Kamloops v. Nielsen

Since the facts are of vital importance I set them out in some detail. Mr. Hughes, Jr. set out to build a house on a hillside for his father who was an Alderman in the City of Kamloops. To this end he submitted plans to the City's building inspector. The plans were approved, subject to the requirement that the footings were to be taken down to solid bearing, and a building permit was issued. Mr. Hughes did not take the footings down to solid bearing; instead he set the foundations on piles which were set into loose fill. He then requested an inspection of the foundations. When one of the City's building inspectors arrived to make his inspection on December 18, 1973 he realized that the foundations were not in accordance with the plans but he was unable to check whether they were adequate to support the building because the concrete had been poured. Accordingly, on his own initiative the building inspector followed up with

[Page 6] two further inspections on December 23, 1973 and January 2, 1974 and sent a letter to Mr. Hughes on the latter date indicating that a stop work order had been placed on the site and would not be lifted until new plans had been submitted showing how the structural defects were going to be remedied. Mr. Hughes retained a firm of professional engineers to prepare the new plans and on receipt of their proposal the building inspector lifted the stop work order. Mr. Hughes, however, did not cooperate with the engineers on the required changes but continued with the construction of the house on the original plans. The engineers, disavowing all liability, notified the building inspector.

On February 27, 1974 two building inspectors attended at the site. This was followed next day by a registered letter from the building inspector to Mr. Hughes telling him that the stop work order would remain in effect until he submitted a report from a structural engineer. Mr. Hughes ignored this communication and carried on with the building. Various further inspections were made by building inspectors who reported to their superior, the building inspector, that construction was continuing despite the stop work order.

On April 9, 1974 Mr. Hughes, Sr. and his wife purchased the property from their son. The City Solicitor wrote to them on April 22, 1974 advising them of the City's concern over the structural integrity of the building and that the stop work order which was currently in force would not be lifted until the City was provided with complete structural drawings from an engineer verifying the adequacy of the proposed construction. Mr. Backmeyer, Director of Planning for the City, became involved at this stage but no resolution to the problem was effected. The dialogue moved into the Council Chamber and Mr. Backmeyer testified that Mr. Hughes, Sr.'s plea to his fellow council members was that this was his retirement home

[page 7] and, since he was going to live in it, any problems that arose would be his and his alone. It was therefore no one's business but his and why was he being subjected to this kind of harassment?

At this point a strike of city employees broke out and the Director of Planning and the Building Division Administrator were left to run the Building Division by themselves until the strike ended sometime in July. No further inspections were made after the strike and no occupancy permit was ever issued. A plumbing permit was, however, issued in August 1974. The house was completed and the Hughes moved in February 1975. In December 1977 they sold the property to the present plaintiff who was told nothing of its chequered history. Before purchasing the house the plaintiff had taken a contractor with him to advise him on the cost of some renovations and also to make a general inspection of the house. The contractor did not see anything to alert him to a potential problem with the foundations but he did not crawl under the house to examine them. Accordingly, the first the plaintiff knew of the defective foundations was when they were drawn to his attention in November 1978 by a plumber called to attend to a burst pipe. The plumber discovered the situation when he went into the four-foot crawl space under part of the house and saw that the foundations had subsided.

The plaintiff issued his writ in January 1979 alleging against his vendor: (I) fraudulent misrepresentation; (2) breach of contract; and (3) negligence in the construction of the house. He alleged negligence also against the City of Kamloops for failing to enforce the stop work order or alternatively for failing to condemn the building as unfit for habitation.

Andrews J. found both defendants liable and apportioned fault between them, 75 per cent against the Hughes and 25 per cent against the City. No appeal was taken by the Hughes. The City's appeal to the Court of Appeal of British Columbia was dismissed.

[page 8]

But for the issue of limitations which I will deal with later, the City's grounds of appeal to this Court were substantially the same as those presented to the Court of Appeal and rejected by it. The first was that no duty of care was owed by the City to the plaintiff and, absent such a duty, no liability in negligence could be incurred.

The leading English authority favouring the existence of a duty of care owed by the City to the plaintiff is the decision of the House of Lords in Anns v. Merton London Borough Council, [1978] A.C. 728. The facts, in brief, were that the Borough Council in February 1962 approved plans for the creation of a two-storey block of flats. The plans called for the foundations to be "3'0" or deeper to the approval of local authority". In fact the foundations were only two feet six inches deep. By February 1970 cracks had appeared in the walls of the flats and the floors had begun to slope. Two of the plaintiffs were original lessees; the others were assignees from original lessees. All claimed against the Borough for the negligence of the council surveyor in approving foundations that were inadequate.

The relevant English legislation was the Public Health Act 1936, s. 61 of which empowered Council to make by-laws to regulate the construction of buildings. By-law 18(1)(b) provided that the foundations of every building should be taken down to such depth or be so designed as to safeguard the building against damage caused by swelling and shrinking of the subsoil. The builder was under a statutory duty to notify the local authority before covering up the foundations and the local authority had at that stage the right to inspect and to insist on any correction necessary to bring the work into conformity with the by-laws.

Lord Wilberforce pointed out that the local authority is a public body whose powers and duties are definable in terms of public rather than private

[page 9] law. However, in some circumstances the law could impose over and above, or perhaps alongside, these public law powers and duties a private law duty towards individuals enabling them to sue the authority for damages in a civil suit. The difficulty was to determine when such a private law duty could be imposed. The first step, Lord Wilberforce said, is to analyse the powers and duties of the authority to determine whether they require the authority to make "policy" decisions or "operational" decisions. He said at p. 754:

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. Although this distinction between the policy area and the operational area is convenient, and illuminating, it is probably a distinction of degree; many "operational" powers or duties have in them some element of "discretion." It can safely be said that the more "operational" a power or duty may be, the easier it is to superimpose upon it a common law duty of care.

His Lordship then adverted to the fact that frequently policy decisions are affected by budgetary considerations. It is for the local authority to decide what resources it should make available to carry out its role in supervising and controlling the activities of builders. For example, budgetary considerations may dictate how many inspectors should be hired for this purpose, what their qualifications should be, and how often inspections should be made. He approved the statement of du Parcq L.J. in Kent v. East Suffolk Rivers Catchment Board, [1940] 1 K.B. 319, at p. 338, that public authorities have to strike a balance between the claims of efficiency and thrift and whether they get the right balance can only be

[page 10] decided through the ballot box and not in the courts. He then dealt with the argument that where the local authority is under no duty to inspect but merely has a power to inspect, it can avoid liability for negligent inspection by simply deciding not to inspect at all. He pointed out that this overlooks the fact that local authorities are public bodies operating under statute with a clear responsibility for public health in their area. They must, therefore, make their discretionary decisions responsibly and for reasons that accord with the statutory purpose. They must at the very least give due consideration to the question whether they should inspect or not and, having decided to inspect, they must then be under a duty to exercise reasonable care in conducting that inspection.

Lord Wilberforce rejected the notion that a distinction was to be made in this context between statutory duties and statutory powers, the former giving rise to possible liability and the latter not. Such a distinction, he says, overlooks the fact that parallel with public law duties owed by local authorities there may co-exist private law duties to avoid causing damage to other persons in proximity to them. The trilogy of House of Lords cases—Donoghue v. Stevenson, [1932] A.C. 562, Hedley Byrne & Co. v. Heller & Partners Ltd., [1964] A.C. 465, and Home Office v. Dorset Yacht Co., [1970] A.C. 1004—clearly established that in order to decide whether or not a private law duty of care existed, two questions must be asked:

(1) is there a sufficiently close relationship between the parties (the local authority and the person who has suffered the damage) so that, in the reasonable contemplation of the authority, carelessness on its part might cause damage to that person? If so,

(2) are there any considerations which ought to negative or limit (a) the scope of the duty

[page 11] and (b) the class of persons to whom it is owed or (c) the damages to which a breach of it may give rise?

These questions, Lord Wilberforce said, must be answered by an examination of the governing legislation.

Lord Wilberforce categorized the various types of legislation as follows:

(1) statutes conferring powers to interfere with the rights of individuals in which case an action in respect of damage caused by the exercise of such powers will generally not lie except in the case where the local authority has done what the legislature authorized but has done it negligently;

(2) statutes conferring powers but leaving the scale on which they are to be exercised to the discretion of the local authority. Here there will be an option to the local authority whether or not to do the thing authorized but, if it elects to do it and does it negligently, then the policy decision having been made, there is a duty at the operational level to use due care in giving effect to it.

Lord Wilberforce found that the defendant in Anns was under a private law duty to the plaintiff. It had to exercise a bona fide discretion as to whether to inspect the foundations or not and, if it decided to inspect them, to exercise reasonable skill and care in doing so. He concluded that the allegations of negligence were consistent with the Council or its inspector having acted outside any delegated discretion either as to the making of an inspection or as to the manner in which the inspection was made.

Following the path charted by Lord Wilberforce and directing myself to the governing legislation, s. 714 of the Municipal Act of British Columbia, R.S.B.C. 1960, c. 255, as amended, now R.S.B.C. 1979, c. 290, provides in part as follows:

[page 12]

714. The Council may, for the health, safety, and protection of persons and property, and subject to the Health Act and the Fire Marshal Act and the regulations made thereunder, by by-law

(a) regulate the construction, alteration, repair, or demolition of buildings and structures;

(b) require that, prior to any occupancy of a building or part thereof after construction, wrecking, or alteration of that building or part thereof, or any change in class of occupancy of any building or part thereof, an occupancy permit be obtained from the Council or the proper authorized official, which permit may be withheld until the building or part thereof complies with the health and safety requirements of the by-laws of the municipality or of any Statute.

It would appear from the use of the word "may" in s. 714 that the Council has a discretion under the statute whether to regulate the construction of buildings by by-laws or not. However, in fact Council decided to exercise its regulatory power and passed By-law No. 11-1. The By-law prohibited construction without a building permit, provided for a scheme of inspections at various stages of construction, prohibited occupancy without an occupancy permit and, perhaps most important, imposed on the building inspector the duty to enforce its provisions. It should be noted, however, that the By-law also imposed a duty on the owner of the building or his agent to give notice to the building inspector when the building reached the various stages at which inspection was called for under the By-law.

It seems to me that, applying the principle in Anns, it is fair to say that the City of Kamloops had a statutory power to regulate construction by by-law. It did not have to do so. It was in its discretion whether to do so or not. It was, in other words, a "policy" decision. However, not only did it make the policy decision in favour of regulating construction by by-law, it also imposed on the city's building inspector a duty to enforce the provisions of the By-law. This would be Lord

[page 13]

Wilberforce's "operational" duty. Is the City not then in the position where in discharging its operational duty it must take care not to injure persons such as the plaintiff whose relationship to the City was sufficiently close that the City ought reasonably to have had him in contemplation?

Counsel for the City puts forward two main propositions which it says should insulate it against liability to the plaintiff. The first is that even if this Court were to adopt the principle in Anns and find that the City owed the plaintiff a private law duty of care, the plaintiff's damage was not caused by any fault of the City. The plaintiff's damage, it submits, was caused solely by the wilful disregard by the Hughes of the building by-law and the structural safety requirements imposed on them by the building inspector and their deceit in concealing their knowledge of the structural defects from the plaintiff when he bought the house. Reliance was placed on the House of Lords' decision in East Suffolk Rivers Catchment Board v. Kent, [1941] A.C. 74. Alternatively, the City argued, the plaintiff's damage was caused or contributed to by the plaintiff's own negligence in failing to make a proper inspection at the time of purchase. Counsel for the City submits that surely a careful examination of the foundations of a house built on a hillside would be a primary consideration in the mind of any competent contractor retained by a prospective purchaser to opine on the structural integrity of the house.

It seems to me that the learned trial judge was right in the way he dealt with the liability of the Hughes. He agreed that they played a major role in causing the plaintiff's damage and imposed a 75 per cent liability on them. He did not deal in his brief reasons for judgment with the defence of contributory negligence on the part of the plaintiff put forward by the City but it is implicit in the

[page 14] result he reached that he found none. The Court of Appeal in dealing with this issue said there was no evidence to show that, at the time the plaintiff had his contractor check out the house, the subsidence of the foundations had taken place or would have been apparent even if his contractor had entered the four-foot crawl space. It seems to me that this may not be completely accurate. There was some evidence that efforts had been made to shore up the foundations prior to the plaintiffs acquisition of the house. I prefer therefore to adopt the inference to be drawn from the trial judge's finding of no contributory negligence that the plaintiff had no obligation in the circumstances to crawl under the house to inspect the foundations.

I do not think the House of Lords' decision in East Suffolk helps the City on the causation issue. In that case the Catchment Board exercised its statutory power to repair a breach in a retaining wall when the river broke through it as a result of a flood. But the Board carried out its work so inefficiently that the flooding continued over an extensive period of time and did serious damage to the plaintiffs pasture land. The evidence disclosed that the breach could with reasonable skill have been repaired in fourteen days. The trial judge found for the plaintiff. If the defendant Board had done nothing, he concluded, it would have been free of liability. But having injected itself into the action it owed a duty to the plaintiff to use reasonable care. The Court of Appeal agreed with the trial judge that the defendant, having elected to exercise its powers, came under a duty to exercise them with a reasonable degree of skill and care. The House of Lords, however, (Lord Atkin dissenting) reversed the Court of Appeal, holding that the defendant Board was under no obligation to repair the wall or to complete the work after having started it. Viscount Simon and Lord Thankerton both found that the plaintiffs damage was caused by the flooding and not by the abortive efforts of the defendant to repair the gap in the

[page 15] wall. There was no evidence that any additional damage was caused as a result of its intervention.

Lord Wilberforce was not content to characterize East Suffolk simply as a case on causation. He thought rather that it revealed that in 1940 the concept of a general duty of care resting on public officials was not yet fully recognised and, indeed, that that recognition did not come until 1970 with the decision in Home Office v. Dorset Yacht Co., supra.

In my view, the East Suffolk case is clearly distinguishable from the present case. This is not the case of a power which the City decided to exercise but exercised in a negligent manner. This is the case of a duty owed by the City to the plaintiff, a person who met Lord Wilberforce's test of proximity in Anns. The City's responsibility as set out in the By-law was to vet the work of the builder and protect the plaintiff against the consequences of any negligence in the performance of it. In those circumstances it cannot, in my view, be argued that the City's breach of duty was not causative. The builder's negligence, it is true, was primary. He laid the defective foundations. But the City, whose duty it was to see that they were remedied, permitted the building to be constructed on top of them. The City's negligence in this case was its breach of duty in failing to protect the plaintiff against the builder's negligence.

In Anns Lord Wilberforce suggests that if East Suffolk were being decided today the Catchment Board, although free of liability if it decided to take no steps to stem the flood, might attract a liability if it decided to exercise its power and take steps but exercised its power negligently. It seems to me that this would follow from a finding that the Board had made a policy decision to exercise its power and acted negligently in carrying its policy decision into operation. A liability might then be incurred not only with respect to any fresh damage caused by its negligent intervention but

[page 16] also with respect to damage the flood would have caused regardless of its intervention provided that damage could and ought to have been mitigated by a non-negligent intervention.

I believe that if the courts below had found in this case that the City owed no private law duty of care to the plaintiff, they would have held the Hughes one hundred per cent liable. Their apportionment of liability therefore must stand or fall on the existence of such a duty.

The second proposition put forward on behalf of the City goes directly to the central issue in the case, namely what, if any, duty was owned by the City to the plaintiff. Counsel submits that even if this Court were to adopt the principle in Anns, it should not be applied in this case because at most the City was guilty of non-feasance rather than misfeasance. He submits that this distinction between non-feasance and misfeasance is well established in Canadian law and that non-feasance does not give rise to a liability in negligence. Accordingly, he submits, the principle in Anns, if adopted, should be confined in Canada to misfeasance cases. It is necessary to consider this submission in some detail.

A good starting point is the case most strongly relied upon by counsel, namely McCrea v. White Rock (City of) (1974), 56 D.L.R. (3d) 525. The circumstances giving rise to that litigation are not dissimilar to those arising here. An owner of a building sued the municipality for negligent inspection of the structure after it collapsed. Alterations had been made to the building to substitute a beam supported by two columns for a bearing wall. Three inspections were made at the call of the contractor, one at the time of the pouring of the cement floor, another in relation to a laminated fire wall and the third in connection with the

[page 17] floor repair. Maclean J.A. summarizes the crucial facts, at pp. 528-29, as follows:

There was evidence that the practice in White Rock was for the contractor to call for inspections on behalf of the owner. No further calls for inspections were made and the inspector did not inspect the beam. In fact, the contractor did not follow the plan which he had submitted in support of the application for the building permit. However, the inspector had no reason to believe that an inspection other than one called for by the owner or his agent was required.

Mr. Justice Berger found that the City had been negligent, applying the reasoning in Dutton v. Bognor Regis United Building Co., [1972] 1 All E.R. 462, [1972] 1 Q.B. 373, sub nom. Dutton v. Bognor Regis Urban District Council. The Court of Appeal of British Columbia reversed the decision of the trial judge. Maclean J.A. distinguished the Dutton case on the basis of the distinction between non-feasance and misfeasance. Quoting from his judgment at pp. 529-30:

In my view, if it could be said that the building inspector was at fault at all, his fault was one of non-feasance at the worst, rather than misfeasance. The respondents relied on the case of Dutton v. Bognor Regis United Building Co. Ltd. et al., [1972] 1 All E.R. 462, [1972] 1 Q.B. 373 sub nom. Dutton v. Bognor Regis Urban District Council. In that case the builder erected the building on a rubbish tip, and upon discovering the nature of the ground, he enlarged the foundations and made other provisions in an attempt to ensure the safety of the building. These attempts were futile, however, and the building became an almost total loss because of settling of the foundations. The building inspector had passed the foundations following an inadequate inspection. There is no doubt that his inspection was inadequate and careless in the extreme. The negligent inspection by the building inspector was clearly an act of misfeasance as Lord Denning, M.R., said at p. 475 of the report of the Dutton case:

It was his job to examine the foundations to see if they would take the load of the house. He failed to do it properly. In the third place, the council should answer for his failure. They were entrusted by Parliament with the task of seeing that houses were properly

[page 18] built. They received public funds for the purpose. Yet, they failed to protect them. Their shoulders are broad enough to bear the loss.

(Emphasis added.)

It should be noted that the building inspector was also held liable for the loss, but, as previously noted, the Dutton case was clearly a case of misfeasance on the part of the servant, the building inspector. Liability was imposed upon him by the law of England, but in my view, the same result does not necessarily follow here. In any event, the Dutton case is distinguishable because that was a case of misfeasance whereas in my view this is a case of non-feasance if it is anything. [My emphasis.]

Robertson J.A. agreed with Maclean J.A. that the Dutton case was distinguishable on this basis. In the course of his reasons for judgment he made reference to the judgment of Schroeder J.A. in Schacht v. The Queen in right of the Province of Ontario, [1973] 1 O.R. 221, in which certain police officers failed to warn the plaintiff of an excavation on the highway and as a result he suffered personal injuries. Action was brought against the Crown. After reviewing a number of cases and statutory provisions Mr. Justice Schroeder, delivering the judgment of the Court, said at p. 231:

Looked upon superficially the passivity of these two officers in the face of the manifest dangers inherent in the inadequately guarded depression across the highway may appear to be nothing more than non-feasance, but in the case of public servants subject not to a mere social obligation, but to what I feel bound to regard as a legal obligation, it was non-feasance amounting to misfeasance. [My emphasis.]

Seaton J.A. commented on Schacht at pp. 548-49 as follows:

In Schacht there is reference to non-feasance amounting to misfeasance. I do not understand that statement. In Dutton Sachs, L.J„ dealt with the borderline between non-feasance and misfeasance so as to much reduce the area termed non-feasance. The judgment under appeal adopts that reasoning and carries it further. I think that the result is not consistent with the decisions in England (for example, East Suffolk, supra), this jurisdiction (for example, Stevens & Willson v. Chatham, supra, Mainwaring v. Nanaimo, [1951] 4 D.L.R. 519, 3 W.W.R. (N.S.) 258,

[page 19] and Miller & Brown Ltd. v. City of Vancouver (1966), 59 D.L.R. (2d) 640, 58 W.W.R. 191), or elsewhere (for example, Gorringe v. Transport Com'n (Tas.) (1950), 80 C.L.R. 357, and Oamaru Borough v. McLeod, [1967] N.Z.L.R. 940). I think that this case must turn upon the presence or absence of a duty to inspect. If a duty is discovered the non-feasance/misfeasance dichotomy is not necessary. [My emphasis.]

Mr. Justice Seaton concluded that there was no duty on the appellant in the McCrea case to inspect and that was sufficient to dispose of the appeal. He was able to reach this conclusion because there was no obligation on the inspector to inspect until the owner had given notice and no notice had been given in respect of the beam.

The McCrea case, of course, predates Anns. Counsel relies also therefore on a number of Canadian decisions since Anns including a decision of this Court. In Barratt v. North Vancouver (Corporation of), [1980] 2 S.C.R. 418, a plaintiff was thrown from his bicycle and injured when he rode into a deep pothole in the road surface. The evidence indicated that the municipality had a once every two weeks inspection system, that the road was properly inspected one week before the accident and that the pothole developed between the time of that inspection and the date of the accident. It was held that the plaintiff could not recover in negligence from the municipality on the ground that it should have provided for more frequent inspections. It should be noted that s. 513(2) of the British Columbia Municipal Act gave the municipality authority to lay out, construct, maintain and improve highways but it imposed no duty on the municipality to maintain its highways. Mr. Justice Martland said at p. 428:

In my opinion, no such duty existed. The Municipality, a public authority, exercised its power to maintain Marine Drive. It was under no statutory duty to do so. Its method of exercising its power was a matter of policy to be determined by the Municipality itself. If, in the implementation of its policy its servants acted negligently, causing damage, liability could arise, but the Municipality

[page 20] cannot be held to be negligent because it formulated one policy of operation rather than another.

The position of the Municipality is well stated in the judgment of du Parcq L.J. in the Court of Appeal in Kent v. East Suffolk Rivers Catchment Board, [1940] 1 K.B. 319, at p. 338:

The law would perhaps be more satisfactory, or at any rate seem more satisfactory in some hard cases, if a body which chose to exercise its powers were regarded as being in exactly the same position as one upon which an Act of Parliament imposed a duty. On the other hand, it must be remembered that when Parliament has left it to a public authority to decide which of its powers it shall exercise, and when and to what extent it shall exercise them, there would be some inconvenience in submitting to the subsequent decision of a jury, or judge of fact, the question whether the authority had acted reasonably, a question involving the consideration of matters of policy and sometimes the striking of a just balance between the rival claims of efficiency and thrift.

Mr. Justice Martland then stated his conclusion as follows, at p. 428:

My conclusion is that the trial judge sought to impose upon the Municipality too heavy a duty, that the determination of the method by which the Municipality decided to exercise its power to maintain the highway, including its inspection system, was a matter of policy or planning, and that, absent negligence in the actual operational performance of that plan, the appellant's claim fails.

Two things are of interest about Mr. Justice Martland's reasons for judgment in Barratt. The first is that he makes no reference to any distinction between non-feasance and misfeasance although presumably, if the distinction was significant, this would be categorized as a non-feasance case. The second is that it seems to be central to his judgment that no duty was imposed upon the municipality. It was in the discretion of the municipality whether or to what extent it exercised its maintenance power. The courts could not therefore interfere in the absence of negligence in the implementation of the policy it adopted with respect to inspection. This, it appears to me, is the ratio of the decision in Barratt.

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This Court did, however, indicate some support for the non-feasance/misfeasance distinction in its earlier decision in Stevens and Willson v. Chatham (City of), [1934] S.C.R. 353. Indeed, that case may be viewed as the primary source of the distinction. The facts in brief were that the plaintiff's building burned while firemen stood by helplessly because they did not know how to turn off the electricity which was the source of the fire. The firemen telephoned the Public Utilities Commission to get them to turn off the electricity but by the time this was done the fire was out of control and the building could not be saved. Duff C.J. and Smith J. agreed with the trial judge and the majority of the Ontario Court of Appeal that the firemen were not in these circumstances negligent. Rinfret J. concurred but added at p. 363:

The City is not legally responsible in damages, in this case, for mere inactivity on the part of its firemen.

Crocket J. dissented, expressing no opinion on whether the firemen were negligent in their "non-feasance or misfeasance" in waiting for the Commission to shut off the power. He found that the Commission had been negligent in being slow to shut off the power. Only Lamont J. based his judgment primarily on the ground that the City was not liable "for mere inactivity on the part of its servants" (p. 364). The "mere inactivity" approach would appear to have formed the basis of the non-feasance/misfeasance distinction adopted and applied in cases such as Wing v. Moncton, [1940] 2 D.L.R. 740, Neabel v. Ingersol (Town of) (1967), 63 D.L.R. (2d) 484, and McCrea v. White Rock (City of), supra.

Two important questions that must be answered in the present case are: (1) What was it that the building inspector failed to do in this case that is alleged to have contributed to the plaintiff's damage? and (2) Was he under a duty to do that thing? If the building inspector was under a duty

[page 22] to do the thing he failed to do, then it seems to me that Seaton J.A. was right in McCrea when he stated that the non-feasance/misfeasance dichotomy becomes irrelevant. He is in breach of a duty and, if his breach caused the plaintiffs damage, liability must ensue. If, however, he is under no duty to do the thing he failed to do, there can be no liability. Again, the non-feasance/misfeasance dichotomy is irrelevant.

Lambert J.A., speaking for the Court of Appeal, ((1981), 31 B.C.L.R. 311], found that the building inspector was under a public law duty to prevent the continuation of the construction of the building on structurally unsound foundations once he became aware that the foundations were structurally unsound, He was also under a public law duty to prevent the occupancy of the building by the Hughes or the plaintiff. He failed to discharge either of those public law duties. Lambert J.A. then went on to discuss the nature of the private law duty he was under. He said at p. 319:

I turn now to the private law duty. The conduct of the building inspector in response to the public law duties involved decisions on alternative courses of conduct which were, in my opinion, operational in character. The building was a danger to the occupant of the house and to adjoining property owners. It may have been a danger to anyone in the house. Policy decisions could have confronted the city as to whether to prosecute or to seek an injunction. There may have been other policy choices. But a decision not to act at all, or a failure to decide to act, cannot be supported by any reasonable policy choice. That decision or failure was not "within the limits of a discretion bona fide exercised", using again the words of Lord Wilberforce. It was certainly open to the trial judge to reach that conclusion. Indeed, having regard to the evidence of Mr. Backmeyer, it was open to the trial judge to conclude that the decision not to act or the failure to decide to act, was influenced by the pressure exerted by Mr. Hughes Sr. in his capacity as alderman.

I would follow the reasons of Lord Wilberforce in Anns in concluding that a private law duty was owed to Mr. Nielsen as the owner and occupier of the house at the time when the defective foundations first became

[page 23] apparent by causing actual subsidence and damage. [My emphasis.]

It seems to me that Lambert J.A. was correct in concluding that the courses of conduct open to the building inspector called for "operational" decisions. The essential question was what steps to take to enforce the provisions of the by-law in the circumstances that had arisen. He had a duty to enforce its provisions. He did not have a discretion whether to enforce them or not. He did, however, have a discretion as to how to go about it. This may, therefore, be the kind of situation envisaged by Lord Wilberforce when, after discussing the distinction between policy decisions and operational decisions, he added the rider [ [1978] A.C. 728, at p. 754]:

Although this distinction between the policy area and the operational area is convenient, and illuminating, it is probably a distinction of degree; many "operational" powers or duties have in them some element of "discretion". It can safely be said that the more "operational" a power or duty may be, the easier it is to superimpose upon it a common law duty of care.

It may be, for example, that although the building inspector had a duty to enforce the by-law, the lengths to which he should go in doing so involved policy considerations. The making of inspections, the issuance of stop orders and the withholding of occupancy permits may be one thing; resort to litigation, if this became necessary, may be quite another. Must the City enforce infractions by legal proceedings or does there come a point at which economic considerations, for example, enter in? And if so, how do you measure the "operational" against the "policy" content of the decision in order to decide whether it is more "operational" than "policy" or vice versa? Clearly this is a matter of very fine distinctions.

Mr. Justice Lambert resolves this problem, as I apprehend the passage already quoted from his reasons, by concluding that the City could have

[page 24] made a policy decision either to prosecute or to seek an injunction. If it had taken either of those steps, it could not be faulted. Moreover, if it had considered taking either of those steps and decided against them, it could likewise not be faulted. But not to consider taking them at all was not open to it. In other words, as I read his reasons, his view was that the City at the very least had to give serious consideration to taking the steps toward enforcement that were open to it. If it decided against taking them, say on economic grounds, then that would be a legitimate policy decision within the operational context and the courts should not interfere with it. It would be a decision made, as Lord Wilberforce put it, within the limits of a discretion bona fide exercised.

There is no evidence to support the proposition that the City gave serious consideration to legal proceedings and decided against them on policy grounds. Rather the evidence gives rise to a strong inference that the City, with full knowledge that the work was progressing in violation of the by-law and that the house was being occupied without a permit, dropped the matter because one of its aldermen was involved. Having regard to the fact that we are here concerned with a statutory duty and that the plaintiff was clearly a person who should have been in the contemplation of the City as someone who might be injured by any breach of that duty, I think this is an appropriate case for the application of the principle in Anns. I do not think the appellant can take any comfort from the distinction between non-feasance and misfeasance where there is a duty to act or, at the very least, to make a conscious decision not to act on policy grounds. In my view, inaction for no reason or inaction for an improper reason cannot be a policy decision taken in the bona fide exercise of discretion. Where the question whether the requisite action should be taken has not even been considered by the public authority, or at least has not been considered in good faith, it seems clear that for that very reason the authority has not acted with reasonable care. I conclude therefore that the

[page 25] conditions for liability of the City to the plaintiff have been met.

It is of interest to note in this connection that other courses were open to the City. It could have posted warning notices on the building and it could have condemned it. In fact, it did neither even although it knew that work was continuing despite the stop work order and that the house was being occupied without an occupancy permit. Indeed, it issued a plumbing permit in August 1974 before the Hughes moved in.

Before leaving the issue of the liability of public officials and moving on to the equally vexatious issue of recovery for pure economic loss, I should like to say a word or two about what has come to be known as the "floodgates" argument. The floodgates argument would discourage a finding of private law duties owed by public officials on the ground that such a finding would open the flood-gates and create an "open season" on municipalities. No doubt a similar type of concern was expressed about the vulnerability of manufacturers following the decision in Donoghue v. Stevenson, supra. While I think this is an argument which cannot be dismissed lightly, I believe that the decision in Anns contains its own built-in barriers against the flood. For example, the applicable legislation or the subordinate legislation enacted pursuant to it must impose a private law duty on the municipality or public official before the principle in Anns applies. Further, the principle will not apply to purely policy decisions made in the bona fide exercise of discretion. This is, in my view, an extremely important feature of the Anns principle because it prevents the courts from usurping the proper authority of elected representatives and their officials. At the same time, however, the principle ensures that in the operational area, i.e. in implementing their policy decisions, public officials will be exposed to the same liability as other people if they fail in discharging their duty to take reasonable care to avoid injury to their neighbours. The only area, in my view, which leaves scope for honest concern is that difficult area identified by Lord Wilberforce where

[page 27] the operational subsumes what might be called secondary policy considerations, i.e. policy considerations at the secondary level. This, I believe, is the area into which this case falls. This case, however, is more easily disposed of by virtue of the complete failure of the municipality to deal with the policy considerations. On the assumption that by and large municipalities and their officials discharge their responsibilities in a conscientious fashion, I believe that such a failure will be the exception rather than the rule and that the scope for application of the principle in Anns will be relatively narrow. I do not see it, as do some commentators, as potentially ruinous financially to municipalities. I do see it as a useful protection to the citizen whose ever-increasing reliance on public officials seems to be a feature of our age: see Linden, "Tort Law's Role in the Regulation and Control of the Abuse of Power", Special Lectures of the Law Society of Upper Canada, 1979, p. 67.

It was forcefully argued by the appellant that even if the Court were to find a breach by the City of a private law duty owed to the plaintiff, the plaintiff's action should be dismissed because his loss was purely economic. Reliance was placed on the decision of this Court in Rivtow Marine Ltd. v. Washington Iron Works, [1974] S.C.R. 1189.

It will be recalled that in Rivtow the plaintiff had purchased a crane manufactured by the defendant from a distributor. The crane had a latent defect which made it dangerous to operate—a fact which the defendant discovered when one of its cranes broke, killing the operator. The defendant knew that the plaintiff had purchased one of its cranes, but it took no steps to warn the plaintiff. The plaintiff discovered the defect when cracks appeared during the busy season and had to withdraw the crane from operation in order to

[page 27] have it repaired. The Supreme Court characterized the cost of the repairs as economic loss. The majority held that that cost was not recoverable but, since the defendant was in breach of its duty to warn the plaintiff of the defect in the crane, it was liable to the plaintiff for the difference between the loss of earnings it sustained during the busy season and the loss of earnings it would have sustained if its attention had been directed to the defect and it had had the crane repaired during the slack season. The minority would have allowed the cost of repair to the crane itself.

The learned trial judge identified the damages in the instant case as being the cost to the plaintiff of having his home restored to the condition it should have been in if properly constructed plus certain expenses he could incur while this was being done. He awarded general damages in the amount of $45,004.27 and attributed 25 per cent of that sum to the City.

The City submits that this is pure economic loss analogous to the cost of repairs to the crane which was expressly disallowed by the majority in Rivtow. Lambert J.A., after pointing out that recovery for economic loss was allowed in Anns, Lord Wilberforce expressing a preference for the dissenting judgment of Laskin J. (as he then was) in Rivtow over that of the majority, proceeded to distinguish Rivtow. The majority, he said, analyzed the breach in that case as a failure in the duty of the manufacturer and sales agent to warn the plaintiff of the defects in the crane. However, and this he thought was the key to Rivtow, even if that duty had been complied with the crane would still have been damaged and the plaintiff would have had to bear the cost of repair in the absence of any contractual warranty. Accordingly, the plaintiff could recover only for the economic loss occasioned by the breach of the duty to warn. The minority, on the other hand, would have allowed the cost of the repair to the crane, not as damage

[page 28] flowing from breach of a duty to warn but as the cost of avoiding damage to persons or property.

There is no doubt that the preclusion of recovery for economic loss in the absence of physical injury to person or property has a venerable history. The decision of Blackburn J. in Cattle v. Stockton Waterworks Co. (1875), L.R. 10 Q.B. 453, was still held to be good law by Widgery J. in Weller & Co. v. Foot and Mouth Disease Research Institute, [1966] 1 Q.B. 569, [1965] 3 All E.R. 560. The rationale for the economic loss rule was probably most articulately stated by Cardozo C.J. in Ultramares Corp. v. Touche, 255 N.Y. 170 (1931) who said at p. 179 that to allow such recovery would "expose [defendants] to a liability in an indeterminate amount for an indeterminate time to an indeterminate class".

It took the decision of the House of Lords in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd., supra, to spark a review and reassessment of the economic loss rule by legal scholars and judges, and this review has been going on now for almost two decades. How, it is asked, can one justify to injured plaintiffs the difference in treatment the law accords to physical and to economic loss caused by a defendant's negligent acts? In one you are compensated by the wrongdoer: in the other you have to bear the loss yourself. Does it make sense to permit the recovery of economic loss for negligent words but not for negligent acts? What is the significant difference between them? Why, if economic loss is reasonably foreseeable as a consequence of negligent acts, should it not be as recoverable as reasonably foreseeable physical injury to persons or to property? And should Chief Judge Cardozo's fear of indeterminate liability to an indeterminate class preclude recovery by a very specific plaintiff in a very specific amount? Can a policy consideration which leads to a manifest injustice in certain types of cases be a good policy• consideration? Is there some rationale whereby injustice in specific cases can be avoided and Chief

[page 29]

Judge Cardozo's fear guarded against at the same time?

In an edifying article Negligent Misstatements, Negligent Acts and Economic Loss, 92 L.Q.R. 213, Mr. Craig points out that it is the reasonable foreseeability test of recovery in Donoghue v. Stevenson which could open up an exposure for economic loss of indeterminate scope. It is arguable that no such exposure arises under the Hedley Byrne principle because of the restricted class entitled to recovery under that principle. Quoting from Mr. Craig's article at p. 218:

The very nature of the duty framed by the House of Lords in 1964 has within it certain limiting factors mentioned above which mean that these problems of indeterminate liability are far less likely to arise: the need for some form of relationship between the participants, reasonable reliance leading to loss, knowledge by the representor of some particular transaction for which the information is to be required. The nexus envisaged was far closer than reasonable foresight per se.

Mr. Craig is clearly not completely satisfied with this distinction since the full scope of the duty in Hedley Byrne has not yet been determined. There has been a tendency to expand it in subsequent cases (see, for example, Dutton v. Bognor Regis United Building Co., supra, and Ministry of Housing and Local Government v. Sharp, [1970] 2 Q.B. 223) and this is a trend which might well continue as the jurisprudence around Hedley Byrne develops.

The High Court of Australia has tried to find a solution to the economic loss problem by narrowing the test of reasonable foreseeability. In Caltex Oil (Australia) Pty. Ltd. v. The Dredge "Willemstad" (1976), 136 C.L.R. 529, the Willemstad, while conducting dredging operations in Botany Bay, damaged an oil pipeline belonging to a refinery

[page 30] which ran across the bed of the Bay to a terminal operated by Caltex. Caltex supplied crude oil to the refinery for processing and received the refined product back by way of the pipeline. By reason of the damage to the pipeline Caltex had to find other means of transportation, either by road or ship, and this cost it $95,000. This amount was characterized as pure economic loss.

Gibbs J. affirmed that the general rule was that economic loss was not recoverable. The fact that it was reasonably foreseeable did not make it recoverable. However, he held (at p. 555) that an exception to this rule of non-recovery arises when the defendant "has knowledge or means of knowledge that the plaintiff individually, and not merely as a member of an unascertained class, will be likely to suffer economic loss as a consequence of his negligence". He found that the defendant had knowledge in this case and permitted recovery. The decision was unanimous. Stephen and Mason JJ. adopted Gibb J.'s exception to the general rule. Jacobs J. distinguished between physical injury to property and physical effect on property and said that physical effect on property was recoverable even if it took the form of economic loss resulting from the immobilization of the property. Murphy J. stated that there was no satisfactory general principle governing the recovery of economic loss and that the issue was really a policy one. Just as Donoghue v. Stevenson had brought the law into conformity with the then notions of social justice, so must the court do the same in permitting recovery for economic loss unless there are acceptable policy reasons for not doing so. He saw none in this case.

It is quite apparent that Gibbs and Jacobs JJ., and possibly Stephen J. also, were seeking some means of permitting recovery for pure economic loss while avoiding the undesirable consequences of applying the reasonable foreseeability rule, namely indeterminate liability to an indeterminate

[page 31] class. They saw the solution in limiting foreseeability to specific individuals rather than members of a class. I am not sure, however, that their exception solves the problem. It may make the class determinate but it gives no guarantee that it will be small.

The House of Lords took a fresh look at the issue in Junior Books Ltd. v. Veitchi Co., [1983] A.C. 520. In that case the defendants were hired to lay a floor in a factory which was being erected for the plaintiffs by a building company. The defendants were sub-contractors and had no contractual relationship with the plaintiffs. The plaintiffs claimed that the floor was defective owing to the defendants' negligence and that the defendants knew what products were required and were alone responsible for the composition and construction of the floor. They also knew that the plaintiffs were relying on their skill and judgment. The plaintiffs brought an action for the estimated cost of relaying the floor and for various items of economic loss consequential on its replacement, such as the cost of removal of machinery and the loss of profits while the floor was being relaid.

It was held by the House of Lords (Lord Brandon of Oakbrook dissenting) that where the relationship between parties is sufficiently close the scope of the duty of care owed by a person doing work is not limited to a duty to avoid causing foreseeable harm to persons or property by negligent acts or omissions but extends also to a duty to avoid defects in the work itself which will involve the plaintiffs in the cost of having them remedied. There was a sufficient degree of proximity between the plaintiffs and the defendants in this case and the plaintiffs were entitled to recover the cost of repairing the floor.

Lord Roskill, who delivered the main judgment in the case, said the case must be approached as

[page 32] one in which there was no physical damage. He referred with approval to Lord Wilberforce's two propositions in Anns. (1) his test of proximity and (2) whether there were any considerations which would call for a limitation on recovery. He found the proximity test was met and that the only reason for negating recovery was the traditional attitude of the law to economic loss. He held that this was not good enough. He saw no reason why "damage to the pocket" simpliciter should be disallowed when "damage to the pocket" coupled with physical damage has always been allowed. It was time for the law to take the next step forward in its development and he saw no untoward consequences from doing so. He expressed the view that the fears raised by the floodgates argument had proved unfounded.

Lord Brandon, dissenting, agreed that Lord Wilberforce's two propositions in Anns were sound. He agreed also that the proximity test was met in Junior Books. However, he found that Donoghue v. Stevenson itself and all the cases in which it had been followed had one thing in common, namely the existence of danger or the threat of danger of physical damage to persons or their property excluding the property from the defective condition of which the danger or threat of danger arose. In the absence of a contractual relationship Lord Brandon thought it inappropriate to extend the duty in tort so as, in effect, to create a warranty. He was, I believe, expressing a concern not dissimilar to that troubling the majority of this Court in Rivtow.

It is noted that in the instant case there is present the danger or threat of danger referred to by Lord Brandon. However, that was so in Rivtow also. The majority in Junior Books do seem to have carried the law a significant step forward.

As I mentioned earlier, recovery for economic loss was permitted in Anns with an expression of preference for the minority rather than the majority judgment in Rivtow. It seems to me, however, that the minority judgment results from the

[page 33] application of the reasonable foreseeability test which, it would appear, gives rise to the concern over indeterminate liability. In any event, the majority judgment of this Court in Rivtow stands until such time as it may be reconsidered by a full panel of the Court.

It seems to me, however, that Rivtow is distinguishable from this case in several significant respects. Rivtow was a lawsuit between private litigants. The plaintiff's claim here is against a public authority for breach of a private law duty of care arising under a statute. (This should not be confused with breach of statutory duty per se; see The Queen in right of Canada v. Saskatchewan Wheat Pool, [1983] 1 S.C.R. 205. It is noted that in the Dutton case Sachs L.J. put great emphasis on the fact that the defendant was a public authority and stated that the type of loss recoverable was the type of loss the private law duty arising under the statute was designed to prevent. If economic loss was within the purview of the statute, then it should be recoverable for breach of the private law duty arising under the statute whether or not it is recoverable for breach of a duty at common law. In my view, the private law duty in this case was designed to prevent the expense incurred by the plaintiff in putting proper foundations under his house. It was imposed to ensure that proper foundations would be under his house from the outset. I suppose it is arguable that the damage the duty was designed to prevent was injury to the occupants from the collapse of the house or damage caused by the house sliding down the hill. But it seems to me that this is too narrow an approach to the protection the statute was designed to provide. The purpose of the By-law in this case was to prevent the construction of houses on defective foundations. The duty of enforcement which the By-law imposed on the building inspector required him at the very least to determine the scope of the measures which were necessary to achieve that end and, if required, to attempt to obtain the approval of the City for them. If he failed in that duty and a house on defective foundations resulted, it was obviously going to have to be repaired since it represented a threat to the health and safety of the occupants. This is not a case, like Rivtow, of

[page 34] failure to warn of the defective foundations: this is a case of failure to give consideration to a course of action which would have prevented the defective foundations. What else was the plaintiff to do to rectify the situation resulting from the City's breach?

It is noted also that there are no contractual overtones to this case as there were in Rivtow. It seems to have been important to the majority in Rivtow that no contractual warranty had been given with respect to the crane. Accordingly, there was some concern that the tort door should not be opened so far as to permit a recovery in tort which would not have been available in contract. No such problem arises in this case.

I said earlier in commenting upon the floodgates argument in relation to the imposition of a private law duty of care that I was not troubled by the thought that public officials in discharging their duties should incur the same liability as ordinary citizens. It may be that in exposing public authorities to liability for economic loss when under our law as it presently stands a private litigant may not be so exposed, the Court would be extending the liability of public authority beyond that of private litigants. I am not, however, persuaded that this is so. Like Lambert J.A. I tend to think that the problem of concurrent liability in contract and tort played a major role in the restrictive approach taken by the majority in Rivtow and that, as in the case of Hedley Byrne, we will have to await the outcome of a developing jurisprudence around that decision also: see Gypsum Carrier Inc. v. The Queen, [1978] 1 F.C. 147; Agnew-Surpass Shoe Stores Ltd. v. Cummer-Yonge Investments Ltd., [1976] 2 S.C.R. 221; but cf. Bethlehem Steel Corp. v. St. Lawrence Seaway Authority (1977), 79 D.L.R. (3d) 522 (F.C.); Ital-Canadian Investments Ltd. v. North Shore Plumbing and Heating Co., [1978] 4 W.W.R. 289 (B.C.S.C.).

[page 35]

I do not believe that to permit recovery in this case is to expose public authorities to the indeterminate liability referred to in Ultramares. In order to obtain recovery for economic loss the statute has to create a private law duty to the plaintiff alongside the public law duty. The plaintiff has to belong to the limited class of owners or occupiers of the property at the time the damage manifests itself. Loss caused as a result of policy decisions made by the public authority in the bona fide exercise of discretion will not be compensable. Loss caused in the implementation of policy decisions will not be compensable if the operational decision includes a policy element. Loss caused in the implementation of policy decisions, i.e. operational negligence will be compensable. Loss will also be compensable if the implementation involves policy considerations and the discretion exercised by the public authority is not exercised in good faith. Finally, and perhaps this merits some emphasis, economic loss will only be recoverable if as a matter of statutory interpretation it is a type of loss the statute intended to guard against.

It seems to me that recovery for economic loss on the foregoing basis accomplishes a number of worthy objectives. It avoids undue interference by the courts in the affairs of public authorities. It gives a remedy where the legislature has impliedly sanctioned it and justice clearly requires it. It imposes enough of a burden on public authorities to act as a check on the arbitrary and negligent discharge of statutory duties. For these reasons I would permit recovery of the economic loss in this case.