WE LIVE IN A TIME of thin political markets, when governments appear less capable of tackling long-term systemic policy issues. This is, in part, because of the short-term incentives that motivate political processes. One consequence is that the tension between public expectations and legislative/regulatory responsiveness becomes more severe, and a growing role emerges for our courts to use the open-ended concept of "reasonable expectations" to create and modify legal standards and forge new, often radical legal pathways.
Protecting reasonable expectations is a central organizing principle for most legal rules in common law systems. The standard is applied unevenly, though; private law generally emphasizes the more subjective aspect of expectations (i.e., the expectations of particular stakeholders), while public law tends to focus on more objective "reasonableness" viewed from the perspective of society as a whole.
That said, the doctrine has been used to achieve objectives that are remarkably consistent. The first is to require powerful public and private actors to treat others fairly. The second is to uphold the integrity of legal regimes and, through them, social institutions.
Reasonable expectations extend beyond the current law. The Supreme Court of Canada described them as looking "beyond legality to what is fair, given all the interests at play" to address corporate conduct that is "wrongful even if it is not actually unlawful." Of late, the doctrine of reasonable expectations has increasingly been used to extend the scope of legal protections available to stakeholders, including future generations and the environment. Rules relating to standing and intervener status are broadening to make it easier for environmental and other groups to challenge harms to stakeholders caused by powerful actors. Materiality and related corporate reporting requirements are broadening in regards to environmental and other social and systemic issues. The test for holding parent companies liable for environmental and human rights harms caused by their subsidiaries continues to move away from the fundamental precept of limited liability embodied in corporate law statutes, and intergenerational fairness is being embraced by policymakers. Consider, for example, the duty of trustees to mediate between current pension beneficiaries and current (and future) employees in defined-benefit pension plans.
There seems little doubt that courts (and regulators) will continue to use the rubric of reasonable expectations as a basis for deterring and penalizing actions by powerful private actors that tend to undermine the integrity of the legal regimes and social institutions on which these actors rely, or that fail to consider the interests of those who are significantly affected by their decisions. This trend reflects a movement away from rules that merely encourage rationality toward rules that encourage reasonableness. It also reflects an understanding that, although the market system has achieved tremendous successes and continues to have enormous potential to serve the common good, this potential can be achieved only if the corporate/financial sectors are guided by a sense of social purpose.
Private actors have a choice. They can be proactive and collaborative by acting in a "reasonable" manner that embraces (and is more explicit about) the social utility of private enterprise and financial services. Or they can resist this dynamic and face an unsustainable status quo, an approach that may seem "rational" in the short run (to the extent that it avoids the costs associated with the initial steps necessary for change), but that will prove both unreasonable and irrational, leading to higher compliance and forgone opportunity costs, diminished public trust, a less effective market system and potentially far more severe systemic consequences in the long run.
Edward J. Waitzer is a partner in Stikeman Elliott LLP in Toronto. His practice focuses on complex business transactions, acquisitions and restructurings, as well as public policy and governance matters.