COURT OF APPEAL FOR ONTARIO

CITATION:
Taylor v. Canada
    (Attorney General), 2012 ONCA 479

DATE:  20120706

DOCKET: C53678

Doherty, Weiler, Laskin, Sharpe and Armstrong
    JJ.A.

BETWEEN

Kathryn Anne Taylor

Plaintiff

and

The Attorney General of Canada

Defendant

Kirk Baert and Celeste Poltak, for the plaintiff

P.J. Evraire, Q.C., Gina M. Scarcella and James M.
    Soldatich, for the defendant

Cameron Pallett and Reynold Robertson, for the
    intervener, Bill Sauer

Heard: September 19, 2011

A proceeding under Rule 22.03 to determine a special case
    stated by order of Armstrong J.A. dated March 4, 2011, with reasons reported at
    2011 ONCA 181.

Doherty
    J.A.:

[1]

Government
    regulation impacts on most facets of modern life, particularly matters of
    public health and safety. If a government regulator exercises its powers in a
    negligent way, people can be hurt and suffer substantial damages. The question
    in this proceeding, and it is far from a novel or easy one, is when does the
    regulator owe a
prima facie
private law duty of care to the individual
    harmed by the regulators negligence?

I

THE Nature of thIS proceeding

[2]

This
    is not an appeal. This matter comes before the court as a special case stated
    under Rule 22.03 of the
Rules of Civil Procedure
, R.R.O. 1990, Reg.
    194. The stated case poses two questions:

1)

What are the
    requirements in a statement of claim to establish sufficient proximity between
    the plaintiff and the defendant in a claim brought against a governmental body
    for regulatory negligence?

2)

Does the amended
    statement of claim in this action satisfy those requirements?

[3]

The
    special case procedure is an unusual one. Resort to it is justified in this
    instance by the apparent inconsistency in this courts jurisprudence, the
    tortured and lengthy procedural history of this case, and the importance of the
    legal issue raised by the first of the two questions posed. The jurisprudential
    inconsistency is said to arise from this courts reasons in
Drady v. Canada
    (Minister of Health)
, 2008 ONCA 659,
    300 D.L.R. (4th) 443, leave to appeal to S.C.C. refused, [2008] S.C.C.A. No.
    492,

and
Attis v. Canada (Minister of Health)
, 2008 ONCA 660, 93 O.R. (3d) 35, leave to appeal to
    S.C.C. refused, [2008] S.C.C.A. No. 491,
on the one hand, and
Sauer
    v. Canada (AG)
, 2007 ONCA 454, 225
    O.A.C. 143, leave to appeal to S.C.C. refused, [2007] S.C.C.A. No. 454,
on the other. Arguably,
Drady
and
Attis
require a more direct
    connection between a plaintiff and the regulator before the latter can be said
    to owe a duty of care to the former than does
Sauer
.

[4]

Mr.
    Bill Sauer, the representative plaintiff in
Sauer
,

was granted leave to intervene
    in this proceeding.

II

THE UNDERLYING CLASS ACTION PROCEEDING

(a)

Nature of the Claim

[5]

The
    plaintiff, Ms. Taylor, brings the claim as representative of the class of
    persons resident in Canada (except British Columbia and Québec) who have
    suffered damages as a result of the implantation of temporomandibular joint implants
    after 1968. The implants were manufactured by an American company, Vitek Inc.,
    and sold in Canada. Although Vitek manufactured different models of the
    implants, there is no need to distinguish among the various models for present
    purposes. I will refer to the implants as Vitek TMJ implants, TMJ implants
    or simply as the implants.

[6]

On
    April 22, 1988, a Vitek TMJ implant was inserted into Ms. Taylors right
    temporomandibular joint. She alleges that the insertion of that device
    resulted in catastrophic and irreversible adverse biomedical consequences,
    resulting in permanent total disability and loss of enjoyment of life.

[7]

In
    her claim brought against the Attorney General of Canada (AG Canada), Ms.
    Taylor alleges that the government of Canada, and specifically Health Canada,
[1]
was negligent in the exercise of its responsibilities under the
Food and
    Drugs Act,
R.S.C. 1985
, c.
    F-27 (the
Act
), and the regulations
    proclaimed under the Act. She alleges that Health Canada owed a duty of care to
    protect her and other class members from unsafe medical devices and that it
    negligently failed to perform that duty in relation to the Vitek TMJ implants.

[8]

In
    broad terms, the Fresh Statement of Claim alleges a failure to prevent the
    importation and sale of the implants, a failure to adequately monitor and
    regulate the sale of the implants, a failure to warn doctors, dentists and
    consumers of the known dangers associated with the implants, and a failure to
    remediate the harm caused to persons who received the implants. In addition, the
    claim alleges that Health Canada wrongly indicated that a notice of compliance
    had been issued for the implants when in fact none had been issued. Ms. Taylor
    alleges that this was a misrepresentation as to the safety of the implants.

[9]

Many
    of the particulars of the alleged negligence are set out in para. 165 of the Fresh
    Statement of Claim. The allegations include the following:

·

Health Canada failed to prevent the importation of the implants
    into Canada from 1983 forward;

·

Health Canada failed to prevent the sale of the implants when it
    learned that they had been imported into Canada;

·

Health Canada failed to properly monitor and regulate the sale of
    the implants in Canada;

·

Health Canada failed to stop further sales of the implants when
    it determined that the manufacturer and distributor were not in compliance with
    the applicable regulations;

·

Health Canada erroneously and publicly declared that a notice of
    compliance had been issued with respect to the implants when in fact none had
    been issued;

·

Health Canada failed to take appropriate steps when it realized
    that it had wrongly and publicly declared that a notice of compliance had been
    issued;

·

Health Canada failed to stop further sales of the implants when
    it became aware of serious health problems associated with the implants in the
    United States;

·

Health Canada ignored warnings from its own senior scientist
    that the implants posed an extreme hazard;

·

Health Canada failed to provide doctors, dentists and consumers
    with effective and timely notice of the problems associated with the implants;

·

after Health Canada became aware of the dangers associated with
    the implants, it failed to warn those who had received implants of those
    dangers; and

·

when Health Canada learned of the dangers associated with the
    implants, it failed to take appropriate steps to mitigate any harm that had
    been caused to persons who had received the implants.

(b)

Procedural History

[10]

This
    action has a long history. It was commenced in December 1999 and is still at
    the pleadings stage. Ms. Taylor has been one of the representative plaintiffs
    since February 2003 and the only representative plaintiff since 2006. She successfully
    moved to certify the action under the
Class Proceedings Act, 1992
,
    S.O. 1992, c. 6, in 2007: see
Taylor v. Canada (Minister of Health)
(2007), 285 D.L.R. (4th) 296 (Ont. S.C.).

[11]

On the original certification
    motion, the motion judge, in holding that the statement of claim disclosed a
    reasonable cause of action in negligence, said, at paras. 39-40:

... In these circumstances,
I believe it would be open to a
    court to find that Health Canadas course of conduct  including the dissemination
    of misinformation in its database  increased the risk to the health of the
    plaintiff and other potential recipients of the implants and gave rise to a
    relationship of proximity with them.

... On the basis of the pleading alone, I do not consider it to
    be plain and obvious that Ms. Taylor has no chance of success in establishing
    that a relationship of proximity  as required to establish a private law duty
    of care  existed in connection with operational acts of Health Canada. ... [Emphasis
    added.]

[12]

The motion judge
    relied in part on
Sauer
.

[13]

AG Canada applied for
    leave to appeal to the Divisional Court from the certification order. Leave was
    refused: see
Taylor v. Canada (AG)
(2007), 289 D.L.R. (4th) 567.

[14]

Shortly after leave to
    appeal was refused, this court released judgments in
Drady
and
Attis
.
Drady
was an intended class action brought on behalf of individuals
    who had also received temporomandibular joint implants. In fact, Mr.
Drady
had been a co-representative
    plaintiff with Ms. Taylor at one time in this action. Unlike Ms. Taylor, however,
    Mr.
Drady
did not identify the
    manufacturer of his implant.
Attis
was an intended class action
    brought on behalf of women who had received breast implants.

[15]

In
Drady
and
Attis
,
    this court held that the challenged pleadings did not allege a reasonable cause
    of action in that they did not contain facts capable of establishing that the
    regulator owed a private law duty of care to the recipients of the implants. In
Drady
, this court expressly rejected part of the analysis underlying
    the motion judges original decision to certify this action: see
Drady
,
    at paras. 34 and 44-50.

[16]

Relying on
Drady
and
Attis
, AG Canada returned to the motion judge asking him to
    reconsider his earlier decision and decertify this action. AG Canada argued
    that read in the light of the analysis in
Drady
and
Attis
, Ms.
    Taylors claim did not allege facts that could support a finding that the
    regulator owed a private law duty of care to Ms. Taylor.

[17]

In his reasons on the motion
    to decertify, the motion judge expressed considerable difficulty in reconciling
Drady
and
Attis
with
Sauer
. He determined, however,
    that the pleadings in this case could not be distinguished from the pleadings
    in
Drady
. Like the
Drady
pleadings, these did not allege a relationship of
    sufficient
proximity. The motion judge further held, however, that
    Ms. Taylor should be given an opportunity to amend her pleadings: see
Taylor
    v. Canada (Ministry of Health)
, 2010 ONSC 4799, 81 C.C.L.T. (3d) 106, at
    paras. 21-26, 48-49 and 76.

[18]

Ms. Taylor produced a Fresh
    Statement of Claim in which she alleged, among other things, various public
    representations made by Health Canada to the effect that its regulatory scheme
    was designed to protect individual consumers who used medical devices like the
    Vitek implants by the enforcement of that scheme and the exercise of the
    investigatory powers available under that scheme. The motion judge held, at
    para. 73, that these representations, considered in the context of the rest of
    the claim, and read generously, were sufficient to allow the claim to survive
    the pleadings stage:

I believe I should accept the amended pleadings on the ground
    that  when it is read generously  it is not plain and obvious that a finding
    of proximity could not be made at trial if the factual allegations pleaded are
    proven. At the very least, in view of the need for clarification of the
    requirements for an effective public assumption of a private law duty of care,
    I consider that this is a case in which it should be held that the particular
    issue on which proximity turns is not fully settled in the jurisprudence within
    the meaning of the decisions cited in paragraph 47 above. In such cases it has
    been held that the issue in dispute is best left to be dealt with at trial on
    the basis of a full evidentiary record.

[19]

AG Canada filed an
    application for leave to appeal from that decision to the Divisional Court. The
    parties ultimately agreed, however, that in the very unusual circumstances of
    this case, a motion should be brought to this court to state a special case
    under Rule 22.03, thereby bringing the dispute directly to this court.

III

The Legal Context

[20]

The special case
    arises out of a class action and a motion to decertify the class action on the
    basis that the statement of claim does not allege a reasonable cause of action
    against AG Canada. That context brings two legal principles to the forefront.

[21]

First, the statement
    of claim must disclose that the representative plaintiff, Ms. Taylor, has a reasonable
    cause of action against AG Canada. In the context of a negligence claim, this
    requirement means that the pleadings provide a basis upon which AG Canada could
    be said to owe a private law duty of care to Ms. Taylor. It is not enough that
    on the pleadings some other member or members of the class may have a cause of
    action in negligence against AG Canada: see
Hughes v. Sunbeam Corp. (Canada)
    Ltd.
(2002), 61 O.R. (3d) 433, at paras. 10-18 (C.A.);
Taylor v.
    Canada (Ministry of Health)
, 2010 ONSC 4799, at para. 61.

[22]

Second, the claim can
    only be struck at this stage if, assuming the facts pleaded are true, it is
    plain and obvious that the pleading discloses no reasonable cause of action,
    meaning that the plaintiff has no reasonable prospect of success: see
Hunt
    v. Carey Canada Inc.
, [1990] 2 S.C.R. 959, at 980;
R. v. Imperial
    Tobacco Canada Ltd.
,
2011
    S.C.C. 42, [2011] 3 S.C.R. 45, at paras. 17-19;
Wellington v. Her Majesty
    the Queen (Ontario)
(2011) ONCA 274 at para. 14. Placing the test to be
    applied on a motion to strike a claim in the context of the issue raised here,
    the question becomes  has AG Canada demonstrated that Ms. Taylor does not have
    a reasonable prospect, on the facts as alleged, of establishing that Health
    Canada owed her and the other members of her class a private law duty of care?  If
    the question gives rise to genuine legal or factual uncertainties, it cannot be
    answered at this stage and the answer must await a trial and a complete record.

IV

The Pleadings

[23]

The questions
    posed by the special case require an examination of the substance of the Fresh
    Statement of Claim. That examination is not an easy one. The Fresh Statement of
    Claim is lengthy (61 pages, 268 paragraphs), prolix, and somewhat disorganized.
    I will begin with an outline of the relevant chronology and then turn to the
    parts of the claim that address the representations made by Health Canada and
    the reliance on those representations by Ms. Taylor and other class members.
[2]
The bracketed references are to paragraph numbers in the Fresh Statement of
    Claim.

(a)

Chronology

[24]

In January 1983, Vitek
    and its Canadian distributor, Instrumentarium, began advertising Vitek TMJ
    implants in various Canadian and American journals directed at doctors and
    dentists. The advertisements continued over several years (para. 59).

[25]

Vitek TMJ implants
    were first sold in Canada in March 1983 (para. 80). Health Canada was not made
    aware of those sales by Vitek until 1987 (paras. 79-80).

[26]

In May 1983, Vitek
    advised Health Canada that it intended to export TMJ implants to Canada. Vitek
    sought confirmation from Health Canada that the importation would be permitted by
    Health Canada (para. 54). A Health Canada official replied that as the devices
    were medical implants, they could be sold in Canada only if Vitek obtained a
    notice of compliance from Health Canada under the regulations (para. 55). Health
    Canada officials reiterated this position on several occasions in 1983 and 1984
    (paras. 60-61, 63-64). No steps were taken to prevent Vitek or its distributor
    from selling the implants in Canada during the period from 1983 to 1985 (para.
    66).

[27]

In March 1986, an
    official with Health Canada advised the distributor that a notice of compliance
    was not required before the TMJ implants could be sold in Canada. This position
    contradicted the position taken by Health Canada in the three previous years. This
    official was, however, critical of the distributors compliance with various
    regulations. No follow-up inspections were made (paras. 71-73).

[28]

In September 1986,
    surgeons in the United States reported biomechanical failures of Vitek TMJ
    implants (para. 78).

[29]

In early 1987, Vitek
    delivered submissions to Health Canada in support of the application for a
    notice of compliance in respect of the implants (para. 79). Throughout 1987,
    contrary to its position in March 1986, Health Canada officials corresponded
    with Vitek and its distributor, indicating that further and better information
    was needed before a notice of compliance could be issued. In 1987, Vitek, with
    Health Canadas knowledge, continued to sell the implants in Canada (paras. 79,
    81-84). In December 1987, a Health Canada official again advised Vitek and its
    distributor that the implants could not be sold in Canada unless Vitek obtained
    a notice of compliance (para. 86).

[30]

On April 22, 1988, Ms.
    Taylor underwent surgery at Toronto General Hospital. A Vitek TMJ implant was
    placed in her right temporomandibular joint (para. 175).

[31]

Throughout 1988, Vitek
    continued to make submissions to Health Canada in support of its efforts to
    obtain a notice of compliance. It also contended that as it had sold Vitek TMJ
    implants in Canada prior to April 1, 1983, those implants were grandfathered under
    the regulations and did not require a notice of compliance before they could be
    sold. Health Canada officials continued to request further documentation
    (paras. 94-97, 100).

[32]

Sometime in 1988,
    Health Canada erroneously indicated in its database that notices of compliance
    had been issued for Vitek TMJ implants (paras. 102-107). In April 1989, a
    Health Canada official, relying on this error, indicated that Vitek was in compliance
    with the regulations and had data establishing the safety of the implants
    (para. 105). In August 1989, in reliance on the error in the database, Health
    Canada circulated Information Letter #765 indicating that notices of compliance
    had been issued for Vitek TMJ implants (para. 106). The error was not
    discovered until 1990. No steps were taken to notify health professionals or
    their patients of the error when it was discovered (para. 107).

[33]

In July 1988, Vitek
    withdrew TMJ implants from the market. U.S. authorities reported a lack of
    mechanical testing of the implants (para. 103).

[34]

In March 1990, Vitek
    issued a voluntary safety alert for Vitek TMJ implants (para. 111). In May
    1990, U.S. authorities ordered a recall of Vitek TMJ implants and notified
    Health Canada. In the notification, the American authorities indicated that
    Vitek TMJ implants could fragment and lead to progressive bone degenerative
    change and giant cell reaction. Health Canada took no immediate action (para.
    112).

[35]

In August 1990, Health
    Canada asked Instrumentarium to voluntarily refrain from distributing certain
    of the implants. In October 1990, Instrumentarium undertook a voluntary recall
    and notified surgeons who had used the implants. Health Canada supervised the
    recall and notification (paras. 117-119).

[36]

Between December 1990
    and May 1992, U.S. authorities issued a number of safety alerts, recalls,
    public health notices, and import alerts in respect of the TMJ implants (paras.
    119-120, 122, 128-129, 131, 133). Health Canada was advised of these actions
    and specifically, in April 1991, was advised that a recall had been initiated
    after U.S. authorities had determined that the failure of the implants could
    expose patients to a high risk of serious adverse health consequences. Health
    Canada took no direct action in response to these notices (para. 122).

[37]

Health Canada first
    reacted to the reported failures of the implants and the serious health
    consequences flowing from those failures around June 1991 when it asked the
    Canadian Dental Association to publish in its journal a safety alert that had
    been issued by American regulators six months earlier (para. 124). A similar
    request was made of another professional organization in Canada in October 1991
    (paras. 130, 132).

[38]

In October 1992,
    Health Canada sent a notice of the December 28, 1990 safety alert issued by the
    American authorities to surgeons whose names appeared on a list provided by the
    American authorities. Health Canada chose not to send this information to all
    doctors and dentists in Canada (paras. 136-138).

[39]

In August 1994, Health
    Canada, in response to calls it had received, drafted an alert regarding the
    Vitek TMJ implants to be sent only to the 200 professionals who had been
    supplied with the device prior to 1991 (para. 147). In September 1994, more
    than two years after the U.S. authorities had acted, Health Canada issued a
    national import alert forbidding the importation of Vitek TMJ implants into
    Canada (para. 148).

[40]

In October 1994,
    Health Canada sent certain material to health professionals alerting them to
    the risks associated with the implants and advising of the steps that should be
    taken to monitor patients who had received the implants (para. 151). Also in
    October 1994, Health Canada sent a Dear TMJ Patient letter to individuals who
    had received the implants, advising of the risks associated with the implants
    and the need for ongoing medical monitoring. The letter also indicated that
    recipients of the letter would receive updates as they became available. The
    letter provided a hotline number to these individuals who were told that they
    could use the hotline to keep abreast of any new developments (para. 156).

[41]

In November 1995,
    Health Canada sent an information package to each member of the Quebec
    Association of Oral and Maxillofacial Surgeons. No other provincial association
    received that information (para. 159).

[42]

Beginning in February
    1996, employees within Health Canada expressed concerns about the adequacy of
    the notification that had been given to patients who had received the implants.
    These concerns were expressed over a number of months. Ultimately, Health
    Canada decided that no further notification to those who had received the
    implants was necessary (paras. 160-164).

(b)

The Alleged Representations and Reliance

[43]

On
    the motion to decertify, the motion judge, at para. 51, focussed on the absence
    of any alleged representations made by Health Canada that came to the attention
    of Ms. Taylor and were relied on by her. The motion judge expressed the concern
    that in the light of
Drady
, the failure to allege any direct representations
    and reliance could be fatal to the allegation of a private law duty of care
    owed by Health Canada to Ms. Taylor.

[44]

Ms. Taylor attempted
    to meet the motion judges concerns in her proposed amendments. She alleged representations
    made by Health Canada through documents described in the Fresh Statement of
    Claim as Regulatory Impact Assessment Statements (RIAS) and representations
    made in documents described as annual Project Area Reviews. The allegations in
    respect of the RIAS are found in paras. 25-30 of the Fresh Statement of Claim. Because
    of their significance on the motion, I will set out paras. 25, 26 and 29 in
    full:

25. The Regulatory Impact Assessment Statements (RIAS) were
    published by Health Canada in the Canada Gazette to provide a contextual public
    explanation for individual amendments to the Medical Device[s] Regulations.
As official government publications, the RIAS are
prima
    facie
representations of Health Canadas habitual practice to monitor and
    assure the safety of medical devices used by Class Members. These
    representations were intended to be, and were, reasonably relied upon by the
    public, including the representative plaintiff and Class Members.
It was
    reasonably foreseeable for the representative plaintiff and Class Members to
    rely upon those representations with respect to the safety of medical devices,
    in general, and the Vitek TMJ implants, specifically, given Health Canadas
    stated authority to regulate medical devices and the repeated, public nature of
    the assurances.

...

26. The RIAS contain a number of statements that demonstrate
    that
Health Canada clearly understood and was
    representing to the Class that the Medical Device[s] Regulations were designed
    to protect individual patients
and other specific users of medical
    devices.

29. The RIAS also clearly stated to the public that the Medical
    Device[s] Regulations were and are actively enforced by Her Majesty. [Emphasis
    added.]

[45]

Paragraphs 27-28 and
    30 of the Fresh Statement of Claim summarize the content of several RIAS issued
    by Health Canada. All postdate Ms. Taylors receipt of the implants by several
    years and none refer to the implants specifically.

[46]

The allegations in
    respect of the annual Project Area Reviews are found in paras. 36-39 of the
    Fresh Statement of Claim. Paragraph 36 alleges that the Project Area Reviews
    were conducted:

...to improve the various divisions in the Bureau [a division
    of Health Canada] and to evaluate past and future goals to be executed by
    Health Canada.

[47]

The Fresh Statement of
    Claim does not expressly allege representations made in the Project Area
    Reviews that were relied on by Ms. Taylor or other class members. Nor is there
    any allegation that the contents of the Project Area Reviews were known to, or
    available to the public. Several references to different Project Area Reviews stress
    the need to protect users from the hazards associated with the clinical use of
    medical devices. Other extracts describe the goal of improving the safety of
    medical devices through adequate standards and testing, thereby minimizing the
    exposure of Canadians to unsafe and ineffective medical devices. None of the
    extracts from the Project Area Reviews refers to the implants, although para.
    37 alleges that previous Project Area Reviews addressed generically the
    problems and risks associated with dental and reconstructive implants.

[48]

In addition to the
    representations and reliance outlined above, the Fresh Statement of Claim alleged
    that Health Canada knew that dentists, oral surgeons, and their patients
    assumed and understood that medical devices such as the implants had been
    approved by Health Canada for sale and use in Canada (para. 21). The Fresh
    Statement of Claim further claimed that Health Canada represented to Ms. Taylor
    and class members that it exercised responsible, professional oversight of
    medical devices in Canada, and that class members reasonably relied on Health
    Canadas representations to their detriment (paras. 106, 189-94). Finally, Ms.
    Taylor alleges that due to Health Canadas inadequate attempts at remediation,
    she and other class members retained the implants when doing so posed a danger
    to their health (para. 209).

(c)

The Legislative Scheme

[49]

The
    events described in the Fresh Statement of Claim occurred principally between
    1983 and 1995. During that time period, the Vitek TMJ implant was a device
    within the meaning of the
Food and Drugs Act
, R.S.C. 1970, c. F-27,
    and its successor, the
Food and Drugs Act
, R.S.C. 1985, c. F-27
. The TMJ implant was also subject to
    regulations made under the
Food and Drugs Act
,
primarily the
Medical Devices
    Regulations
, R.R.C 1978, c. 871, as amended by SOR/82-914 (the
    Regulations).
[3]

[50]

Section 14 of the
    Regulations prohibited the sale of a device (including implants) unless the
    manufacturer had conducted tests which demonstrated the efficacy of the product.
    Section 15 required that evidence of those tests be supplied to Health Canada
    on request. Section 16 of the Regulations prohibited the importation for sale
    into Canada of devices the sale of which would violate any part of the Act or
    Regulations. Health Canada was given broad powers of inspection by ss. 17
    through 19 of the Regulations.

[51]

Section 28 of the
    Regulations authorized the Director to request evidence from the manufacturer
    to establish the safety of a particular device. If the evidence was not
    provided by the specified date or if the Director was not satisfied with the
    evidence, then, subject to the submission of further evidence, the sale of the
    device after the specified date was prohibited.

[52]

Part V of the
Regulations
spoke directly to new
    devices and merits further examination.
[4]
Under s. 32 of the Regulations, a new device was defined in part as:

...a device listed in the table to this Part that

(a) has not been sold previously in
    Canada by that manufacturer

[53]

The table referred
    to in the definition of new device included only intra-uterine devices and
    cardiac pacemakers in 1978. The table was amended by SOR/82-914 (October 8,
    1982), to include:

Any device designed to be implanted into the tissues or body
    cavities of a person for 30 days or more.

[54]

After the amendment to
    the table, TMJ implants were a new device under Part V of the Regulations
    unless they had been sold in Canada by Vitek prior to the amendment to the
    Table in October 1982.
[5]

[55]

Assuming, as alleged
    by Ms. Taylor, that the implants were a new device, s. 33 of the
Regulations
prohibited any manufacturer
    from selling or advertising the implants except in accordance with the
    Regulations. Sections 34 and 35 directed that a manufacturer must obtain a
    notice of compliance from the Director, a senior official in Health Canada,
    before selling a new device.

[56]

In the application for
    a notice of compliance, the manufacturer was required to provide evidence of
    the safety and effectiveness of the device. Section 35 of the Regulations
    outlined some of the specific topics that had to be addressed in the material provided
    by the manufacturer. For example, the manufacturer was required to submit
    evidence of the quality control program and procedures used during
    manufacturing...: see s. 35(1)(a)(vii). The manufacturer was also required to submit
    evidence of the results of all clinical trials to show the effectiveness of the
    device: see s. 35(b)(i). Section 39 required information referable to
    labelling and packaging.

[57]

The Director had 60
    days from the receipt of the manufacturers material to decide whether to issue
    a notice of compliance. The Director could require further and better
    information from the manufacturer: see ss. 35(2) and 36.

[58]

Section 36 set out the
    test the Director was to apply in deciding whether to issue a notice of
    compliance:

36. Within 60 days after the latest date of the receipt by the
    Director of evidence, materials or information submitted by a manufacturer
    under section 35,

(a) where the Director is satisfied that the
manufacturer has provided substantial evidence
that

(i) the conditions of production and quality control are
    suitable for controlling the quality, stability, safety and performance of the
    new device,

(ii) the new device can be used for the purpose and under the
    conditions of use recommended by the manufacturer without undue risk to humans,

(iii) the new device is clinically effective for the purpose
    and under the conditions of use recommended by the manufacturer or that
    sufficient animal studies have been carried out to establish a probability of
    effectiveness in humans, and

(iv) the drafts of all labels, package inserts, product
    brochures and file cards to be used in connection with the device are adequate,

the Director shall issue to the manufacturer a notice of
    compliance... [Emphasis added.]

[59]

The Regulations were
    clear that the Director shall issue the notice of compliance if he or she is
    satisfied that the manufacturer has provided substantial evidence to support
    the criteria set out in s. 36(a). The Director did not make a determination as
    to the ultimate efficacy of the device, the risks associated with the use of
    the device, or the adequacy of any warnings or instructions provided with the
    device.

[60]

Section 40 of the
    Regulations allowed the Director to suspend or cancel a notice of compliance
    where it is necessary to do so in order to safeguard public health or promote
    public safety. The power to suspend or cancel was discretionary. If a notice
    of compliance were suspended, the medical device could not be sold in Canada
    while the suspension was in effect. Under s. 41, the Director could also
    require a manufacturer who has received a notice of compliance in respect of a
    medical device to file additional material referable to the criteria set out in
    s. 33. The Director could require the further information to satisfy him or
    herself that the requirements for issuing the notice of compliance continue to
    exist.

[61]

This court examined
    the relevant provisions of the
Food and Drugs Act
and the regulations
    made under that
Act
referable
    to medical devices in
Attis
,
at paras. 54-58, and
Drady
,
at paras. 15-19. As explained in
Attis
, at para. 56, the
Food and
    Drugs Act
placed obligations as to the safety of medical devices on the
    manufacturer and distributor of those devices. Further, as observed in
Drady
,
    at para. 19, nothing in the
Act
or Regulations placed any obligation on Health Canada to issue warnings
    relating to medical devices.

[62]

The legislative
    landscape was described by Lang J.A. in
Attis
, at para. 57:

A reading of the legislative history of the regulations
    discloses that there was no obligation on Health Canada to undertake safety and
    efficacy testing, or to engage in any other compliance or enforcement
    mechanism. The regulations simply authorized Health Canada to enforce the
    various aspects of the compliance requirements if it chose to do so.
Thus, Health Canada was akin to an overseer or watchdog, able
    to employ discretionary, but not mandatory, enforcement of the legislative
    scheme.
[Emphasis
    added.]

V

THE FIRST QUESTION

[63]

For
    convenience, I repeat the first question posed by the special case:

What are the requirements in a statement of claim to establish
    sufficient proximity between the plaintiff and the defendant in a claim brought
    against a governmental body
[6]
for regulatory negligence?

[64]

This question engages
    the broader consideration of when it will be said that a government regulator
    owes a private law duty of care to those affected by the actions of the
    regulator. None of the parties to this appeal suggests that this question
    admits of a definitive, exhaustive answer. The jurisprudence in the last
    decade, particularly several cases from the Supreme Court of Canada, does,
    however, delineate the approach to be taken when faced with a claim in
    negligence brought against a government regulator.

(a)

The Duty of Care Inquiry

[65]

Liability in
    negligence is predicated on the existence of a duty owed by the defendant to
    the plaintiff to take reasonable care in the circumstances. Proximity is essential
    to, but alone does not establish a duty of care. Proximity is one aspect of the
    broader duty of care inquiry: see
Odhavji Estate v. Woodhouse
, 2003
    SCC 69, [2003] 2 S.C.R. 263, at paras. 45-46.

[66]

The proximity
    requirement cannot be reduced to a list of factors or circumstances which, if
    they exist, will always create a relationship of proximity between a plaintiff
    and a defendant. Proximity is a concept, not a test: see
Canadian National
    Railway Co. v. Norsk Pacific Steamship Co.
, [1992] 1 S.C.R. 1021, at 1151.
    The concept of proximity describes a relationship between a plaintiff and a
    defendant that is sufficiently close and direct to render it fair and
    reasonable to require that the defendant, in the conduct of its affairs, be
    mindful of the plaintiffs legitimate interests: see
Cooper v. Hobart
,
    2001 SCC 79, [2001] 3 S.C.R. 537, at paras. 32-36.

[67]

Reasonable
    foreseeability of harm, arguably the basis upon which at least a
prima
    facie
duty of care was imposed pre-
Cooper
,
[7]
does not necessarily establish a relationship of proximity: see
Hill v.
    Hamilton-Wentworth Regional Police Services Board
, 2007 SCC 41, [2007] 3
    S.C.R. 129, at para. 23;
Childs v. Desormeaux
, 2006 SCC 18, [2006] 1
    S.C.R. 643, at para. 31. As explained in
R. v. Imperial Tobacco Canada
    Limited
,
2011 SCC 42,
    [2011] 3 S.C.R. 45, at para. 41:

Proximity and foreseeability are two aspects of one inquiry
    the inquiry into whether the facts disclose a relationship that gives rise to a
prima facie
duty of care at common law. Foreseeability is the
    touchstone of negligence law. However, not every foreseeable outcome will
    attract a commensurate duty of care. Foreseeability must be grounded in a relationship
    of sufficient closeness or proximity, to make it just and reasonable to impose
    an obligation on one party to take reasonable care not to injure the other.

[68]

If reasonable
    foreseeability is established, the court will look to the other factors that
    inform the nature of the relationship between the plaintiff and the defendant to
    determine whether that relationship is one of sufficient proximity.
Cooper
describes the factors as diverse and case-specific: see para. 35. In
Hill
,
    at para. 29, the court provides this insight:

The most basic factor upon which the proximity analysis fixes
    is whether there is a relationship between the alleged wrongdoer and the
    victim, usually described by the words close and direct.
This factor is not concerned with how intimate the plaintiff
    and defendant were or with their physical proximity, so much as with whether
    the
actions
of the alleged wrongdoer have a close or direct effect on
    the victim, such that the wrongdoer ought to have had the victim in mind as a
    person potentially harmed.
A sufficiently close and direct connection
    between the actions of the wrongdoer and the victim may exist where there is a
    personal relationship between the alleged wrongdoer and victim. However, it may
    also exist where there is no personal relationship between the victim and
    wrongdoer. [Italic emphasis in original. Underline emphasis added.]

[69]

While the authorities are
    careful to deny that any one factor or combination of factors is necessary to
    establish proximity, certain factors will routinely take a central role in the
    proximity analysis. These include any representations made by the defendant,
    especially if made directly to the plaintiff, reliance by the plaintiff on the
    defendants representations, the nature of the plaintiffs 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: see
Cooper
, at
    paras. 34-35;
Hill
, at paras. 29-30.

(b)

The Format of the Duty of Care Inquiry

[70]

The Supreme Court of
    Canada jurisprudence has developed and refined a template to be applied in
    deciding whether any given relationship between a plaintiff and a defendant gives
    rise to a private law duty of care. Much of that jurisprudence involves negligence
    allegations brought by individuals against governmental authorities.

[71]

Under the approach developed
    in the Supreme Court jurisprudence, there are two stages to the duty of care inquiry.
    The first stage is directed at the specifics of the individual case and decides
    whether the relationship between the plaintiff and the defendant justifies the
    imposition of a
prima

facie
duty of care. The second stage of
    the inquiry, reached only if a
prima facie
duty of care is found,
    looks beyond the specifics of the case to broader residual policy concerns and
    asks whether those concerns justify the negation of the
prima

facie
duty of care
.

[72]

The two-stage approach
    is clearly summarized in
Edwards v. Law Society of Upper Canada
, 2001
    SCC 80, [2001] 3 S.C.R. 562, at paras. 9-10:

At the first stage of the
Anns
[8]
test, the question is whether the circumstances disclose reasonably foreseeable
    harm and proximity sufficient to establish a
prima facie
duty of care.
    The focus at this stage is on factors arising from the relationship between the
    plaintiff and the defendant, including broad considerations of policy. The
    starting point for this analysis is to determine whether there are analogous
    categories of cases in which proximity has previously been recognized. If no
    such cases exist, the question then becomes whether a new duty of care should
    be recognized in the circumstances. Mere foreseeability is not enough to
    establish a
prima facie
duty of care. The plaintiff must also show
    proximity  that the defendant was in a close and direct relationship to him or
    her such that it is just to impose a duty of care in the circumstances. ...

If the plaintiff is successful at the first stage of
Anns
such that a
prima facie
duty of care has been established (despite the
    fact that the proposed duty does not fall within an already recognized category
    of recovery), the second stage of the
Anns
test must be addressed. That question
    is whether there exist residual policy considerations which justify denying
    liability. Residual policy considerations include, among other things, the
    effect of recognizing that duty of care on other legal obligations, its impact
    on the legal system and, in a less precise but important consideration, the
    effect of imposing liability on society in general.

[73]

The questions posed in
    this special case focus exclusively on the first stage of the duty of care
    inquiry described in
Edwards
.  At the first stage of the inquiry, the
    court begins by asking whether the claim advanced describes a relationship that
    is the same as or analogous to a relationship that courts have previously
    recognized as giving rise to a
prima facie
duty of care. If the
    relationship fits within that description, the court, in the interest of
    consistency and efficiency, will assume a
prima facie
duty of care and
    move directly to the second stage of the duty of care inquiry. Similarly, if
    courts have previously determined that the same or an analogous relationship
    does not create a
prima facie
duty of care, the court will, generally
    speaking, not repeat the analysis, but will find no duty of care based on the
    prior authority: see
Childs
, at para. 15;
Imperial Tobacco
,
    at para. 37;
Heaslip Estate v. Ontario
,
2009 ONCA 594, 96 O.R. (3d) 401, at para. 21;
Wellington
    v. Ontario
,
2011 ONCA 274,
    105 O.R. (3d) 81, at para. 16.

[74]

In deciding whether an
    allegation fits within an established category or is analogous to an
    established category, the court must guard against treating the allegations at
    an abstract or generic level. For example, courts have long recognized a tort
    of negligent misrepresentation. It does not follow, however, that every
    allegation of negligent misrepresentation fits within that established
    category. As explained in
Imperial Tobacco
, at para. 37:

The first question is whether the facts as pleaded bring
    Canadas relationships with consumers and the tobacco companies within a
    settled category that gives rise to a duty of care. If they do, a
prima
    facie
duty of care will be established [citation omitted]. However, it is
    important to note that liability for negligent misrepresentation depends on the
    nature of the relationship between the plaintiff and the defendant...
The question is not whether negligent misrepresentation is a
    recognized tort, but whether there is a reasonable prospect that the
    relationship alleged in the pleadings will give rise to liability for negligent
    misrepresentation.
[Emphasis added.]

(c)

The Duty of Care Inquiry and Regulatory Negligence

[75]

If the claim does not
    fall within an established or an analogous category, but the harm alleged was reasonably
    foreseeable, proximity becomes the focus of the first stage of the two-stage duty
    of care inquiry. Where the claim is advanced against a regulator, the 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: see
Imperial Tobacco
, at paras. 43-45.

[76]

The legislative scheme
    looms large in the proximity inquiry for two reasons. First, the question of
    whether a regulator should owe a private law duty of care to those individuals
    affected by its actions is largely a policy decision that falls squarely within
    the legislative bailiwick. The legislature announces that policy decision
    through the terms of its legislation. Second, even where the legislation is not
    determinative and the court must look to the interaction between the regulator
    and the plaintiff, the terms of the legislation describing the powers and
    duties of the regulator may to some extent shape the relationship between the
    regulator and the regulated. That relationship will be relevant in deciding
    whether the specific interactions between the regulator and the plaintiff are
    sufficient to create the degree of proximity required to establish a
prima
    facie
duty of care.

[77]

The legislative scheme
    must be examined at the outset of the duty of care inquiry. If that scheme
    expressly or by implication forecloses or imposes a private law duty of care,
    the duty of care inquiry need go no further. It is not for the court to
    contradict the terms of the legislative scheme.

[78]

Legislative schemes
    under which regulators operate almost inevitably impose public duties on those
    regulators. Plaintiffs have, generally speaking, had little success in demonstrating
    that those schemes impose a private law duty of care. To the contrary, courts
    have been more inclined to find that legislative schemes by implication
    preclude a private law duty of care to individuals affected by those schemes. Statutory
    schemes that provide immunity to the regulator, create remedies to injured parties
    other than tort remedies, or impose duties on the regulator that conflict with
    a private law duty of care to an individual have all been held to compel the
    conclusion that the legislative scheme implicitly forecloses a finding that the
    regulator owes a private law duty of care to an individual: see
Cooper
,
    at paras. 43-44;
Edwards
, at paras. 16-17;
Alberta v. Elder
    Advocates of Alberta Society
, 2011 SCC 24, [2011] 2 S.C.R. 261, at para.
    69;
Syl Apps Secure Treatment Centre v. B.D.
, 2007 SCC 38, [2007] 3
    S.C.R. 83, at paras. 49-50, 59-63;
Eliopoulos v. Ontario (Minister of
    Health and Long-Term Care)
(2006), 82 O.R. (3d) 321 (C.A), at paras. 14-20.

[79]

Where the legislation
    is not determinative one way or the other, the courts explore the specific
    circumstances of the interactions between the regulator and the plaintiff in
    the context of the legislative scheme to decide whether a sufficiently close
    and direct relationship exists to justify the imposition of a
prima facie
duty of care: see
Imperial Tobacco
,
    at para. 50;
Hill
, at
    paras. 26-45;

Fullowka v. Pinkertons of Canada Ltd.
, 2010
    SCC 5, [2010] 1 S.C.R. 132, at paras. 37-55;
Heaslip
, at paras. 15-31
.

[80]

Findings of proximity
    based on the interactions between the regulator and the plaintiff are
    necessarily fact-specific. The jurisprudence does, however, suggest there are
    two important factual features in those cases where the court has found a
prima
    facie
duty of care. First, the facts demonstrate a relationship and
    connection between the regulator and the individual that is distinct from and
    more direct than the relationship between the regulator and that part of the
    public affected by the regulators work. For example, in
Hill
, at
    para. 33, the court found that the police owed the plaintiff a duty of care in
    conducting their investigation because they had targeted the plaintiff in that
    criminal investigation. By targeting the plaintiff, the police created a
    relationship with the plaintiff that was much more direct than the relationship
    between the police and other members of the public who might also be affected
    by the exercise of police powers.

[81]

Fullowka
is
    another example of a finding of a duty of care premised on the interaction between
    the plaintiff and the regulator. In
Fullowka
, at paras. 44 and 55, the court stressed that the
    mine in which the explosion at issue had occurred had been inspected many times
    by the regulator. The regulator was aware of the dangers posed to the miners by
    the strike-related violence and the ineffectiveness of the measures that had
    been taken to prevent that violence. Cromwell J., writing for the court,
    observed, at para. 54:

[The regulators] had a
    clear and well substantiated belief that the mine was unsafe.  The legislative
    scheme is about safety in mines, it exists to protect miners from acts of
    others and there were clearly identified and well documented findings that the
    miners were subject to unsafe working conditions.

[82]

The specific facts relating
    to the particular mine and the well known safety problems presented at that
    mine were sufficient to create a direct relationship between the regulator responsible
    for the safety of the mine and the miners who worked there. Those actions effectively
    distinguished the relationship between the regulators and the workers in the
    specific mine from the relationship between the regulator and miners in general.

[83]

Heaslip
provides one of the best examples of the kind of
    interaction
between a regulator and an individual that will create
    a
prima facie
duty of care where the operative legislative scheme
    imposes only public duties, but does not foreclose the existence of a private
    law duty that is not inconsistent with the public duties.

[84]

In
Heaslip
,
    the plaintiffs alleged that the government agency responsible for providing air
    ambulance services had negligently failed to follow its own policies when it
    did not give their sons medical needs priority over the needs of a less
    severely injured person.  The plaintiffs alleged that their son died as a
    result of the regulators decision to give priority to the less seriously
    injured individual.

[85]

Sharpe J.A.
    acknowledged that the duties found in the relevant legislation were public
    duties that did not give rise to a duty of care as between the plaintiff and
    the regulator. Nor, however, did they foreclose the existence of that duty. Sharpe
    J.A. went on to examine the interaction between the regulator and the
    plaintiff. On the allegations, the regulator had undertaken to provide a
    specific medical service to the plaintiffs son. The regulator was aware that
    the plaintiffs son was in need of that service and dependent upon the
    regulator to provide that service. According to the regulators policies, the
    plaintiffs son should have received that service in priority to the person to
    whom the service was provided.

[86]

In holding that the allegations in the claim gave rise to
a
prima facie
duty of care, Sharpe J.A. said, at paras. 19-20:

This case is distinguishable from cases like
Cooper
and
Attis
. In those cases, the plaintiffs suffered harm at the hands
    of a party involved in an activity subject to regulatory authority and then
    alleged negligence on the part of the governmental authority charged with the
    duty of regulating the activity that gave rise to the plaintiffs loss.
Cooper
and
Attis
hold that such plaintiffs have no direct relationship with
    the governmental authority and can assert no higher claim to a duty of care
    than any other member of the public.

The claim asserted here does not rest solely on the statute
    conferring regulatory powers, as in
Cooper
and
Attis
,
but is focused instead on the specific interaction that took place
    between Patrick Heaslip and Ontario when the request for an air ambulance was
    made. In this case, the relationship between Patrick Heaslip and the
    governmental authority is direct, rather than being mediated by a party subject
    to the regulatory control of the governmental authority.
[Emphasis added.]

[87]

In holding that there
    was sufficient proximity,
Heaslip
draws a distinction
    between (i) a situation in which the actions of the regulator directly impact
    on the individual plaintiff and cause harm to that plaintiff, and (ii)
    situations in which the harm to the plaintiff is caused by the actions of a
    third party and the plaintiffs claim is that the regulator should have acted
    to prevent the actions of the third party. Not surprisingly, a finding of
    proximity will be more readily made in cases where the actions of the regulator
    directly impact on the plaintiff and cause the physical harm giving rise to the
    claim: see
Childs
, at para. 31; see also
Gorringe v. Calderdale
    Metropolitan Borough Council
,
[2004] UKHL 15, [2004] 1 W.L.R. 1057, per Lord Hoffman, at para. 38.

[88]

The second feature of
    those cases in which the courts have found that the interactions between the plaintiff
    and the regulator created a
prima facie
duty of care arises out of the nature of the duty actually
    imposed by the legislative scheme. While the statutory duties are found to be public
    duties and not, therefore, themselves the basis for any private law duty of
    care, those public duties have been found to be consistent with the existence
    of a private law duty of care owed to an individual plaintiff. Thus, in
Hill
, the Chief Justice found that the recognition of a
    private law duty of care to an individual suspect based on the interaction between
    that suspect and the police promoted the broader public interest in the effective
    and fair police investigation of criminal activity: see paras. 36-41.

[89]

Imperial Tobacco
is instructive in that it presents both an example of an interaction between a
    regulator and the regulated that was sufficient to establish a
prima
    facie
private law duty of care and an
    example of an interaction that was insufficient.

There
    were two different claims made against the regulator, Health Canada, in
Imperial
    Tobacco
. Cigarette manufacturers
    argued that Health Canada owed a private law duty of care to consumers of
    cigarettes and a discrete private law duty of care to the manufacturers. They
    alleged that Health Canada had breached both duties by making negligent
    representations concerning the relative safety of low-tar cigarettes.

[90]

In examining the
    relationship between the regulator and consumers, the court looked first at the
    legislative scheme and found that it imposed only general duties to the public:
    see paras. 49-50. The court also held, however, that the legislation did not
    preclude the existence of a private law duty of care if the interactions
    between the regulators and a consumer of the product justified the imposition
    of such a duty. The court, however, found no specific interactions between the
    regulators and consumers of cigarettes. The court rejected, at para. 49, the
    contention that the regulators assertions to the general smoking public that low-tar
    cigarettes were less hazardous could create a relationship of proximity between
    the regulator and consumers of low-tar cigarettes.

[91]

The court next addressed,
    at para. 51 and following, the relationship between the regulator and the
    tobacco companies. Once again, the court found no private law duty of care arising
    from the relevant legislative scheme. However, the court held that the
    allegations in the claim were capable of establishing a direct relationship between
    the regulator and the tobacco manufacturers. According to the allegations, the regulator
    had gone beyond its regulatory role and had become involved with the
    manufacturers in a wide variety of matters, including advising on the growing
    and advertising of various tobacco products. The court concluded that these
    interactions sufficed to create a relationship of proximity between the
    regulator and the manufacturers justifying a finding of a
prima
    facie
duty of care owed to the
    manufacturers by the regulator.
[9]

(d)

Attis
,
Drady
and
Sauer

[92]

The approach taken to
    the claims in
Drady
and
Attis
is consistent
    with that described above. In both cases, this court looked first at the
    relevant legislative scheme and found that it imposed no private law duty of
    care: see
Attis
, at
    paras. 53-62;
Drady
,
    at paras. 37-39. The court then turned to the pleadings in each case to
    determine whether the interactions between the regulator and the plaintiff set
    forth in the pleadings created a relationship of proximity such as to justify a
    finding of a
prima facie
duty of care. In
Attis
,
    Lang J.A.s examination included the following observation, at para. 66:

...once the government has
    direct communication or interaction with the individual in the operation or
    implementation of a policy, a duty of care may arise, particularly where the
    safety of the individual is at risk. If, for example, a government decides to
    issue a warning about a specific danger, in this case medical devices, or to
    make representations about the safety of a product, the government may be
    liable for the manner in which it issues that warning, or the content of those
    representations, especially where the government disseminates the warning or
    representation knowing that the individual consumer will rely on its contents
    and the individual does so.

[93]

In
Attis
, at paras. 69-70, Lang J.A. went on to conclude that
    the facts as pleaded did not establish an interaction between the regulator and
    the plaintiff such as to create a
prima facie
duty of care.  She noted the absence of any direct
    contact between the plaintiffs and Health Canada and the absence of any
    allegations of representations made by Health Canada and relied on by the
    plaintiffs. She concluded, at para. 70:

there was no
    interaction with Health Canada that could have led the appellants to believe
    Health Canada had assumed a private law duty of care for product safety.  Nothing
    in the relationship between the parties would lead an individual to assume a
    government product guarantee. Rather, the appellants expectations and reliance
    would have been on their medical advisers, the hospital, the manufacturer and
    the distributer of the device. I would conclude that the pleaded facts in this
    case do not support a finding of proximity through interaction.

[94]

Unlike
Attis
and
Drady
, which addressed the proximity requirement in
    detail,
Sauer
considers
    proximity in a single conclusory paragraph (para. 62). In that paragraph, the
    court referred to the regulators many public representations declaring its
    intention to protect commercial cattle farmers among others.

[95]

In my view, a finding of
    proximity based entirely on a regulators public acknowledgement of its public
    duties to those affected by its actions, coupled with reliance by those
    affected on the regulators public statements, is inconsistent with the Supreme
    Courts rejection in
Imperial Tobacco
of the claim that Health Canada owed a private law duty
    of care to consumers of low-tar cigarettes because it had made public
    representations as to the relative safety of those cigarettes
.
[10]

[96]

Although public
    representations by a regulator as to its public duties and obligations do not
    establish a relationship of proximity between the regulator and an individual
    plaintiff, they are properly included in the factual matrix to be considered in
    determining whether the interactions between a regulator and a plaintiff are
    sufficiently direct and close to warrant a finding of proximity.

[97]

This is not the time or
    place to pass upon the ultimate sufficiency of the pleadings in
Sauer
. I am satisfied, however, that the detailed analyses
    of proximity in
Attis
and
Drady
,
    particularly in the light of the subsequent judgment in
Imperial
    Tobacco
, are more in line with the
    prevailing jurisprudence. The single conclusory observation in
Sauer
, standing alone, is not consistent with that
    jurisprudence.

[98]

The jurisprudence
    permits no definitive answer for the first question. As counsel for AG Canada
    put it in his factum, [t]he requirements for proximity are diverse and depend
    on the facts of each particular case.

VI

the second question

[99]

The second question states:

Does the amended statement of claim in this action satisfy
    those requirements?

[100]

The question is
    answered by applying the template fashioned in the jurisprudence to the
    pleadings in this case. As already indicated, this exercise is complicated by
    the diffuse and disorganized nature of the pleadings.

[101]

I begin with the
    statutory regime. As outlined above,
Attis
and
Drady
dealt with the same legislative scheme that is
    before the
court in this proceeding. Both cases held that the
    scheme did not expressly or by implication create a private law duty of care. Nor
    did the scheme foreclose the existence of that duty in a particular situation.

[102]

Neither party in
    this proceeding suggests that the court should reconsider the analysis of the
    legislative scheme conducted in
Attis
and
Drady
. I see no reason to rework that ground. The fate
of
    these pleadings turns on whether they allege a sufficient interaction between
    Health Canada and the plaintiff to warrant a finding of proximity and the
    imposition of a
prima facie
duty of care.

[103]

In considering
    whether allegations of interactions between the plaintiff and the regulator are
    sufficient to survive challenge at the pleadings stage, I bear in mind the
    admonition of the Chief Justice in
Imperial Tobacco
, at para. 47:

where the asserted basis for proximity is grounded in
    specific conduct and interactions, ruling a claim out at the proximity stage
    may be difficult.
So long as there is a reasonable prospect that the
    asserted interactions could, if true, result in a finding of sufficient
    proximity, and the statute does not exclude that possibility, the matter must
    be allowed to proceed to trial, subject to any policy considerations that may
    negate the
prima facie
duty of care at the second stage of the
    analysis. [Emphasis added.]

[104]

Where the relationship
    of proximity is said to arise out of the interaction between a plaintiff and
    the regulator, the question must be  what is there in the factual allegations that
    distinguishes the relationship between this plaintiff and the regulator from
    the relationship that exists between the regulator and all those affected by
    the regulators actions? In the amendments to her claim found in the Fresh Statement
    of Claim, Ms. Taylor tries to establish a direct and close relationship with
    the regulator by reference to the regulators public statements concerning its general
    powers and practices under the legislative scheme and her reliance on them. For
    example, in para. 25, she refers to the RIAS as representations of Health
    Canadas habitual practice to monitor and assure the safety of medical devices
    used by Class Members. Ms. Taylor further alleged that these broad public representations
    were intended to be and were, reasonably relied on by the public, including the
    representative plaintiff and Class Members.

[105]

For the reasons set out
    above, a regulators public statements acknowledging its public duties and
    obligations and its commitment to the performance of those duties, combined
    with the reliance on those public statements by members of the public affected
    by the performance of those duties, cannot, standing alone, create a
    relationship of proximity between individual plaintiffs and the regulator. In
    my view, to assert that the kind of representations made by Health Canada and
    relied on in the Fresh Statement of Claim can, coupled with reliance on those
    representations, create a relationship of proximity, is in reality to assert
    that the public duties set out in the legislative scheme can become a private
    law duty of care if relied on by an individual member of the public. The
    legislative scheme does not create any private law duty of care. An
    individuals reliance on public representations that the regulator will do its
    public and statutory duty cannot by itself create one.

[106]

The additional
    allegations concerning representations and reliance inserted into the Fresh Statement
    of Claim do not establish a relationship of proximity between Ms. Taylor and
    Health Canada. However, those allegations must be placed in the context of the
    more specific allegations concerning the implants made in the remainder of the
    Fresh Statement of Claim.

[107]

I begin my review of
    those specific allegations with three observations. First, there is no
    allegation of any direct contact between the plaintiff and Health Canada. Second,
    it is not alleged that Health Canadas actions directly caused the harm to Ms.
    Taylor. Rather, it is alleged that Health Canada failed to properly regulate
    those who caused the harm to Ms. Taylor. These two factors make this case
    different from cases like
Heaslip
and
Hill
.

[108]

My third observation,
    however, points in the opposite direction. There is nothing inconsistent with a
    finding of a private law duty of care owed to individuals in a particular
    situation and the existence of the public duties owed by Health Canada under
    the legislation. The private law duty of care claimed by Ms. Taylor can coexist
    with the duties and obligations owed by Health Canada to the public.

[109]

The sustainability of
    Ms. Taylors claim at this stage of the proceedings depends primarily on the
    allegations of Health Canadas misrepresentations as to the status of the Vitek
    implants between 1988 and 1990 and its failure to correct those
    misrepresentations in the following years during which the implants were sold
    into Canada without proper authorization and the evidence of the danger posed
    by those implants continued to mount. Those allegations can be summarized as
    follows:

·

no later than 1987,
    Vitek, with Health Canadas knowledge, was selling implants in Canada without
    the necessary notice of compliance;

·

Ms. Taylor received one of those Vitek implants in Canada in
    April 1988;

·

sometime in 1988, Health Canada wrongly represented in its
    database that it had issued a notice of compliance referable to the Vitek implants;

·

at various times in 1989, Health Canada, through its officials,
    repeated the misrepresentation concerning the status of the Vitek implants and
    indicated that Vitek had filed data establishing the safety of the implants to Health
    Canadas satisfaction;

·

in 1990 Health Canada discovered that it had wrongly represented
    that the Vitek implants had received a notice of compliance, but it took no
    steps to advise users or potential users of the implants or their health care
    professionals of Health Canadas misrepresentation;

·

to Health Canadas knowledge, Vitek continued to sell implants in
    Canada between 1988 and 1990, without the requisite notice of compliance;

·

beginning in 1990, Health Canada received information from various
    reliable sources reporting significant defects causing the implants to fail and
    resulting in serious health consequences for those who had received the
    implants;

·

between 1990 and 1992, Health Canada was advised of various
    safety alerts, recalls, public health notices, and import alerts issued by
    American authorities in relation to the implants;

·

between 1990 and 1996, Health Canada failed to take any or took
    inadequate steps in response to the information received;

·

throughout the period, Health Canada represented to consumers
    that it monitored and assured the safety of medical devices; and

·

Ms. Taylor and other class members relied on this representation.

[110]

Reading Ms.
    Taylors pleadings generously, they allege that between 1988 and 1990 Health
    Canada repeatedly misrepresented the safety of the implants Ms. Taylor and
    others received by wrongly representing that those implants had received a
    notice of compliance.  The pleadings further allege that when Health Canada became
    aware of its misrepresentation in 1990, it failed to correct that
    misrepresentation despite the knowledge that the implants were being improperly
    imported and sold in Canada and that there was strong and growing evidence that
    the implants were unsafe and caused serious harm to users. These allegations,
    taken in combination, in my view, describe a relationship between Health Canada
    and the users of those implants that is different from the relationship that exists
    between Health Canada and consumers of medical devices at large.  The more
    difficult question is whether the allegations create a sufficiently close
    relationship to give rise to a private law duty of care.

[111]

In referring to
    the combined effect of Health Canadas misrepresentations as to the compliance
    of the implants and its subsequent conduct, I do not mean to suggest that
    because Health Canadas conduct potentially increased the risk to Ms. Taylor
    that it necessarily created a relationship of proximity.  I agree with the
    observation in
Drady
,
at paras. 44-62, that the fact that misrepresentations enhance the risk to
    users of the implants is not in and of itself germane to the proximity
    requirement.  That requirement must focus on the nature of the relationship
    between Health Canada and the users created by the misrepresentations taken in
    combination with Health Canadas other conduct.  In my view, it is arguable
    that the misrepresentations, combined with the failure to correct that
    misrepresentation in the face of knowledge of the serious and ongoing risk
    posed to a clearly definable and relatively small group of consumers, could be viewed
    as akin to the regulators failure in
Fullowka
to act in the face of
    the known and ongoing dangers posed to the small and well-defined group of miners
    who worked in the specific mine which the regulator knew to be unsafe.  In
Fullowka
,
    the Supreme Court found sufficient proximity between the regulator and those
    miners to warrant the imposition of a private law duty of care: see also
Doe
    v. Metropolitan Toronto (Municipality) Commissioners of Police
(1990), 74
    O.R. (2d) 225 (H.C.J. Div. Ct.).

[112]

No prior case is
    a perfect fit for this one, otherwise there would be no need to redo the
    proximity analysis. In
Fullowka
, the regulator was physically present
    in the mine on several occasions and was required by statute to directly
    regulate the conduct of the miners. Those features, which do not exist in this
    case, render the relationship between the regulator and the miners in
Fullowka
closer than the relationship between Health Canada and the recipients of the
    implants.

[113]

Similarly, in
Doe
,
    the police were aware that the plaintiff was one of a handful of persons who
    had potentially been targeted by a serial rapist. The police were also under a
    specific statutory duty to prevent crime. That degree of specificity is not
    present on the facts as alleged in this case.

[114]

Acknowledging,
    however, the factual differences among the cases, one should not ignore the
    similarities. In
Fullowka
,
Doe
and this case, the regulator
    failed to act to protect the life and safety of individuals when the regulator
    was fixed with knowledge of a clear, present and significant danger posed to a
    discrete and identifiable segment of the community. On these pleadings, there
    are the added features of a material misstatement by the regulator, a failure
    to correct that misstatement, a decision to refrain from notifying at least
    some of those individuals whom the regulator knew to be at risk as a result of
    the use of the implants, and a failure to adequately warn those whom Health
    Canada did notify of potential problems with the implants. It is arguable that
    those features of the case enhance Ms. Taylors proximity argument.

[115]

I come next to the
    significance of allegations of representations made by the regulator and
    reliance placed on those representations by the plaintiff. No doubt, specific
    representations by a regulator to an individual, and reliance by that
    individual on those representations, will go a long way toward establishing a
prima
    facie
duty of care. The real issue here is whether that kind of direct representation
    and reliance is essential to a finding of a
prima facie
private law duty
    of care. If it is essential, Ms. Taylor has no claim as she does not allege
    that she was aware of, much less relied on, any of Health Canadas
    representations concerning the safety of the implants.

[116]

In
Drady
,
    after referring to several allegations in the pleadings in that case, including
    an allegation of the very misrepresentation in issue here, this court in
    holding that the pleadings did not reveal a cause of action, said, at para. 54:

In the absence of a specific representation or reliance on
    Health Canada regarding the safety of the implant, in my view, it is plain and
    obvious that the appellant cannot establish a direct and close relationship of
    proximity that makes it just and fair to impose a private law duty of care on
    Health Canada.

[117]

The jurisprudence does not go so far as counsel for AG
    Canada suggests this passage does. The Supreme Court of Canada has imposed a
prima
    facie
private law duty of care on regulators in circumstances where there were
    no specific representations made to the plaintiff and no reliance on any
    specific representation by the plaintiff.
Hill
and

Fullowka
are two examples. As repeatedly indicated in the
    Supreme Court of Canada jurisprudence, where a private law duty of care is said
    to arise from the specific relationship of the regulator and the plaintiff, the
    entirety of the circumstances said to constitute that relationship must be
    considered in determining whether that duty exists.

[118]

The nature of any representations
    made by the regulator, and the nature of any reliance placed on those
    representations by the plaintiff, are part of the entirety of the circumstances
    to be considered in determining the directness of the relationship between the
    regulator and the plaintiff. Representations made specifically to a plaintiff
    and relied on by that plaintiff can clearly forge a direct connection between
    the regulator and the plaintiff. General representations made by the regulator
    to the public and relied on by the plaintiff as a member of the public do not,
    standing alone, create a direct relationship. However, general representations
    and reliance on those representations can, in combination with other factors,
    create a relationship between the regulator and the plaintiff that is
    sufficiently close and direct to render it fair and just to impose on the regulator,
    in the conduct of its duties, an obligation to be mindful of the plaintiffs
    legitimate interests.

[119]

I would add that
    proximity is not necessarily an all-or-nothing proposition. Ms. Taylor advances
    different claims, as summarized above in para. 9. A trial judge could find a
    sufficiently close and direct relationship between Ms. Taylor and Health Canada
    to give rise to a
prima facie
duty of care in respect of some, but not all of the claims. For
    example, a trial judge might conclude that the relationship between Health
    Canada and Ms. Taylor at the time she received the implants did not give rise
    to a duty of care, but that the relationship had evolved into one of sufficient
    proximity to give rise to a duty of care by the time Health Canada discovered
    its misstatements with respect to the implants, became aware of the significant
    risks posed to individuals who had received the implants, and failed
either
    to notify implant recipients of the risks or to adequately advise those
    notified of the nature of the risks.
If a
    trial judge found that the relationship had in fact evolved into one justifying
    the imposition of a private law duty of care, then Health Canada may have
    breached that duty by failing to warn Ms. Taylor and other recipients of the ongoing
    danger presented by the implants so that Ms. Taylor and the others could take
    steps to mitigate the harm caused by the implants.

[120]

Ultimately, I come to
    this point.  It is not clear to me that Ms. Taylor will at the end of the day
    succeed in making out a private law duty of care owed to her by Health Canada.
    However, bearing in mind that at this stage the allegations must be assumed to
    be true and must be read generously, and also having regard to the dynamic
    nature of the jurisprudence, it is not plain and obvious that the claim as
    pleaded is bound to fail for want of a private law duty of care. The courtroom
    door cannot be closed to Ms. Taylor and the other members of the class at this
    stage.

VII

conclusion

[121]

Question
    1 should be answered as proposed by counsel for AG Canada:

·

The requirements for proximity are diverse and depend on the
    facts of each particular case.

[122]

Question 2
    should be answered as follows:

·

At this stage of the proceedings, it is not plain and obvious
    that the allegations in the Fresh Statement of Claim cannot support a finding
    that Health Canada owed the plaintiff a
prima facie
private law duty
    of care.

VIII

remedy

[123]

Ms. Taylor is
    entitled to the remedy sought by her in the motion to determine a special case.
    The order of Cullity J., dated September 7, 2010, is affirmed. Ms. Taylor
    should be given a reasonable opportunity to reframe and streamline her
    pleadings in light of these reasons.

[124]

The parties may
    address the costs of this special case in written submissions of no more than four
    pages. Those submissions should be exchanged and filed within 45 days.

RELEASED:  DD  JUL 06 2012

Doherty J.A.

I agree K.M. Weiler
    J.A.

I agree John I.
    Laskin J.A.

I agree Robert J.
    Sharpe J.A.

I agree Robert P.
    Armstrong J.A.

[1]
Health Canada is defined in the Fresh Statement of Claim as the various federal
    Ministers, departments and other entities responsible for regulating medical
    devices, including implants.

[2]
Of course, the claim contains only allegations, not facts. They are, however,
    accepted as true for the purposes of this exercise.

[3]
These regulations were replaced by a very different regulatory regime in 1998:
    see
Medical Devices Regulations
, SOR/98-282 (May 7, 1998).

[4]
The Fresh Statement of Claim (para. 15) refers to Part V of the
Food and
    Drugs Act
which was enacted on April 1, 1983. There is no Part V of the
Food
    and Drugs Act
. The reference would appear to be to Part V of the
Medical
    Devices Regulations
. The reference to April 1, 1983 is also in error. Part
    V existed long before 1983.

[5]
The Fresh Statement of Claim treats April 1, 1983 as the operative date for
    determining whether the implants were grandfathered under the definition of
    new device in the applicable regulations. The discrepancy in the dates is
    irrelevant for present purposes.

[6]
I will use the word regulator interchangeably with the phrase governmental
    body.

[7]
See L. Klar,
The Tort Liability of Public
    Authorities: The Canadian Experience
in S. Degeling, J. Edelman,
    & J. Goudkamp, eds.,
Torts in Commercial Law
(Australia: Thompson
    Reuters, 2011) Chap. 12.

[8]
Referring to
Anns v. Merton London Borough Council
, [1978] A.C. 728 (U.K.H.L.).

[9]
The court went on to determine that the residual policy considerations at the
    second stage of the duty of care inquiry negated the existence of any duty of
    care owed by the regulator to the manufacturers.

[10]
Arguments of proximity based on the regulators acknowledgement of its duties
    to the public and reliance on that acknowledgement seem close to the concept of
    general reliance discussed in the Australian cases, including cases like
Pyrenees
    Shire Council v. Day
(1998), 192 C.L.R. 330 (H.C.A.). To my knowledge, the
    concept of general reliance has not been adopted in any Canadian
    jurisdiction. See also
Gorringe v. Calderdale Metropolitan Borough Council
.


COURT OF APPEAL FOR ONTARIO

CITATION:

Teva Canada
    Limited v. Bank of Montreal, 2012 ONCA 486

DATE: 20120709

DOCKET: C55143

OConnor A.C.J.O., MacPherson and Rouleau JJ.A.

BETWEEN

Teva Canada Limited

Plaintiff (Respondent)

and

Bank of Montreal, Canadian Imperial Bank of
    Commerce, TD Canada Trust and
Bank of Nova Scotia

Defendants (Appellant)

AND BETWEEN

The Bank of Nova Scotia

Plaintiff by Counterclaim

and

Teva Canada Limited,
    Neil Kennedy McConachie, Renzo G. Tittarelli and Florindo Costanzo

Defendants by Counterclaim

Martin Sclisizzi, for the appellant, Bank of Nova Scotia

Sean Cumming and Colby Linthwaite, for the respondent,
    Teva Canada Limited

Heard:  July 5, 2012

On appeal from the order of Justice Sandra Chapnik of the
    Superior Court of Justice, dated October 28, 2011.

By the Court:

[1]

This appeal results from the refusal by
    the courts below to allow the appellant, Bank of Nova Scotia, to amend its
    statement of defence to plead the defence of estoppel.

[2]

The respondent, now named Teva Canada
    Limited, sued Bank of Nova Scotia in conversion.  The claim arises from a fraud
    allegedly carried out by McConachie, an employee of Teva.  The statement of
    claim alleges that McConachie, perhaps with others, caused Teva to issue
    cheques to companies with similar sounding names to Tevas customers.  He
    deposited 43 cheques in accounts at Bank of Nova Scotia over a period of two
    years.  Bank of Nova Scotia presented the cheques to Tevas bank for payment,
    collected the proceeds and credited the proceeds to the accounts opened by
    McConachie.  Teva claims $4,000,000 from Bank of Nova Scotia for conversion as
    well as consequential damages.

[3]

In its statement of defence, Bank of Nova
    Scotia denies conversion because there were no endorsements on the cheques and
    the cheques were deposited in accounts in the payees name.

[4]

Bank of Nova Scotia moved before Master
    Graham to amend its statement of defence to plead estoppel.

[5]

The Master refused the amendments on the
    basis that Bank of Nova Scotia had not pleaded sufficient details in support of
    the defence of estoppel.  In particular, the proposed pleading did not include
    allegations of representations made by Teva to Bank of Nova Scotia, breaches of
    duty by Teva or reliance on such breaches by Bank of Nova Scotia.

[6]

Bank of Nova Scotia appealed to the
    Divisional Court.  Chapnik J. dismissed the appeal.

[7]

With the consent of Teva, the appeal
    judge considered a new proposed statement of defence in which Bank of Nova
    Scotia included more particulars of the estoppel defence in an attempt to address
    the deficiencies identified by the Master.  There are two parts to the proposed
    pleading of estoppel.  The first alleges that Teva knew of the fraud and
    breached a duty to prevent a continuation of the fraudulent conduct.  In oral
    argument, Tevas counsel accepted that Bank of Nova Scotia should be permitted
    to plead Tevas actual knowledge of the fraud and rely upon the consequences
    flowing from that knowledge.

[8]

The second and main part of the proposed
    pleading alleges that Teva was negligent in failing to ensure the cheques drawn
    on its accounts were properly drawn.  This is often referred to as estoppel by
    negligence.  It asserts that if Teva had examined the cheques in a timely way,
    it would have detected the fraud and should have taken steps to prevent further
    fraud.  It also pleads that it relied on Tevas failures to its detriment.

[9]

In dismissing the appeal, the appeal
    judge concluded that the proposed amendment is rooted in generalities and does
    not plead any of the required elements [of estoppel] substantively.

[10]

The appeal judge went on to hold that, in any event,
    the proposed defence of estoppel by negligence is untenable in law.  She
    pointed out that the tort of conversion on which Tevas claim is based is one
    of strict liability in matters concerning bills of exchange.  She referred to
    the Supreme Court of Canadas decision in
Boma Manufacturing Ltd. v.
    Canadian Imperial Bank of Commerce
, [1996]
    3 S.C.R. at 727, where the court held that contributory negligence is not
    available as a defence to a claim similar to the present one against a bank
    based in conversion.  She reasoned that there is no fundamental distinction
    between the common law defence of contributory negligence and the equitable
    defence of estoppel by negligence.  The appeal judge observed that there is no Canadian
    authority holding that estoppel by negligence constitutes a defence to a
    conversion action in circumstances involving the processing of bills of
    exchange by banks.

[11]

Bank of Nova Scotia appeals to this court with leave.

[12]

As mentioned, Bank of Nova Scotias plea is primarily
    focussed on a defence of estoppel by negligence.  It argues that estoppel by
    negligence has the following elements:  a) the representor owed a duty of care
    to the representee; b) the representor negligently or carelessly failed to
    perform the duty; c) the negligence of the representor caused the representee
    to believe a certain state of facts; and d) the negligence was the proximate or
    real cause of a loss to the representee.

[13]

Bank of Nova Scotia fairly concedes that the duty of
    care owed by a drawer of a cheque to the collecting bank that it wishes to
    plead has not, to this point, been recognized by a Canadian court, but argues
    it is analogous to a recognized duty.  As such, this is an appropriate case to
    apply the two-step test set out in
Anns
to determine if the court should recognize a new duty of care.  It goes
    on to argue that the determination as to whether a new duty of care should be
    recognized should not be resolved at a preliminary stage on a motion to amend a
    pleading.  Rather, it says that the existence of such a duty and the scope and
    content of the duty should be determined at a trial on a full evidentiary
    record.

[14]

Teva agrees that there is no recognized duty of care
    owed by a drawer of a cheque to a collecting bank.  It argues, however, that
    the law in this area is settled and this is not a case where
Anns
could possibly apply.

[15]

We agree with the motion judge that the Supreme Court
    of Canadas decision in
Boma
is
    dispositive of Bank of Nova Scotias plea of estoppel by negligence.  In our
    view, there is no basis to distinguish what the court said in
Boma
with
    respect to a defence of contributory negligence when considering this proposed
    defence.

[16]

Like the present case,
Boma
involved a fraudulent employee who caused cheques to
    be issued in names similar to people that the company dealt with, but for
    amounts which were not due.  As in this case, the bank received the cheques
    from the fraudulent employee, who had no title to them, and collected on them from
    the employers bank.  In doing so, the collecting bank was,
prima
    facie
, liable for the tort of conversion.

[17]

In
Boma
,
    Justice Iacobucci for the majority reviewed the law of conversion and confirmed
    the longstanding rule that the tort of conversion is a matter of strict
    liability.  The bank in that case had argued that the drawer of the cheque was
    in the best position to detect its employees fraud and that it was negligent
    in failing to do so.  Justice Iacobucci stated at para. 32 that the notion of
    strict liability involved in an action for conversion is primarily antithetical
    to the concept of contributory negligence and concluded, at para. 35:

As I stated above, however, it seems as a matter of principle
    that contributory negligence would not be available in the context of a strict
    liability tort.  If the contributory negligence approach is to be introduced
    into this area of law, I would leave that innovation to Parliament because such
    a change would be more appropriate for the legislative branch to make.
As I
    see it, the strict liability feature of conversion is well engrained in the
    jurisprudence concerning bills of exchange.
[Emphasis added.]

[18]

Estoppel and contributory negligence are separate
    legal concepts.  Both, however, would require an assessment of the same facts
    surrounding the conduct of Bank of Nova Scotia and Teva and would require a
    determination based on findings of the respective negligence of the maker of
    the cheque and the bank.

[19]

In
Boma
,
    the court recognized that there is a tension between the laws need for
    certainty and equitys need to achieve objectively fair results.  In the case
    of bills of exchange, courts of law and equity over several hundred years have
    determined that certainty is the predominant value and that the operation of an
    efficient banking market requires strict adherence to objective rules for the
    allocation of risk.

[20]

We are of the view that if one applies the line of
    reasoning set out by the court in
Boma
to the circumstances in this case, it is not tenable that a court would
    recognize the new duty of care urged by Scotia Bank, nor would it recognize the
    availability of a defence of estoppel by negligence which Bank of Nova Scotia
    seeks to plead.  Doing so would change the allocation of risk and affect the
    certainty with which participants in the banking system now conduct banking
    transactions.

[21]

We would add to the above what LaForest J. said in a
    concurring judgment in
C.P. Hotels Ltd. v. Bank of Montreal
, [1987] 1 S.C.R. 711.  The court in that case was
    considering the question of previously unrecognized duties owed by a drawer of
    a cheque to its own bank.  The court declined to recognize a wider duty than
    had been previously found to exist.  At p. 779, LaForest J. said the following:

A major reason for the rejection of a wider duty is that
    already mentioned:  the need for a rule that was clear in most circumstances,
    cutting within a narrow compass the cases where the loss was directly
    attributable to the customer because of negligence or otherwise.  Parke B.
    clearly expressed the policy militating against a wider duty in Bank of Ireland
    v. Evans Trustees (1855), 5 H.L.C. 389, 10 E.R. 950, at pp. 410-11 (H.L.C.),
    p. 959 (E.R.):

If such negligence could disentitle the Plaintiffs, to what
    extent is it to go?  If a man should lose his cheque-book, or neglect to lock
    the desk in which it is kept, and a servant or stranger should take it up, it
    is impossible in our opinion to contend that a banker paying his forged cheque
    would be entitled to charge his customer with that payment.

Such broad uncertainty is out of place in the governance of
    negotiable instruments.

[22]

In
    our view, that reasoning is apposite the circumstances in this case.  In
    summary, we agree with the appeal judge that the proposed plea of estoppel by
    negligence is not tenable and that leave to amend to assert that plea should
    not be granted.

[23]

In the result, we would allow the appeal to the extent
    of giving leave to Bank of Nova Scotia to amend its statement of defence to
    plead defences arising from Tevas actual knowledge of the fraudulent conduct.

[24]

In all other respects, the appeal is dismissed.  We
    direct that Bank of Nova Scotia pay Tevas costs of the appeal fixed in the
    amount of $10,000, inclusive of disbursements and HST.

Released:

JUL -9 2012                                     Dennis
    OConnor A.C.J.O.

DOC                                                J.C.
    MacPherson J.A.

Paul
    Rouleau J.A.


COURT OF APPEAL FOR ONTARIO

CITATION:
Timminco
    Limited (Re), 2012 ONCA 552

DATE: 20120720

DOCKET: M41062 & M41085

Simmons, Juriansz and Epstein JJ.A.

In the Matter of the
Companies Creditors
    Arrangement Act
, R.S.C. 1985, c. C-36, as Amended

And in the Matter of a Proposed Plan of
    Compromise or Arrangement with Respect to Timminco Limited and Becancour
    Silicon Inc.

Applicants

Ashley J. Taylor and Erica
    Tait, for the applicants

Douglas J. Wray and Jesse
    Kugler, for the Communications, Energy and Paperworkers Union of Canada

Charles E. Sinclair, for the
    United Steelworkers

Considered in writing on: July 20, 2012

On leave to appeal from the order of Justice Geoffrey B.
    Morawetz of the Superior Court of Justice, dated February 9, 2012.

ENDORSEMENT

[1]

Leave to appeal is denied.

[2]

In the CCAA context, leave to appeal is to be granted sparingly and only
    where there are serious and arguable grounds that are of real and significant
    interest to the parties. In determining whether leave ought to be granted, this
    Court is required to consider the following four-part inquiry:

·

whether the point on the proposed appeal is of significance to
    the practice;

·

whether the point is of significance to the action;

·

whether the proposed appeal is
prima facie
meritorious
    or frivolous; and

·

whether the appeal will unduly hinder the progress of the action.

See
Re Stelco
(2005), 78 O.R. (3d) 241

[3]

In our view, the proposed appeals lack sufficient merit to meet this
    stringent test.

[4]

This courts decision in
Indalex Ltd. (Re)
(2011), 104 O.R. (3d) 641,

affirms
    that a CCAA court may invoke the doctrine of paramountcy to override
    conflicting provisions of provincial statutes where the application of
    provincial legislation would frustrate the companys ability to restructure and
    avoid bankruptcy.

[5]

Here, the motion judge recognized that in the circumstances of this case
    there was a conflict between the federal CCAA and the provincial PBA and SPPA.
    He found that, [i]n the absence of the court granting the requested super
    priority, the objectives of the CCAA would be frustrated.  Further, he
    concluded that to ensure that the objectives of the CCAA are fulfilled, it is
    necessary to invoke the doctrine of paramountcy such that the provisions of the
    CCAA override those of the QSPPA and the OPBA.

[6]

We see no basis on which this court could interfere with the motion
    judges decision, including his unassailable findings of fact that: (1) without
    DIP financing, Timminco would be forced to cease operating; (2) bankruptcy
    would not be in the interests of anyone, including members of the pension plan;
    (3) if the DIP lender did not get super priority, it would not have agreed to
    provide financing; and (4) there was insufficient liquidity or unfavourable
    terms associated with the rejected DIP proposals. In short, he found that there
    was no real alternative to approving the DIP facility and DIP super priority
    charge.

[7]

The motion judge also addressed the unions fiduciary arguments,
    primarily in his earlier reasons released February 2, 2012, that are incorporated
    by reference into his February 9, 2012 reasons. He concluded that it was in the
    best interests of all parties to proceed with the restructuring. We see no basis
    on which this court could interfere with this finding.

[8]

Costs are to the responding parties on the motions on a partial
    indemnity scale fixed in the amount of $1,500 per motion inclusive of
    disbursements and applicable taxes.

Janet Simmons
    J.A.

R.G. Juriansz
    J.A.

G.J. Epstein J.A.