Graywood Investments Ltd. v. Toronto Hydro Electric System Ltd., 2006 CanLII 16823 (ON CA)

Graywood Investments Ltd. v. Toronto Hydro-Electric System Ltd. et al. [Indexed as: Graywood Investments Ltd. v. Toronto Hydro-Electric System Ltd.]

80 O.R. (3d) 492

Court of Appeal for Ontario,

Feldman, MacPherson and Lang JJ.A.

May 24, 2006

Administrative law -- Judicial review -- Standard of review -- Reasonableness -- Ontario Energy Board finding that parties entered into implied agreement for electricity connection before November 1, 2000 so that Toronto Hydro was not required to comply with requirements of Chapter 3 of Distribution System Code -- Standard of review of Board's decision being reasonableness -- Divisional Court applying proper standard but erring in finding that Board's decision was unreasonable -- Decision only being unreasonable if there is no line of analysis that could reasonably lead to conclusion arrived at by tribunal -- Board considering industry practice and relationship between parties concerning project in question -- Board's decision being reasonable.

In 1999, G Ltd. engaged Toronto Hydro to design the electricity distribution system for a residential subdivision which G Ltd. was developing. At that time, Toronto Hydro was the monopoly provider of electricity distribution systems in Toronto. Toronto Hydro sent the completed design to G Ltd. in early 2000. In mid-2000, the statutory regime governing electricity distribution changed to open the market to competition. The Ontario Energy Board issued a new Distribution System Code which provided for a transition from monopoly to competition-based distribution. Section 1.7 of the Code provided that Chapter 3 of the Code, Connections and Expansions, did not apply to projects that were the subject of an agreement entered into before November 1, 2000. In early November 2000, G Ltd. contacted Toronto Hydro about the connection of electricity for the project. Toronto Hydro insisted on a formal written connection agreement, which was drafted and executed in December 2000 but back-dated to November 8. Taking the position that s. 1.7 of the Code applied to the project, Toronto Hydro charged G Ltd. at the higher rates applicable under the old monopoly regime and refused to allow G Ltd. to seek a competitive bid under the new regime. G Ltd. complained to the Board. The Board dismissed the complaint and found that an implied agreement had been entered into prior to November 1, 2000. G Ltd. brought an application for judicial review of that decision. The Divisional Court was unanimous in its view that the question to be determined -- namely, whether the agreement between G Ltd. and Toronto Hydro was entered into before or after November 1, 2000 -- was a question of mixed fact and law. The three judges also agreed that the standard of review to be applied to the Board's decision was reasonableness. The majority found that the decision was unreasonable. The decision was quashed. Toronto Hydro appealed.

Held, the appeal should be allowed.

A decision will be unreasonable only if there is no line of analysis within the given reasons that could reasonably lead the tribunal from the evidence before it to the conclusion at which it arrived. The Board's finding that there was an implied agreement between the parties prior to November 1, 2000 was reasonable. The Ontario Energy Board is a specialized and expert tribunal dealing with a complicated and multi-faceted industry. Its decisions are, therefore, entitled to substantial deference. The legislation in issue was legislation that the Board [page493] itself drafted. This raised the deference bar even higher. The question of mixed fact and law at the centre of the case shaded substantially onto the fact side of the spectrum. On the record in this case, it was impossible to conclude that there was no line of analysis to support the decision. The Board identified several factors in support of its conclusion that an implied agreement had been entered into prior to November 1, 2000. It reviewed industry practice, which was not always grounded in formal contracts or agreements. It also considered the relationship between the parties concerning the project in question. It was clear that the Board was of the view that the history of the parties' relationship on the project, including the completed design assignment, industry practice generally, and fairness considerations, resulted in an implied agreement that the installation component of the project would be performed by Toronto Hydro under the pre- November 1, 2000 statutory regime. This was not the only interpretation and result open to the Board, but it was eminently reasonable.

APPEAL from the judgment of the Superior Court of Justice Divisional Court [Lane and Molloy JJ., Pitt J. dissenting], 2005 ONSCDC 2763, [2005] O.J. No. 345, 194 O.A.C. 241 (Div. Ct.), allowing an application for judicial review of a decision of the Ontario Energy Board.

Cases referred to Dr. Q. v. College of Physicians and Surgeons of British Columbia, [2003] 1 S.C.R. 226, [2003] S.C.J. No. 18, 223 D.L.R. (4th) 599, 302 N.R. 34, [2003] 5 W.W.R. 1, 2003 SCC 19, 11 B.C.L.R. (4th) 1; Law Society of New Brunswick v. Ryan, [2003] 1 S.C.R. 247, [2003] S.C.J. No. 17, 257 N.B.R. (2d) 207, 223 D.L.R. (4th) 577, 302 N.R. 1, 674 A.P.R. 207, 2003 SCC 20, 31 C.P.C. (5th) 1, apld Other cases referred to Donnini v. Ontario (Securities Commission) (2005), 2005 ONCA 1622, 76 O.R. (3d) 43, [2005] O.J. No. 240, 194 O.A.C. 29, 250 D.L.R. (4th) 195, 1 B.L.R.(4th) 101 (C.A.); Pushpanathan v. Canada (Minister of Citizenship and Immigration), 1998 SCC 778, [1998] 1 S.C.R. 1222, [1998] S.C.J. No. 77, [1998] 1 S.C.R. 982, [1998] S.C.J. No. 46, 160 D.L.R. (4th) 193, 226 N.R. 201 Statutes referred to Ontario Energy Board, Distribution System Code, s. 1.7, Chapter 3

Frank J.C. Newbould, Q.C. and Benjamin T. Glustein, for appellant. Robert J. Howe and David S. Cherepacha, for respondents. M. Philip Tunley, for Ontario Energy Board.

The judgment of the court was delivered by

MACPHERSON J.A.: --

A. Introduction

1In 2000, a dispute arose between Graywood Investments Limited ("Graywood") and Toronto Hydro-Electric System Limited ("Toronto Hydro") concerning whether the parties had agreed that Toronto Hydro would install an electricity distribution system in a [page494] Graywood building project and, if so, at what price. Graywood made a complaint to the Ontario Energy Board (the "OEB"), which rendered a decision in favour of Toronto Hydro.

2Graywood made an application for judicial review to the Divisional Court. The three judges who heard the application agreed that the standard of review for the OEB decision was reasonableness. However, the panel [was] divided in its assessment of whether the OEB decision was reasonable. Molloy J., with Lane J. concurring, held that the decision was unreasonable; Pitt J., dissenting, concluded that it was "eminently reasonable".

3The sole issue on this appeal is whether the Divisional Court erred in quashing the OEB decision.

B. Facts

(1) The parties and the events

4In 1999, Graywood commenced development of a residential subdivision in Scarborough (the "Scarborough project"). At that time, Toronto Hydro was the monopoly provider of electricity distribution systems in Toronto. In November 1999, Graywood engaged Toronto Hydro to design the distribution system. Graywood paid a "design deposit fee" of $63,140 in advance. On June 27, 2000, Toronto Hydro sent its completed design to Graywood. At that time, both parties would have expected Toronto Hydro, as the monopoly provider, to install the system as well.

5However, in mid-2000 the statutory regime governing electricity distribution changed to open the market to competition. On July 14, 2000, the OEB issued a new Distribution System Code (the "Code") which provided for a transition from monopoly to competition-based distribution. The Code stipulated new and lower rates for the installation of distribution systems.

6As a result of an OEB decision on September 29, 2000, the OEB amended the Code by adding a transitional provision respecting its coming into force:

1.7 Coming into Force

This Code comes into force on the day subsection 26(1) of the Electricity Act comes into force with the following exception.

All of Chapter 3, Connections and Expansions and Subsection 6.2.3. of Section 6.2, Responsibilities to Generators come into force on September 29, 2000. These provisions do not apply to projects that are the subject of an agreement entered into before November 1, 2000.

7In early November 2000, Graywood contacted Toronto Hydro about the connection of electricity for the Scarborough project. Toronto Hydro insisted on a formal written connection [page495] agreement, which was drafted and executed in December 2000, but was back-dated to November 8. Taking the position that s. 1.7 of the Code applied to the project, Toronto Hydro charged Graywood at the higher rates applicable under the old monopoly regime and refused to allow Graywood to seek a competitive bid under the new regime. Graywood protested but paid the higher fee and allowed Toronto Hydro to install the distribution system, while reserving its right to pursue a legal remedy.

8Graywood complained about the position taken by Toronto Hydro by letter to the OEB and requested a hearing on the issue of whether it had an agreement with Toronto Hydro before November 1, 2000 for electricity connection in its subdivision. The OEB declined to hold a hearing but decided to conduct an investigation. Graywood provided the OEB with a good deal of information about its relationship with Toronto Hydro relating to the Scarborough project.

9The OEB issued its decision in a letter dated July 25, 2001. It dismissed Graywood's complaint and found that an implied agreement had been entered into prior to November 1, 2000, thus making the project subject to the higher rates in the former statutory regime. The essence of the OEB decision is contained in these paragraphs:

Based on the information provided, the Board finds that an implied agreement had been entered into prior to November 1, 2000.

The Board finds that in past industry practice, there was often no formal offer to connect and associated written connection agreement between parties on a specific project. The evidence demonstrates that Graywood had agreed to Toronto Hydro undertaking preliminary design work with respect to the Project. The evidence further demonstrates that Toronto Hydro had been included in the Project for approximately a year prior to November 1, 2000 and that Graywood was committed to the Project proceeding as municipal servicing had commenced prior to October of 2000.

Further, the Board finds that no unfairness has resulted as clearly the Graywood Project was costed based on past industry practice.

The Board finds that Toronto Hydro is not required to comply with the requirements of Chapter 3 of the Code for this Project. Therefore the Board finds that Toronto Hydro is not in breach of its licence and the Board will not issue a notice of its intention to issue a compliance order under subsection 75(2) of the Act.

(2) The judicial review proceedings

10Graywood sought judicial review of the OEB decision. The Divisional Court was unanimous in its view that the question determined by the OEB -- namely, whether the agreement between Graywood and Toronto Hydro was entered into before or [page496] after November 1, 2000 in the context of s. 1.7 of the Code -- was a question of mixed fact and law. The three judges also agreed, after applying the factors in Pushpanathan v. Canada (Minister of Citizenship and Immigration), 1998 SCC 778, [1998] 1 S.C.R. 982, [1998] S.C.J. No. 46, that the standard of review to be applied to the OEB decision was reasonableness.

11The judges of the Divisional Court parted company in their application of the reasonableness standard to the OEB decision. Molloy J., with Lane J. concurring, held that the decision was unreasonable; Pitt J., dissenting, characterized the decision as "eminently reasonable".

12In the result, the Divisional Court quashed the OEB decision and remitted the matter to the OEB for further consideration on the basis that the new Code provisions applied to the parties' relationship.

13Toronto Hydro obtained leave to appeal the Divisional Court's decision to this court.

C. Issue

14The sole issue on the appeal is whether the majority of the Divisional Court erred in holding that it was unreasonable for the OEB to conclude that Toronto Hydro and Graywood had an agreement for electricity connection prior to November 1, 2000, and that the former statutory regime therefore applied to the Toronto Hydro-Graywood relationship.

D. Analysis

(1) The reasonableness standard and its implications for a reviewing court

15The three judges of the Divisional Court held, correctly, that the OEB decision in this case was subject to judicial review on a reasonableness standard. In my view, it is crucial that a reviewing court clearly appreciate both the content and the implications of the reasonableness standard of review.

16The content of the reasonableness standard is clearly set out in two important Supreme Court of Canada decisions: Law Society of New Brunswick v. Ryan, 2003 SCC 20, [2003] 1 S.C.R. 247, [2003] S.C.J. No. 17, and Dr. Q. v. College of Physicians and Surgeons of British Columbia, 2003 SCC 19, [2003] 1 S.C.R. 226, [2003] S.C.J. No. 18. In both cases, the court elaborated on the application of the reasonableness standard to decisions of administrative tribunals. In both cases, the court overturned the decision of the reviewing court and restored the decision of the tribunal. [page497]

17Crucially, in Ryan the court provided an analysis covering both the context within which judicial review on a reasonableness standard takes place and the precise legal question a reviewing court must ask.

18The context within which judicial review on a reasonableness standard takes place can be summarized in a single word -- deference. As expressed by Iacobucci J. in Ryan at paras. 46 and 51:

Judicial review of administrative action on a standard of reasonableness involves deferential self-discipline. A court will often be forced to accept that a decision is reasonable even if it is unlikely that the court would have reasoned or decided as the tribunal did . . . . . . . .

[C]ourts testing for unreasonableness must avoid asking the question of whether the decision is correct. Unlike a review for correctness, there will often be no single right answer to the questions that are under review against the standard of reasonableness. For example, when a decision must be taken according to a set of objectives that exist in tension with each other, there may be no particular trade-off that is superior to all others. Even if there could be, notionally, a single best answer, it is not the court's role to seek this out when deciding if the decision was unreasonable.

19The precise legal question a reviewing court must ask when applying the reasonableness standard was formulated by Iacobucci J. at para. 47:

The content of a standard of review is essentially the question that a court must ask when reviewing an administrative decision. The standard of reasonableness basically involves asking "After a somewhat probing examination, can the reasons given, when taken as a whole, support the decision?" This is the question that must be asked every time . . . reasonableness [is] the standard.

20Iacobucci J. continued, at para. 55, by setting out, in relatively stark language, the implications for a reviewing court of trying to answer this question:

A decision will be unreasonable only if there is no line of analysis within the given reasons that could reasonably lead the tribunal from the evidence before it to the conclusion at which it arrived. If any of the reasons that are sufficient to support the conclusion are tenable in the sense that they can stand up to a somewhat probing examination, then the decision will not be unreasonable and a reviewing court must not interfere . . . .

See also: Donnini v. Ontario (Securities Commission) (2005), 2005 ONCA 1622, 76 O.R. (3d) 43, [2005] O.J. No. 240 (C.A.).

(2) Application

21In her majority reasons, Molloy J. stated that "[t]he central and dispositive finding made by the OEB was that an [page498] 'implied agreement had been entered into prior to November 1, 2000.'" She was of the view that this finding was inconsistent with the formal contract the parties entered into after November 1, 2000. Molloy J. reasoned [at para. 43]:

The parties here chose to date their contract November 8, 2000. This was not inadvertent. Toronto Hydro drafted the contract in December 2000. It was deliberately back-dated to November 8, 2000 to reflect the point at which Toronto Hydro was first contacted by Graywood with respect to the installation of the distribution system. In the face of that evidence, it is simply not reasonable to find that the agreement arose by implication earlier than November 1, 2000.

22Pitt J. did not accept this analysis. He reviewed the history of the relationship between the parties, including the executed design agreement, the extensive discussions about installation of the system and the parties' expectations, and concluded that the OEB's finding that there was an implied agreement between the parties prior to the "cut-off date" of November 1, 2000 was reasonable.

23With respect, I think that Pitt J's analysis and conclusion are more faithful to the analytical framework set out in Ryan, Dr. Q. and Donnini. I say this for four reasons.

24First, the OEB is a specialized and expert tribunal dealing with a complicated and multi-faceted industry. Its decisions are, therefore, entitled to substantial deference. Interestingly, on this point Molloy J.'s analysis is clear and compelling [at para. 33]:

While the expertise brought to bear by the OEB in the case at bar is somewhat different from the situation before the Court in the Consumer's Gas case, it is no less complex or specialized. The Board was required to balance the interests of the consumer with those of electricity distributors, suppliers and contractors, all within the context of a market that was moving from a monopolistic structure to one with some aspects of competition, but still with supervision and controls. The OEB's expertise includes not just the provision of electricity but many other aspects of construction, engineering and subdivision planning and control. The specialized nature of the OEB's expertise demands a relatively high degree of deference to its decisions.

25Second, the legislation in issue in this case, including the transitional provision found in s. 1.7 of the Code, is legislation that the OEB itself drafted. In other words, this is not even a case where a tribunal is called upon to interpret a statute enacted by a legislature; rather, the tribunal is required to interpret statutory language that it drafted. Thus, the law-intensive component of the analysis on a question of mixed fact and law is one particularly well-suited to the tribunal. In my view, this raises the deference bar even higher.

26Third, the question of mixed fact and law at the centre of [page499] the case shades substantially onto the fact side of the spectrum. On this point, I agree with Pitt J.'s description [at para. 63]:

[T]he question whether the project was subject to an agreement entered into before November 1, 2000 within the meaning of s. 1.7 of the Code is more appropriately viewed as a question of mixed fact and law . . . The "law" component of that issue is the interpretation of the provisions of the Code, as they relate to the proper management of a major transition from monopoly to competition under the OEB Act, rather than general contractual principles. The determination is "fact-intensive", and involves an assessment of specialized facts and relationships, which are at the core of the OEB's exclusive jurisdiction. See Law Society of New Brunswick v. Ryan, 2003 SCC 20, [2003] 1 S.C.R. 247, at para. 41; Dr. Q. v. College of Physicians and Surgeons of B.C., 2003 SCC 19, [2003] 1 S.C.R. 226 at p. 240.

27Fourth, on the record in this case, including the OEB's written reasons for decision, I think it is impossible to conclude, per the instruction in Ryan, that there is "no line of analysis" to support the decision. The OEB identified several factors in support of its conclusion that "an implied agreement had been entered into prior to November 1, 2000". It reviewed industry practice, which was not always grounded in formal contracts or agreements. The OEB also considered the relationship between the parties concerning the Scarborough project. Toronto Hydro was retained to perform the design work on the project and successfully completed it. Moreover, Toronto Hydro's role in the project had continued for about one year before the November 1, 2000 cut-off date. In addition, the OEB specifically considered Graywood's position. It noted that Graywood was committed to the project before the cut-off date and had costed the project on the basis of installation prices under the old statutory regime; this led the OEB to declare that its proposed decision would not be unfair to Graywood.

28Combining these points, I think it is clear that the OEB was of the view that the history of the parties' relationship on this project, including the completed design assignment, industry practice generally, and fairness considerations, resulted in an implied agreement that the installation component of the project would be performed by Toronto Hydro under the pre-November 1, 2000 statutory regime. This was not the only interpretation and result open to the OEB. However, within the parameters of Ryan, Dr. Q. and Donnini, the OEB's interpretation and disposition were, as Pitt J. concluded, "eminently reasonable".

E. Disposition

29I would allow the appeal, set aside the order of the Divisional Court, and reinstate the decision of the OEB. [page500]

30Toronto Hydro is entitled to its costs of the appeal and the motion for leave to appeal which I would fix at $20,000 inclusive of disbursements and GST. The OEB does not seek an order for costs.