The Ontario Court of Appeal has re-ignited the discussion about when a municipality will be held liable for its shoddy bylaw enforcement efforts. Previous Supreme Court of Canada cases have confirmed that municipalities can be held liable to third-parties for failing to adequately inspect a building for compliance with its building standards bylaws. But on June 29, 2016, the Ontario Court of Appeal decided that failing to discover non-compliance with, and enforce insurance coverage requirements under, its taxi bylaw should be treated differently. And while other Canadian provinces aren't required to follow this decision, they will certainly take note of it – and may be persuaded by it.

The decision is a reminder to municipalities, especially those with limited resources to devote to bylaw enforcement, that the failure to adequately enforce bylaws can also have a cost: while a municipality has a general public duty to enforce all of its bylaws, poor enforcement of those that affect the risk of physical damage or harm to the public will result in municipal liability.

In Vlanich v. Typhair, an Ontario municipality's bylaw required taxi companies to carry specified insurance, including a minimum amount of third-party liability coverage. A taxi company provided the municipality evidence of sufficient insurance coverage when it first applied for, and the municipality issued, the taxi licence. Over subsequent years, the company renewed its licence, but didn't maintain the minimum third-party liability coverage the bylaw required. The municipality relied on pink slips (that didn't indicate coverage amount) and the company's declarations on renewals, stating nothing had changed and it was in compliance with the bylaw. Three years after the municipality issued the company's original licence, one of its taxis was in an accident, injuring two passengers. The passengers sued the taxi company and their taxi driver; however, the company's third-party liability coverage amount was significantly less than that which the bylaw required. The passengers and their insurer also sued the municipality on the basis it negligently failed to enforce its bylaw to ensure the taxi company carried the minimum third-party liability insurance coverage the bylaw required. The trial court decided the municipality did owe the taxi passengers a duty of care and met the standard of care when it issued the original licence to the taxi company. It wasn't unreasonable or in bad faith for the municipality to not obtain proof of sufficient insurance coverage at renewal times, even though it's preferable it do so; the municipality "relied on other reasonable measures to enforce the bylaw" (obtaining pink slips and signed declarations there were no significant changes), and this was enough to satisfy the standard of care.

The insurer and the passengers appealed – but didn't even get to first base. The Ontario Court of Appeal decided the municipality didn't owe the taxi passengers a private law duty of care because the concept of proximity requires a much more immediate and direct nexus between the plaintiff and the defendant: "A public authority administering a licensing scheme owes a general duty to the public at large to ensure compliance with the regulatory scheme. However, that general public duty is not equivalent to a private law duty of care. Without 'something more', licensing a third-party does not create a 'close and direct' relationship capable of giving rise to a duty of care between a public authority and an individual member of the public who may interact with a licensee." This is the difference between a duty of care owed by a municipality in the enforcement of building standards bylaws, and the enforcement of the insurance requirement of a taxi licensing bylaw:

  • Failure to carry out the inspection for building safety standards directly affects the level of risk of physical damage or harm that a member of the public might suffer: by carrying out its inspection requirements, a municipality directly reduces that risk.
  • Failure to enforce its bylaw requiring minimum insurance coverage doesn't change the risk of physical harm to a member of the public: the bylaw didn't set a standard to avoid a risk of physical damage or harm resulting from a motor vehicle accident with a taxi, and carrying adequate insurance coverage wouldn't have prevented the physical harm that occurred.

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