What is the test for a municipality to enforce a construction by-law?

In City of Kamloops v. Nielsen et al (1984) 1984 CanLII 21 (SCC), 10 D.L.R. (4th) 641 (S.C.C.), the test in Anns was adopted in a decision dealing with the duty owed by a municipality to third parties who were subsequent owners of a property that had been inspected by the municipality: The by-law prohibited construction without a building permit, provided for a scheme of inspections at various stages of construction, prohibited occupancy without an occupancy permit and, perhaps most important, imposed on the building inspector the duty to enforce its provisions. It should be noted, however, that the by-law also imposed a duty on the owner of the building or his agent to give notice to the building inspector when the building reached the various stages at which inspection was called for under the by-law. It seems to me that, applying the principle in Anns, it is fair to say that the City of Kamloops had a statutory power to regulate construction by by-law. It did not have to do so. It was in its discretion whether to do so or not. It was, in other words, a "policy" decision. However, not only did it make the policy decision in favour of regulating construction by by-law, it also imposed on the city's building inspector a duty to enforce the provisions of the by-law. This would be Lord Wilberforce's "operational" duty. Is the city not then in the position where in discharging its operational duty it must take care not to injure persons such as the plaintiff whose relationship to the city was sufficiently close that the city ought reasonably to have had him in contemplation? (per Wilson J. at p.664)

In City of Vernon v. Manolakos (1989) 41 B.C.L.R. (2d) 375 (S.C.C.), the court dealt with the liability of the City to both the owner and to neighbours and concluded that a duty of care was owed to both. As to the owners, the majority held that the failure of the owners and the contractors to give timely notice for on-site inspection while constituting contributory negligence did not complete absolve the City from liability. As to the neighbours of subsequent purchasers, all justices held that it was clearly not unreasonable for them to rely upon the City to ensure that the construction would not threaten their safety. Speaking on behalf of the majority, La Forest J. described the scope of the duty owed by the City as follows: It must be borne in mind that a municipality, once it has made the policy decision to inspect construction, is not bound to discover every latent defect in a given project, nor every derogation from applicable standards. Rather a municipality is only called upon to show reasonable care in the exercise of its powers of inspection. Accordingly, a municipality, whether the duty of care is owed to an owner builder or a third party, will only incur liability for such defects as it could reasonably be expected to have detected and to have ordered remedied. This is implicit in the decision of this Court in Kamloops v. Nielsen. (at p. 382)