Canada: Ontario Court Of Appeal Dismisses Hope-Based Claim And Reaffirms Limits For Pure Economic Loss

In Mandeville v. The Manufacturers Life Insurance Company, 2014 ONCA 417, the Ontario Court of Appeal considered whether a company owed a novel of duty of care to stakeholders in connection with a legitimate transaction that received regulatory approval. In affirming the dismissal of the class action, Justice Gillese determined that there were a number of policy reasons that justified not recognizing the class members' claim for pure economic loss – a claim that, at its highest, was based not on a legally recognized right or interest, but rather a "hope or mere expectancy." The decision reaffirms that courts will continue to scrutinize claims for pure economic loss and will only permit recovery where the loss relates to a legally recognized right or interest.


In late 1996, Manulife, which was then a mutual insurance company, transferred its Barbados life insurance business to a local Barbados insurance company. The transaction, as structured, complied with the governing legislation and was approved by Canadian and Barbadian regulators. Following the transaction, the transferred Barbados policyholders no longer had any right or interest in Manulife.

In January 1998, although it was not yet legally permissible, Manulife announced its intention to demutualize (which meant that it would convert from a mutual insurance company to a stock insurance company). Following the Canadian government's enactment of the necessary legislation in March 1999, Manulife demutualized in September 1999 and distributed over $9 billion in cash and shares to individuals who were policyholders when it announced its intention to demutualize. Since the transferred Barbados policyholders were not Manulife policyholders at that time, they did not receive any demutualization benefits.

A group of representative plaintiffs commenced a class action against Manulife alleging that, at the time of the Barbados transfer, Manulife knew it was likely going to demutualize and it ought to have structured the transaction in a way that preserved the transferred Barbados policyholders' right to share in any demutualization benefits. Following a 29-day common issues trial, the trial judge dismissed the class members' claim on the basis that Manulife did not owe them a duty of care. The trial decision was appealed.

The Decision

At the outset, Justice Gillese noted that, despite their assertions to the contrary, the class members' novel claim was for pure economic loss. Therefore, the threshold question of whether to recognize a new duty of care required additional scrutiny. Because the claim did not fall into one of the recognized categories of recovery for pure economic loss, Justice Gillese applied the analysis from Anns v Merton Borough Council, [1978] AC 728 (HL) and Cooper v Hobart, 2001 SCC 79 to determine whether a new category should be established. In applying the analysis, Justice Gillese concluded that policy considerations play a role at both the first stage of the Anns test, which focuses on the relationship between the plaintiff and the defendant, and the second stage, which focuses on the broader effect of recognizing a duty of care on other legal obligations, the legal system and society more generally.

A Hope or Mere Expectancy is Not a Recognized Right or Interest: In her analysis, Justice Gillese focused on the nature of the class members' asserted right or interest. She determined that the class members could not have had a right to, or an interest in, demutualization benefits because demutualization did not exist and was not legally possible at the time of the Barbados transfer. She determined that, at its highest, the class members had the hope or expectancy that if and when Manulife demutualized, they would receive demutualization benefits. Justice Gillese concluded that the class members' claim was therefore based on a "hope or mere expectancy"; it was not based on a legally recognized right or interest. As a result, Justice Gillese concluded it would neither be just nor fair to impose a duty of care upon Manulife to prevent harm to the "inchoate and tenuous interest" asserted by the class members.

Legislation Permitted the Transfer: Justice Gillese also concluded that the governing legislation provided another policy reason that militated against imposing a duty of care. She noted that the legislation, which was complied with, addressed the foundational aspect of the relationship between the parties and permitted Manulife to transfer the policies and terminate its relationship with class members. Justice Gillese concluded that, in light of the governing legislation, it was not reasonable for the class members to expect Manulife to protect their hope or expectancy in a future demutualization when they did not have the right to remain Manulife policyholders.

Residual Policy Considerations: Although Justice Gillese concluded that a prima facie duty of care did not arise for the two policy reasons set out above, she also concluded that there were two broader, residual policy considerations that militated against imposing a duty of care. She determined that imposing a duty of care on a company on the basis of a plaintiff's hope or expectancy of receiving a future financial benefit raised the spectre of indeterminate liability and a multiplicity of inappropriate lawsuits. Importantly, Justice Gillese recognized that imposing a duty of care on companies to take steps to protect a hope or expectancy held by some stakeholders could have significant and uncertain corporate law implications. She also determined that the class members' pure economic loss claim essentially related to the distribution of value, rather than compensation for the destruction of value. As such, the claim was outside the purpose of tort law and did not justify court intervention.


The decision is significant for a number of reasons. First, it emphasizes the importance of a clear understanding of the nature of the plaintiff's claim prior to engaging in a duty of care analysis. Second, while the categories permitting recovery for pure economic loss are not closed, in keeping with the law's general reluctance to permit recovery for pure economic loss, courts will continue to exercise greater scrutiny in assessing whether to create and recognize new categories of recovery. Third, policy considerations play a role at both stages of the Anns test and are vitally important in considering whether to recognize a new duty of care. Fourth, a plaintiff's hope or mere expectancy is not sufficient to anchor a finding of a prima facie duty of care. A plaintiff must assert that a recognized right, claim or interest was interfered with – it would neither be just nor fair to impose a duty of care on companies to prevent harm to an inchoate and tenuous right or interest. This final point is of particular importance because it has wide-ranging implications for companies. It reaffirms that where companies may have multiple legitimate and lawful options for completing transactions, they are not necessarily required to choose the option that preserves the hope or mere expectancy of some of their stakeholders, because a hope or mere expectancy is not a legally enforceable right or interest that the law will protect. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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