COURT FILE NO.: 724/02

DATE: 20050203

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

LANE, PITT and MOLLOY JJ.

B E T W E E N:

GRAYWOOD INVESTMENTS LIMITED

Robert J. Howe and David S. Cherepacha, for the Applicant

Applicant

• and -

ONTARIO ENERGY BOARD and TORONTO HYDRO-ELECTRIC SYSTEM LIMITED

F.J.C. Newbould, for the Respondent Toronto Hydro-Electric System Limited

M. Philip Tunley, for the Respondent Ontario Energy Board

Respondents

HEARD: November 15, 2004

REASONS FOR JUDGMENT

MOLLOY J.:

A. INTRODUCTION

[1] Graywood Investments Limited (“Graywood”) seeks to judicially review, or alternatively, appeal from a decision of the Ontario Energy Board (the “OEB” or “the Board”) dated July 25, 2001, in which the OEB dismissed Graywood’s complaint that the Toronto Hydro-Electric System Limited (“Toronto Hydro”) had failed to comply with certain provisions of its licence and the Ontario Energy Board Act, 1999 (“the Act”). In particular, Graywood argued before the OEB that the subdivision project it was developing was governed by new rules which came into force on September 29, 2000 and that it was entitled to hire a contractor at competitive rates to install the electrical distribution system for the subdivision. Toronto Hydro took the position that the old monopolistic regime applied and that Graywood was obliged to retain Toronto Hydro at the rates applicable under the old system. The OEB dismissed Graywood’s complaint based on its finding that Graywood and Toronto Hydro had entered into an agreement before November 1, 2000 such that an exception applied and the subdivision project did not fall within the new regime.

B. BACKGROUND FACTS

[2] Graywood is a real estate developer. In 1999, Graywood commenced development of a residential subdivision in north Scarborough. At that time, Toronto Hydro enjoyed a monopoly on the provision of new electrical supply facilities to developers in that geographic area. Accordingly, on November 1, 1999 Graywood consulted Toronto Hydro about the underground electrical distribution system for the subdivision.

[3] Toronto Hydro replied by letter dated November 9, 1999 that it would proceed with the “design” of the electrical distribution system upon payment of a “deposit fee” of $110.00 per lot, which fee would later be “credited against the overall electrical charges which will be detailed in the project invoice”. Graywood paid the requested design fee of $63,140.00 on December 23, 1999. Both parties obviously anticipated that Toronto Hydro would eventually be doing the installation work as at that time Toronto Hydro enjoyed a monopoly position in the market.

[4] Toronto Hydro completed the design work and sent its design drawings to Graywood’s engineers on June 27, 2000. At this point, Graywood was under no contractual obligation with Toronto Hydro to proceed any further.

[5] It is clear that by the fall of 2000 Graywood was committed to proceeding with the development of this subdivision. In September, October and November 2000 sewers, water mains and roads were being constructed. In November 2000 Graywood contacted Toronto Hydro with respect to the installation of the electrical distribution system it had designed. Toronto Hydro refused to install the electrical system without a written contract.

[6] By November 2000 a new regime had come into force with respect to the provision of certain electrical services, which regime was designed to end the monopoly electrical providers had previously enjoyed. Graywood took the position that the new regime applied to its subdivision and that Toronto Hydro should comply with the new scheme by making an offer to connect which Graywood could then consider and possibly exercise its option to obtain alternative bids from other electrical suppliers. Toronto Hydro disagreed, taking the position that the new regime did not apply to this subdivision and refusing to provide an offer to connect under the new scheme. Toronto Hydro insisted that it would only provide installation services pursuant to its pricing structure and policies in place prior to the new regime.

[7] Ultimately, Graywood agreed to proceed with Toronto Hydro, but under protest with respect to the pricing structure. Toronto Hydro drafted a contract entitled “Agreement for the Installation of an Underground Electrical Distribution System in a Residential Subdivision” and forwarded it to Graywood in mid December 2000. Although executed by the parties in December 2000, the agreement stipulates that it is “made this 8^th day of November, 2000”. Schedule B to the agreement was a preliminary invoice for a full contract amount of $1,772,867.34. Against this, Toronto Hydro applied a credit of $63,140.00 being the “deposit” paid for the design work, such that the price to be paid by Graywood was $1,709,727.34. Toronto Hydro stipulated that the full contract price would have to be paid before it proceeded with any installation work. Graywood paid the invoice in full but stated this was without prejudice to its rights to challenge Toronto Hydro’s position before the OEB and/or the courts.

C. ENDING THE MONOPOLY: CHANGES TO THE LEGISLATIVE SCHEME

[8] On July 14, 2000, the OEB published a Distribution System Code (“the Code”) which sets out minimum conditions with which distributors of electricity must comply. A “distributor” is defined as a person who owns or operates a system for distributing electricity, which includes Toronto Hydro. The Code’s object was to end Toronto Hydro’s monopoly and open the field to competition. Different aspects of the Code came into force at different times. Chapter 3 of the Code, dealing with “Connections and Expansions” came into force on September 29, 2000 with one key exception. The Code provided in Article 1.7 that its provisions would “not apply to projects that are the subject of an agreement entered into before November 1, 2000”. That exception provision is central to the determination of the proceeding now before this Court.

[9] Article 1.7 does not specifically define what type of “agreement” would trigger the exception to the application of Chapter 3 of the Code, nor is the term “agreement” included in the general definition section of the Code. However, Chapter 3 relates to Connections and Expansions of electrical distribution systems. The general definition section of the Code refers to only one type of agreement, that being a “Connection Agreement”, which is defined as follows:

“Connection Agreement” means an agreement entered into between a distributor and a person connected to its distribution system that delineates the conditions of the connection and delivery of electricity to that connection;

[10] Under the Conditions of Service attached to its licence, Toronto Hydro is required to enter into a contract of service with any customer before it connects a building for a new or modified supply of electricity (Conditions of Service, section 2.1.7.1). Further, in the absence of a written agreement, the Conditions of Service provide that an agreement will be implied “with any Customer who is connected to Toronto Hydro’s distribution system and receives distribution services from Toronto Hydro”. The terms of such an implied agreement are stipulated to be embedded in various sources, including the Conditions of Service and the Distribution System Code (section 2.1.7.2). These provisions are mirrored in the Code. Article 2 of the Code (dealing with standards of business practice and conduct) provides;

A distributor shall ensure that it has an appropriate Connection Agreement in place with any customer prior to commencement of service. If a Connection Agreement is not entered into once service has commenced, the provision of service by the distributor shall imply acceptance of the distributor’s Conditions of Service and the terms of any applicable Connection Agreement.

[11] Article 3.2.2 of the Code provides that if an expansion of a distributor’s main distribution system is needed in order to connect a customer, the distributor is required to make an offer to the customer that must include a description of the material and labour required to build the expansion required to connect the customer, an estimate of the amount that would be charged for construction of the system by the distributor and an estimate of what the distributor will charge for the connection of the new system to its main system. The distributor is also required to inform the customer of the option of obtaining alternative bids from qualified contractors. This is the provision relied upon by Graywood, but which Toronto Hydro took the position did not apply to Graywood’s subdivision because of the exception in Article 1.7 for projects subject to an agreement entered into before November 1, 2000.

[12] Article 3.2.3 provides that, “A distributor shall be responsible for the preliminary planning, design and engineering specifications of the work required for the distribution system expansion and connection.” However, under the new regime, it does not necessarily follow that the distributor will obtain the contract to construct the distribution system expansion and connection. The consumer may elect to proceed with an approved private contractor for that portion of the work.

D. PROCEEDINGS BEFORE THE ONTARIO ENERGY BOARD

[13] Graywood wrote to the Ontario Energy Board on March 9, 2001 alleging that Toronto Hydro was in breach of its licence by failing to comply with the provisions of the Code. Toronto Hydro outlined its position in a letter dated April 4, 2001, indicating that the Code did not apply to the Graywood subdivision because of the design work undertaken by Toronto Hydro prior to November 1, 2000. Graywood requested the OEB to schedule a hearing to consider whether Toronto Hydro was in breach of its obligations.

[14] The OEB advised Graywood in May 2001 that it would be treating Graywood’s letter as a complaint and would conduct an investigation. The OEB’s letter in that regard states, in part:

While in your letter you requested a hearing to determine whether Toronto Hydro is in compliance with the Code, the Board will treat the matters raised in your letter as a complaint. Under the licensing provisions of the Ontario Energy Board Act, 1998, parties do not have a right to obtain a hearing on matters of non-compliance. Rather, where the Board believes a licensee is in non-compliance, it may issue a notice setting out its intention to issue a non-compliance order or suspend or revoke the licence. Where parties raise issues of non-compliance, the Board has adopted the practice of referring such complaints to the Director of Licensing to investigate and make recommendations regarding further action by the Board.

[15] Graywood did not at the time object to the manner in which the OEB proposed to deal with its complaint, other than to take the position that a hearing should be held.

[16] Section 75 of the Ontario Energy Board Act, 1988, provides:

75 (1) If the Board is satisfied that a licensee is contravening or is likely to contravene any licence, the Board may order the licensee to comply with its licence.

(2) The Board shall give written notice to the licensee that it intends to make an order under subsection (1).

(3) Notice under subsection (2) shall set out the reasons for the proposed order and advise the licensee that, within 15 days after the day that notice was given, the licensee may request the Board to hold a hearing.

(4) If no request for hearing is made within the time permitted by subsection (3), the Board may make an order.

(Emphasis added)

[17] The OEB conducted an investigation and obtained extensive written submissions and documentation from Graywood. The investigation included a consideration of all of the dealings between Graywood and Toronto Hydro from the inception of the subdivision project as well as Graywood’s own work within the project. Toronto Hydro was given the opportunity to provide further documentation or submissions, but did not do so.

[18] Following its investigation, the OEB concluded that Toronto Hydro was not in breach of its licence and was not required to comply with the requirements of Chapter 3 of the Code for the Graywood subdivision project. Essentially, the OEB concluded that there was an agreement between Graywood and Toronto Hydro prior to November 1, 2000 such that the exception provision in Article 1.7 applied. The OEB’s reasons for this determination are set out in a letter from the Board Secretary, the operative portion of which states:

Based on the information provided, the Board finds that an implied agreement had been reached 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 indicates 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.

E. PROCEDURAL FAIRNESS

[19] Graywood raises two issues of procedural fairness. First, it argues that the OEB breached its duty of fairness in failing to conduct a hearing before making its findings. Second, Graywood objects to the Board taking into account evidence of past industry practice without giving Graywood notice of its intent to do so and an opportunity to respond to it.

[20] With respect to the first point, Graywood requested the OEB to hold a hearing and the OEB refused, based on its conclusion that there had been no breach by Toronto Hydro. I do not agree with the applicant’s contention that the Board was required to hold a hearing before concluding there had been no breach.

[21] The language used in s. 75 of the Act is instructive. Subsections (2) and (3) provide that the Board “shall” give written notice to the licensee if it intends to make a compliance order and “shall” provide reasons for the proposed order. However, mandatory language is not used in other parts of this provision. Thus, even if the Board finds there has been non-compliance, it “may” order the licensee to comply, but is not required to do so: ss. 75(2) and (4). Given the structure of these provisions, it cannot be the case that the legislature contemplated the Board would be required to hold a hearing before deciding the licensee had complied with its licence. If the Board was required to hold a hearing with respect to every complaint of non-compliance, clearly the licensee whose rights are directly affected would have to be given notice. However, ss. 75(2) and (3) contemplate notice to the licensee only if the Board intends to make an order and, at that point, the licensee is entitled to “request” a hearing. This provision would be meaningless if the Board had already been required to hold a hearing simply by virtue of the fact that a complaint had been filed.

[22] There is no requirement that the Board hold a hearing every time a complaint is referred to it. Rather, the right to a hearing arises only where, after its initial investigation, the Board is inclined to issue a notice of non-compliance. Even then, it is the licensee rather than the complainant who is entitled to request a hearing. Apart from that, it is entirely within the discretion of the Board whether to hold a formal hearing in this type of situation. Unless that discretion is exercised improperly (which is not alleged here), this court will not interfere. The mere decision not to hold a formal hearing is not in itself a denial of procedural fairness: Baker v. Canada (Minister of Citizenship & Immigration), [1999] 2 S.C.R. 817.

[23] Likewise, I find no procedural unfairness in the OEB taking into account industry practice. The Board is a highly specialized tribunal. It has considerable knowledge and experience as to the nature of this particular industry and how it operates. The Board noted that it is not uncommon in the industry for there to be no formal written connection agreement. The Board was fully entitled to draw on its expertise in this regard. That is one of the distinct advantages of having these types of matters decided by a specialized tribunal. I also note that both the Toronto Hydro operating licence and the legislation contemplate this very situation and provide that an agreement consistent with the distributor’s conditions of licence and the legislation will be implied in the absence of a written agreement. The Board also noted that the subdivision project had been costed based on past industry practice. Again, the Board is uniquely positioned to draw such a conclusion based on its expertise. While evidence of past industry practice might be necessary before a court or in areas outside the expertise of the tribunal, no such evidence was necessary before the Board here. The matters taken into account were within the special expertise of the Board. The Board was entitled to draw on that expertise and was not required to give any notice of such to the complainant before making a decision.

[24] Accordingly, I find no breach of procedural fairness by the OEB in its handling of this matter.

F. STANDARD OF REVIEW

Is the OEB Decision an Order?

[25] Section 33(1) of the Act provides that an appeal lies to the Divisional Court from an “order of the Board”, the making of a rule under section 44 or the issuance of a code under section 70.1. Section 33(2) stipulates that the appeal may be made solely upon a question of law or jurisdiction. The first issue to be determined is whether the decision of the Board in this case is an “order” within the meaning of s. 33(1) and therefore subject to an automatic right of appeal.

[26] Sections 19 (1) and (2) provide:

19. (1) The Board has in all matters within its jurisdiction authority to hear and determine all questions of law and fact.

(2) The Board shall make any determination in a proceeding by order.

[27] The applicant also relies upon Section 21(2) of the Act, which prohibits the Board from making an “order” unless it has conducted a hearing on notice to the appropriate parties. However, this provision is stated to be “subject to any provision to the contrary in this or any other Act”.

[28] Section 75(4) of the Act is an example of a situation in which an “order” may be made without a hearing. It provides that where the Board is of the view that a licensee has failed to comply with the conditions of its licence, has given notice to the licensee of its intention to make a compliance order and has not received a request for a hearing from the licensee within the 15 day time limit, the Board “may make an order”. However, the fact that some determinations made by the Board under s. 75 are “orders” subject to the appeal right, does not mean that every decision made by the Board in the administration of that section will necessarily be an “order”. The Board performs many functions under the Act. Some are judicial, or quasi-judicial, in nature; others are more administrative. In my view, a decision by the Board that it is not appropriate to initiate the process leading up to a hearing under s. 75 is more administrative than judicial. That is not to say that important interests of other parties are not affected. Often they will be. However, in my opinion, a decision not to proceed further under s. 75 is simply a decision not to make an order. It is not itself an order, and is not subject to the appeal right set out in s. 33 of the Act.

Judicial Review

[29] The OEB supervises the terms upon which electrical power is supplied to Ontario residents. Graywood was not able to simply retain somebody other than Toronto Hydro to connect electricity to its subdivision. Graywood attempted to obtain relief from the civil courts in respect of its contract with Toronto Hydro, but its case was dismissed on the grounds that the OEB had exclusive jurisdiction to deal with the matter: Graywood Investments v. Toronto Hydro-Electric System Ltd., [2003] O.J. No. 2091 (S.C.J.), aff’d 2004 13910 (ON CA), [2004] O.J.No.193, 181 O.A.C. 265 (C.A.). Whether or not Graywood was required to proceed with Toronto Hydro on its terms under the old monopoly regime, as opposed to the new regime, is a matter of considerable financial consequence for Graywood. Therefore, although the Board’s decision not to proceed against Toronto Hydro was not an “order” subject to appeal, it clearly affected the legal rights, powers and liabilities of Graywood. As such, it is a statutory power of decision and subject to judicial review by this Court.

Standard of Review

[30] The Supreme Court of Canada ruled in Pushpanathan v. Canada (Minister of Citizenship and Immigration), [1998] 1 S.C.R. 982 that a “pragmatic and functional approach” should be taken in determining the level of deference to be accorded an administrative tribunal. The reviewing court is required to evaluate each situation taking into account four factors: (1) whether there is a privative cause; (2) the expertise of the tribunal; (3) the purpose of the legislation as a whole and the particular provision in issue; and (4) the nature of the question before the tribunal: Pushpanathan, supra, at paras 28-38.

[31] There is no privative clause in the Act. There is a right of appeal, but limited to questions of law and jurisdiction. As noted by the Divisional Court in Consumer’s Gas Co. v. Ontario (Energy Board), [2001] O.J.No. 5024 (Div.Ct.) at para 3, that is a factor which places the Board “on a continuum short of patent unreasonableness”.

[32] The OEB is a highly specialized tribunal with considerable expertise. Consumer’s Gas Co. v. Ontario (Energy Board), supra, was a judicial review of an OEB decision permitting Consumers Gas to use the value of past ratepayer benefits to pay deferred taxes amounting to $50 million. The Divisional Court applied a “reasonableness” standard of review, emphasizing the importance of deference due to the Board’s high level of expertise. Carnwath J. noted, at para 2:

The standard of review is reasonableness. In applying a pragmatic and functional approach, we have considered the high level of expertise the Board brings to its mandate – the balancing of a reasonable price to the consumer with the necessity of ensuring a viable monopolistic utility that earns a reasonable return on its capital investment. The following are but some of the activities of the Board requiring expertise:

• economic forecasting

• familiarity with accounting and income tax principles

• special features and requirements of a monopolistic utility

[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.

[34] The nature of the legislation involved also supports a deferential standard of review. The subject matter is specialized and complex, involving the balancing of many different levels of public and private interests. Further, the particular provision before the Board in this case dealt with the phasing in of a new competitive regime and was squarely within the public interest mandate and expertise of the Board.

[35] The matter decided by the OEB was whether the Graywood subdivision project fell within the new competitive regime. This required the Board to decide whether the project was “subject to an agreement” with Toronto Hydro prior to November 1, 2000. This involves questions of law as to contract formation and statutory interpretation. However, it is not a pure question of law. To answer the question before it, the Board was also required to consider the dealings between the parties and make findings of fact. Accordingly, the question decided by the Board was one of mixed fact and law. As such, it is less likely to be held to the standard of correctness often applied to pure questions of law. On the other hand, although there are factual aspects to the question, they did not involve determinations of disputed questions of fact or findings of credibility.

[36] Taking all of these factors into account, I am of the view that the appropriate standard to be applied is one of reasonableness. The OEB is not required to be “correct” in its decision. It is not the court’s role, therefore, to substitute its own determination for that of the Board. Rather, the court must only interfere with the OEB’s decision if it is an unreasonable construction of the law when considered in light of the established facts.

G. ANALYSIS

[37] The OEB found there was no unfairness to Graywood in requiring it to proceed under the old monopolistic regime, such that it was obliged to have Toronto Hydro construct and install its electrical system at prices fixed by Toronto Hydro. This finding was based on the Board’s review of the construction plans and industry practice and its conclusion that Graywood had costed the subdivision based on the projected electrical prices under the old regime. This was a reasonable conclusion on the Board’s part and I would not interfere with it.

[38] However, the OEB’s decision cannot be based solely on its view of what is fair in the circumstances. There was a system in place with established rules for the transition. The OEB was required to apply those rules. If Graywood’s project was not subject to “an agreement” with Toronto Hydro prior to November 1, 2000, then Graywood was entitled to the benefit of the new regime even if that resulted in an unforeseen economic benefit to Graywood.

[39] The central and dispositive finding made by the OEB was that an “implied agreement had been entered into prior to November 1, 2000”. The Board does not set out the terms of that implied agreement, nor the operative date of the agreement. However, in the very next sentence following the finding of an implied agreement, the Board notes that in past industry practice there is often “no formal offer to connect and associated written connection agreement”. The logical inference is that the Board was of the view that even though there was no written connection agreement prior to November 1, 2000, it is often the case that projects would not have such a written agreement and the Board therefore found there was an “implied” connection agreement prior to that date.

[40] The basis for the OEB coming to that conclusion was the fact that Toronto Hydro had been involved with the project from 1999, having undertaken the preliminary design work for the electrical distribution system. Further, Graywood had committed to proceeding with the project prior to October 2000 as evidenced by the installation of municipal services. Once again, there is no issue with respect to these findings. The fact that Toronto Hydro did the design work in 1999/2000 is uncontroverted. Likewise, the OEB’s conclusion on the evidence before it that Graywood had committed to going ahead with the project prior to October 2000 was a reasonable one.

[41] If that had been the entire evidence and Toronto Hydro had proceeded with the construction and installation of the electrical distribution system in the absence of a written connection agreement, I would take no issue with the OEB’s conclusion of an “implied” connection agreement, nor with the reasonableness of the Board’s conclusion as to the timing of that implied agreement. However, that was not the entire evidence. The OEB was aware of, but did not refer to, the fact that Graywood and Toronto Hydro had an actual written connection agreement with respect to this project. The evidence is clear that Toronto Hydro was not contacted with respect to doing the installation until after November 1, 2000. Toronto Hydro then insisted on a formal written connection agreement before proceeding. The contract was drafted by Toronto Hydro and Toronto Hydro dated the contract November 8, 2000, even though it was actually drafted and signed a month or so later. The question therefore is whether the OEB’s finding of an implied connection agreement prior to November 1, 2000 is reasonable in light of the existence of an actual written connection agreement dated November 8, 2000. In my view, it is not.

[42] There are many situations in which it may be appropriate to find an implied agreement in the absence of a formal written contract. The Conditions of Service attached to Toronto Hydro’s license and the Distribution Code provide for such an agreement being implied. However, both contemplate that the agreement will be implied only once services have been connected and if there is no written agreement in place (see paragraph 10 above). This is consistent with basic contract law. A contract comes into existence only when its essential terms have been agreed upon by the parties. While such an agreement may be implied from the conduct of the parties, there must nevertheless be some indication of a meeting of the minds and an intention to be legally bound. The principle is succinctly stated by the British Columbia Court of Appeal in Arding v. Buckton (1956), 20 W.W.R. 487, 6 D.L.R. (2d) 586 (B.C.C.A) as follows (at para 12):

From the authorities it would follow that a contract may be implied only when the conduct of the parties indicates that they are proceeding on the basis of some legal relation so that the function of the court is merely to find as a fact that relation with its attendant obligations and rights which the parties have so indicated by implication but have failed to express: Falcke v. Scottish Imperial Insur. Co.,supra, [(1886) 34 Ch D 234]; McKissick, Alcorn, Magnus & Co. v. Hall, [1928] 3 W.W.R. 509; Leigh v. Dickeson (1884) 15 Q.B.D. 60, 54 LJQB 18.

(emphasis added)

[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.

[44] Chapter 3 of the Code came into force on September 29, 2000. At that time, there was no existing contract between Toronto Hydro and Graywood. Toronto Hydro had completed its contract for the design of the distribution system in June 2000. Graywood had paid for the design work in advance in December 1999. In 1999 when Toronto Hydro was retained to do the design work, it may well have been the expectation of the parties that Toronto Hydro would also be doing the installation. At the time, Toronto Hydro had a monopoly and, absent a change in the legislation, Graywood would have had no choice but to retain Toronto Hydro for the installation. However, an intention to enter into a contract, or even the shared expectation that a contract would eventually be formed, does not mean there is an agreement until those intentions coalesce into a meeting of the minds and the formation of a contract. Absent such a meeting of the minds, the contract does not arise, whether by implication or otherwise. As of September 29, 2000, the new regime was in force and it applied to all ongoing projects unless they were “subject to an agreement entered into prior to November 1, 2000”. The exception provision is not framed to exclude all projects in which preliminary design work has already been done or where the parties have had discussions about entering into a contract. The exemption is clearly stated to apply to situation in which an agreement as been “entered into”. The Board’s finding that Graywood and Toronto Hydro had by implication entered into agreement prior to November 1, 2000 is unsustainable on the evidence and is an unreasonable construction of the scope of the exemption provision.

[45] I have considered whether the OEB’s finding of an implied agreement is a reference to the agreement for the design of the distribution system, rather than the connection agreement. I do not believe the Board’s decision can reasonably be construed as referring to an implied design agreement. The design agreement had been entered into the year before, had been fully performed by Toronto Hydro and had been paid for by Graywood. If the OEB meant that the existence of the design agreement prior to November 1, 2000 triggered the exemption provision, it surely would have simply said so. There would be no need to “imply” such an agreement prior to November 1, 2000. The design agreement clearly existed prior to that time. Indeed, it had been fully performed by then. In my view, it is clear from the Board’s reasons that the agreement it implied was a connection agreement. It may well be the case that the exemption provision is capable of a broader construction than that, such that other types of agreements might also result in exempting a particular project from the new regime. However, it is not surprising that in the context of this case the Board interpreted Article 1.7 as referring to a connection agreement. It is the contract for the connection of services which Graywood sought to have to have governed by the new regime. Chapter 3 of the Code deals with connection agreements. The agreement at issue between Graywood and Toronto Hydro is a connection agreement. The central issue is whether that connection agreement is governed by the new regime. It makes perfect sense, therefore, that it is the timing of that connection agreement that governs which regime will apply.

H. CONCLUSION AND ORDER

[46] As I have already noted, the OEB is a tribunal with specialized expertise. The interpretation and application of the transition provisions in the Distribution Code falls squarely within that expertise and is entitled to deference. I have no difficulty accepting all of the factual and policy considerations noted by the Board. However, the question of when this particular contract was entered into is not really dependant upon findings of fact, or policy, or statute interpretation. The question is whether an agreement can be implied prior to the date upon which the parties actually entered into it, based on the fact that the parties had a prior contract in relation to the same project. That is more a straightforward question of law and less within the special expertise of the Board. All that existed prior to November1, 2000 was an already fully performed design agreement and the expectation prior to September 29, 2000, based on the then existing monopolistic regime, that Toronto Hydro would eventually be retained to install the system as well. In my view, the Board’s finding of an implied agreement prior to November 1, 2000 was an error of law and unreasonable. It cannot stand.

[47] The Board’s decision is quashed.

[48] The applicant also sought a declaration that its subdivision project is governed by the new Code, the issuance of a notice of intention to suspend or revoke Toronto Hydro’s licence and ancillary relief by way of an accounting. These are matters within the sole jurisdiction of the OEB. It is not appropriate for this Court to usurp the function of the tribunal by making such orders.

[49] This matter is remitted to the OEB for its further consideration, based on this Court’s finding that the connection agreement between Toronto Hydro and Graywood was entered into on November 8, 2000.

[50] If the parties cannot agree upon costs, written submissions may be forwarded to the court within 30 days.

MOLLOY J.

I agree:

LANE J.

Released: February 3, 2005

COURT FILE NO.: 724/02

DATE: : 20050203

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

B E T W E E N:

GRAYWOOD INVESTMENTS LIMITED

Applicant

• and –

ONTARIO ENERGY BOARD and TORONTO HYDRO-ELECTRIC SYSTEM LIMITED

Respondents

REASONS FOR JUDGMENT

Released: February 3, 2005