care” and a statutory breach is “evidence of negligence”. What is more, “[t]he statutory formulation of the duty may afford a specific, and useful, standard of reasonable conduct”: R. v. Saskatchewan Wheat Pool, 1983 CanLII 21 (SCC), [1983] 1 S.C.R. 205, at p. 228.

[79] The City correctly points out that failure to comply with a statute is not itself proof of negligence. But this does not preclude a court from treating the statutory requirement as relevant to the standard of care. The motion judge therefore made no error in finding that the City’s failure to send the notices, without excuse, fell below the standard of care.

[80] Here, the City had a clear statutory obligation under the RTA and precursor legislation to send notices to certain tenants. The statute and regulations specify the content and timing of the notices. Meeting those specifications is what the standard of care required.

Inadequate notice

[81] The information notices the City sent to affected tenants failed to satisfy the statutory standard in two ways. First, the content of the information notices fell short of the statutory requirement. The statutory notice must tell tenants that their rent is reduced and by what percentage. The information notices only told tenants by what percentage the property tax for their building was reduced, and that they could discuss possible entitlements to rent reductions with their landlords or the Board. Second, the notices were late. The statutory notice is to be sent within the year of the tax reduction. The information notices were sent in 2009, addressing tax changes that occurred from 2004 to 2006. The information notices were therefore not sufficient to meet the standard of care.

The effect of the Assessment Act appeals

[82] The difficulty with the 11 rooming houses that were subject to Assessment Act appeals requires further discussion. The difficulty arises from the interaction of several different statutes.

[83] Under the Assessment Act, R.S.O. 1990, c. A.31, s. 40,

(1) Any person, including a municipality, a school board or, in the case of land in non-municipal territory, the Minister, may appeal in writing to the Assessment Review Board,

(a) on the basis that,

(i) the current value of the person’s land or another person’s land is incorrect, [or]

(iv) the classification of the person’s land or another person’s land is incorrect […].

(20) If the land is located in a municipality, the Board shall forward its decision to the clerk of the municipality and the clerk shall forthwith,

(a) alter the assessment roll in accordance with the decisions of the Board from which no further appeal is taken;

(b) indicate on the roll that the alteration has been made; and

(c) complete the roll by totalling the amounts of the assessments in the roll and inserting the total.

[84] Under the City of Toronto Act, 2006, S.O. 2006, c. 11, Sched. A, s. 306,

(1) The treasurer shall adjust the tax roll for a year to reflect changes to the assessment roll for that year made under the Assessment Act after the tax roll is prepared.

(2) Taxes for the year shall be collected in accordance with the adjusted tax roll as if the adjustments had formed part of the original tax roll and the City,

(a) shall refund any overpayment to the owner of the land as shown on the tax roll on the date the adjustment is made; or

(b) shall send another tax bill to raise the amount of any underpayment.

[85] The City takes the position that tax changes resulting from assessment appeals are deemed retroactive under this section – including for the purposes of the RTA. Under s. 131(2) of the RTA, the rent reduction resulting from a particular tax reduction “shall take effect on the date determined by the prescribed rules”. Those rules are given in Residential Tenancies Act, O. Reg. 516/06, s. 41(4), which states: “The prescribed date for the purposes of subsection 131(2) of the Act is December 31 of any year in which the municipal property tax reduction takes effect.” Thus, in the City’s view, tax changes resulting from assessment appeals are deemed to take effect retroactively, and the consequent rent reductions are to take effect on December 31 of the year in which the tax change is deemed to take effect.

[86] The problem arises with the City’s obligation to send notices “within the prescribed period” (RTA s. 131(3)). This prescribed period is set out in O. Reg. 516/06, s. 41(6): “The period within which notification of a rent reduction must be given for the purposes of subsection 131(3) of the Act is, (a) between June 1 and September 15 for landlords; and (b) between October 1 and December 15 for tenants.” These dates are meant to be within the year at the end of which the rent reduction takes effect. Therefore, the City submits, when an assessment appeal is posted, it has retroactive effect. Since the City was obliged to send notices between October 1 and December 15 of the year in which the rent reduction is deemed to have taken effect, such an obligation would be impossible to meet.

[87] Therefore, the City submits that its failure to send the statutory notices to tenants of the 11 rooming houses subject to Assessment Act appeals could not have been negligent. It would follow from the City’s position that, in general, municipalities could never meet their statutory obligation to notify tenants where an appeal is posted deeming a tax reduction to have taken place the preceding year. There is a gap in the legislation.

[88] I am not persuaded by this argument.

[89] The landlords in question benefited from a retroactive reduction in their property taxes. Where they had overpaid taxes, they were entitled to be reimbursed by the City. The tenants in question also became retroactively entitled to a reduction in their rent. Unless their claims were statute-barred, they were entitled to be reimbursed to the extent of the overpayment.

[90] The purpose of the statutory notices is to alert tenants to the reduction in their rent. This purpose could arguably have been achieved by sending the notices to tenants at the time when the Assessment Act change was posted. In these circumstances sending the notice at that time is arguably what a reasonably competent municipality would have done. Indeed, the limited evidence is that the City did send late statutory notices to certain other rooming houses.

[91] This rather detailed issue was not fully canvassed in the evidence or in argument. I observe in his 2011 decision in this matter, at paras. 102-104, the motion judge determined that whether the City’s failure caused a loss, and at what point the failure became discoverable to members of the class, were to be individual issues. In my view the individual issues phase would be the preferable forum for assessing the impact of the City’s action as an element of causation.

Disposition

[92] I would dismiss the appeal, with costs fixed as agreed at $15,000 inclusive of disbursements and taxes, payable by the City to the respondent.

“P. Lauwers J.A.”

Released: September 12, 2016 “RJS” “I agree Robert J. Sharpe J.A.”

“I agree B.W. Miller J.A.”