Court of Appeal clarifies regulators’ duty of care

The Court of Appeal for Ontario recently awarded $3.52 million in damages against the Province as a result of the Ontario Ministry of Agriculture, Food and Rural Affairs’ conduct during a regulatory investigation. This is a rare example of a public regulator being held liable for negligence.

Aylmer Meat Packers Inc v Ontario, 2022 ONCA 579

In early 2003, a confidential informant reported to the Ministry that an abattoir, Aylmer Meat Packers, was engaging in unlawful conduct, including processing sick and dead animals for human consumption. In August 2003, the authorities executed search warrants in Aylmer’s plant, seized evidence and laid numerous criminal charges.

The Ministry occupied the plant and retained control of the meat stored there for the next 19 months. After the Ministry took control of the plant, a freezer malfunctioned and some of the meat began to spoil. While the Ministry did some repairs in 2004, the freezer could not preserve the meat. In March 2005, the Ministry destroyed the meat and returned the plant to Aylmer. By that time, the business was no longer viable, and the abattoir had to be sold to pay outstanding municipal taxes.

Aylmer sued the Province, including for negligence. At trial, the court dismissed the claim on the basis that the Ministry did not owe a private law duty of care to Aylmer, had not breached the standard of care and was not the cause of Aylmer’s loss.

Whether or not a duty of care exists when the actions of public bodies adversely affect the private interests of regulated entities turns on three questions:

• whether the harm was reasonably foreseeable;
• whether there was sufficient proximity between the private entity and the regulator to impose a duty of care; and
• whether there are policy reasons not to impose such a duty

The Court of Appeal for Ontario reversed the trial judge’s decision, holding that a common law duty of care arose because the Ministry had occupied Aylmer’s plant for 19 months after targeting it. Moreover, the Meat Inspection Act did not disclose a legislative intention to displace any common law duty of care, for example, through immunity protections in favour of the Ministry for its administration of the Act. The Court of Appeal also rejected the trial judge’s determination that imposing a duty of care would conflict with the Ministry’s ability to protect the public from unsafe meat and undermine confidence in the regulated meat industry as a whole, holding that the trial judge’s approach conflated the issue of whether a duty of care existed with whether the standard of care was breached.

Having found that the Ministry owed a duty of care to ensure that its regulatory actions did not unreasonably or unnecessarily harm Aylmer’s business interests, the Court of Appeal held that the “litany of bureaucratic ineptitude” resulting in the Ministry occupying the plant for 19 months before returning it to Aylmer and taking no steps to repair the malfunctioning freezer for 10 months was a clear breach of that duty. The Court of Appeal went on to hold that the Ministry’s extended and unreasonable occupation of the plant deprived Aylmer of the opportunity to sell it at a time when abattoirs were in demand. It awarded damages in the amount of $3.52 million to compensate for the loss.

Where's the beef?

Public regulators are entitled to deference in performing their duties. Certainly, the mere fact that a regulator has executed search warrants or even occupied a plant will not give rise to a claim. However, the fact that a regulator is engaged in regulatory conduct does not give it a carte blanche, and regulators may be held accountable for destroying or undermining the value of an asset absent some reason negating a duty of care.

Even where a duty of care exists, a regulator is not expected to act in the business’ best interest. However, the regulator must ensure that its conduct does not unreasonably or unnecessarily harm the business. What is reasonable or necessary has to be determined on the facts of each particular case, having regard to the tension between the broader public interest in regulation and the economic interests of the regulated entity. However, determining where that line lies in a given case is separate from determining whether the regulator owes a duty to the business in the first place.