Participants in regulated industries must accept oversight from government regulators. Inspections, investigations, and the possibility of enforcement for regulatory non-compliance are all part of doing business.
However, as the decision of the Ontario Court of Appeal (the “ONCA”) in Aylmer Meat Packers Inc v Ontario (“Aylmer Meat”) illustrates, the common law may impose constraints on how regulators exercise their statutory powers. In Aylmer Meat, the ONCA recognized that Ontario’s Ministry of Agriculture, Food and Rural Affairs (“OMAF”) owed an industry participant a duty of care to exercise its statutory enforcement powers reasonably, and that OMAF failed to do so in the course of its enforcement against the plaintiff, Aylmer.
Background and Trial Judgment
In 2003, Aylmer operated one of Ontario’s busiest cattle abattoirs (the “Plant”). Acting on a tip from a confidential informant, the agricultural investigation unit of Ontario’s Ministry of Natural Resources (the “MNR”) launched an investigation and found contraventions of the Meat Inspection Act (Ontario) and the Dead Animal Disposal Act, leading to criminal convictions being entered against Aylmer and one of its principals.
Upon completion of its initial investigation, the MNR turned the Plant over to OMAF. OMAF then suspended Aylmer’s licence, detained all meat found at the Plant, and began an occupation of the Plant that continued for the next 19 months. During this occupation, the Plant’s freezers malfunctioned and, despite OMAF’s limited attempts at repairing the freezers, all of the detained meat eventually spoiled and was destroyed. Notwithstanding requirements for same in the Meat Inspection Act (Ontario), OMAF never held a hearing into the disposition of the detained meat.
By the time OMAF returned control of the Plant to Aylmer, the Plant’s value had diminished significantly, and Aylmer sold the Plant at a fraction of its prior value.
Aylmer commenced an action against OMAF, including for negligence.
The trial judge dismissed Aylmer’s claims, holding that OMAF owed Aylmer no duty of care in the exercise of its statutory powers. While acknowledging that the harm to Aylmer from OMAF’s conduct was reasonably foreseeable, the trial judge held that the relationship of the parties lacked sufficient proximity to support a duty of care. Further, the trial judge held that residual public policy considerations precluded imposing a duty of care on a regulator such as OMAF, including “the potential for conflict if OMAF must be mindful not only of the health of the public but the individual economic interests of the meat processors.”
The ONCA reversed the trial judge’s decision, and found OMAF liable in negligence. To reach this conclusion, the ONCA held that: (i) OMAF owed Aylmer a duty of care to exercise its statutory powers reasonably; (ii) OMAF’s conduct failed to satisfy the applicable standard of care; and (iii) OMAF’s failure to meet the standard of care was the cause of Aylmer’s losses.
- OMAF owed Aylmer a Duty of Care
The ONCA concluded that OMAF owed Aylmer a duty of care to act reasonably in the exercise of its regulatory duties.
To satisfy the Court that a duty of care was owed, Aylmer had to establish that: (i) the economic harm complained of was reasonably foreseeable; (ii) there was a relationship of sufficient proximity between OMAF and Aylmer such as to justify imposition of a duty of care; and (iii) there were no public policy reasons to decline to recognize the duty. Only the latter two requirements were at issue in the appeal.
The ONCA concluded that Aylmer and OMAF had a relationship of sufficient proximity to give rise to a duty of care as a result of the “specific interactions between the government and the claimant.” The “specific interactions” included OMAF: (i) suspending Aylmer’s licence; (ii) failing to hold a hearing as required; (iii) seizing control of the Plant; (iii) failing to maintain the Plant’s freezer; (iv) allowing the detained meat to spoil; (v) removing and destroying the meat; and (vi) returning the Plant to Aylmer only after 19 months had elapsed. The ONCA stated that “[t]hese specific interactions were not the ordinary day-to-day regulatory contacts between Ministry personnel and a regulated abattoir.”
The ONCA drew an analogy to Hill v Hamilton-Wentworth Regional Police Services Board, in which the Supreme Court of Canada recognized that a relationship of proximity can arise between an investigating police officer and a “particularized suspect.”
In a further reversal, the ONCA found no compelling policy reasons to preclude a duty of care. The ONCA found that the potential conflict identified by the trial judge was speculative, and that the trial judge had focused improperly on the detention and destruction of the meat, rather than the totality of the interactions between the parties, including OMAF’s prolonged occupation of the Plant.
- OMAF failed to meet the standard of care
The ONCA defined the duty of care in this instance to be “that of a reasonable health and food safety regulator” and held that no expert evidence was necessary to define the standard, because the “plain facts are enough to meet the test of common sense.”
The ONCA concluded that OMAF “could have done at the end of October 2003 what it waited until March 2005 to do – remove the meat and vacate the plant.” While the initial occupation, licence suspension, and detention of meat were all reasonable, the ONCA held that OMAF, in prolonging its occupation of the Plant unnecessarily and allowing the detained meat to spoil in its custody, failed to act as a reasonable health and food safety regulator. While the trial judge described OMAF’s conduct as “mere errors in judgment” that would not breach the standard of care, the ONCA characterized OMAF’s conduct as a “litany of bureaucratic ineptitude.” The ONCA concluded that:
There is no reason why the risk of these instances of ministerial ineptitude should fall on Aylmer. This was not a close call. On any measure, 19 months of occupation showed the regulator’s outrageous disregard for the interests of the regulated entity to which it owed a duty of care.
- OMAF’s breaches caused Aylmer’s losses
While the trial judge attributed Aylmer’s losses to its own misconduct, the ONCA framed its causation analysis as follows: “whether, but for [OMAF’s] occupation of the plant, Aylmer would have been able to sell the plant.” Aylmer led evidence of unsuccessful attempts to sell the Plant during OMAF’s occupation, while Aylmer also successfully sold off other abattoirs in the area during a period of high demand. The Court found that OMAF’s wrongdoing was the cause-in-fact of Aylmer’s losses.
- The ONCA stopped short of recognizing that government regulators universally owe duties of care to the industry participants they regulate. However, Aylmer Meat does illustrate that such regulators may owe such duties, especially in the exercise of investigative and enforcement powers against industry participants.
- Aylmer Meat indicates that where the regulator’s investigation leads to regulatory or even criminal convictions, the regulator’s duty may not be discharged, and the regulator may still be held liable in negligence if they have acted unreasonably.
- Not all misconduct by a regulator will constitute a breach. Mere errors in judgment are unlikely to rise to the level required for a negligence claim to succeed. The facts in Aylmer Meat supported a finding of negligence, but those facts were relatively extraordinary, as indicated by the ONCA’s strong rebuke of OMAF’s conduct.
- Regulated businesses should consult counsel as soon as they become aware of a regulatory investigation. Early involvement of counsel can help to ensure the regulator’s conduct remains fair and reasonable, and protect against undue economic harm that may arise from improper regulator conduct.