Court File No.: 602/07

Date: 20090227

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

Re: TORONTO HYDRO CORPORATION, Appellant

And: WAYNE SCHMIDT also known as WAIN N. SCHMIDT also known as NORMAN SCHMIDT, Respondent

Before: Karakatsanis J.

Counsel: R. Finkel for the Appellant

No one appearing, for the Respondent

Heard at Toronto: February 23, 2009

ENDORSEMENT

[1] The appellant, Toronto Hydro Corporation, appeals from the Judgment of Deputy Judge M.O. Mungovan, of the Toronto Small Claims Court, dismissing the appellant’s claim and finding that the respondent, Wayne Schmidt, was not liable for accumulated arrears owing for electricity supplied to a house owned by him known municipally as 3698 St. Clair Avenue East, Scarborough, Ontario (the property).

[2] On the first hearing date of this appeal, Wilson J. was not satisfied that the respondent had notice of the appeal and requested that he be personally served, subject to further submissions if problems with personal service arose. The appellant has filed affidavits establishing that the respondent lives at the address at which service was attempted and suggesting that he was evading personal service. I am satisfied that the respondent was properly served by first class mail to that address. In these circumstances, I was satisfied that the respondent had notice of these proceedings and this court date and I validated service. As the respondent did not attend by 12 noon, I proceeded in his absence.

[3] Toronto Hydro sought payment for unpaid accounts for electricity supplied to the property owned by Mr. Schmidt. The trial judge found that Mr. Schmidt set up the account with Toronto Hydro for the supply of electricity to the property. He also found that Mr. Schmidt did not live at the property or use any of the electricity, but rather that it was used by unauthorized tenants.

[4] The trial judge dismissed the action, finding:

(a) that the contract did not contain the implied term that Mr. Schmidt pay for electricity supplied to his property as set out in Toronto Hydro’s Conditions of Service; and

(b) that Toronto Hydro failed to mitigate its loss by continuing to supply electricity after accounts were unpaid.

[5] The appellant submits that the trial judge erred in law in failing to find that the implied terms of the contract required the respondent to pay for the electricity supplied and used at the address; and in finding that Toronto Hydro failed to mitigate its loss.

[6] The standard of review for findings of fact is that such findings are not to be reversed unless it can be established that the trial judge made a “palpable and overriding error.” The standard for review applicable to questions of law is that of correctness. The standard of review for mixed questions of fact and law is more stringent that the standard of review for errors of fact. See Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235 at p. 248.

[7] At trial, it was undisputed that Toronto Hydro was engaged to supply electricity service to the property; the service account was in the name of Mr. Schmidt; the first account addressed to Mr. Schmidt was dated July 31, 2002; the last account addressed to Mr. Schmidt was dated June 23, 2003; the accounts were sent to the property; no payments were made by Mr. Schmidt between July 31, 2002 and June 23, 2003; and the total arrears owing to Toronto Hydro on the account is $6,688.26.

[8] Despite Mr. Schmidt’s claim that he did not order electrical service, the trial judge found as a fact, on a balance of probabilities, that Mr. Schmidt set up his account with Toronto Hydro. However, he also found that it was not an implied term of the contract between them that Mr. Schmidt was obligated to pay for electricity supplied. He held that the Conditions of Service were not implied terms in the contract between Mr. Schmidt and Toronto Hydro, on two grounds:

(a) that they were not specifically provided to Mr. Schmidt or brought to his attention; and

(b) that they could not be implied terms in the contract because Toronto Hydro was able to unilaterally change them.

[9] I conclude that once the trial judge found that Mr. Schmidt had set up an account with Toronto Hydro to provide electricity to his property, the trial judge erred in law and was not correct in finding there was no implied contractual obligation that Mr. Schmidt pay for the electricity provided to his property. The statutory and regulatory framework for the licencing and provision of electricity in Ontario results in the incorporation of the Conditions of Service to all contracts for the supply and distribution of electricity in the absence of a written contract to the contrary.

[10] The provision of electricity is governed by the provisions of the Electricity Act, 1998 and the Distribution System Code which is enacted by the Ontario Energy Board (O.E.B.), pursuant to its broad powers to regulate all aspects of the business of a distributor of electricity. The Distribution System Code has the same force as a statute. See Ontario Energy Board Act, S.O. 1998 c. 15; Kehl Kitchener Properties Inc. v. Kitchener-Waterloo Hydro Inc., (2004) O.J. No. 4400 (S.C.J.). In Graywood Investments Ltd. v. Toronto Hydro-Electric System Ltd (2006), 80 O.R. (3d) 492 (C.A.), para 25, the Court of Appeal recognized the Distribution System Code as a type of legislation.

[11] The Distribution System Code of the Ontario Energy Board sets the minimum conditions that a distributor, such as Toronto Hydro, must meet in carrying out its obligations to distribute electricity under its licence and the Energy Competition Act, 1998. The Distribution System Code states:

2.4.2 A distributor shall file a copy of its Conditions of Service with the Board, make its Conditions of Service publically available and provide a copy to any person requesting it.

6.1.2 A distributor has an implied contract with any customer that is connected to the distributor’s distribution system and receives distribution services from the distributor. The terms of the implied contract are embedded in the distributor’s Conditions of Service…

[12] The Conditions of Service are approved by the O.E.B. Toronto Hydro’s Conditions of Service contains the following term:

In all cases, notwithstanding the absence of a written contract, Toronto Hydro has an implied contract with any Customer that is connected to Toronto Hydro’s distribution system and receives distribution services from Toronto Hydro. The terms of the implied contract are embedded in Toronto Hydro’s Conditions of Service, the Rate Handbook, Toronto Hydro’s rate schedules, Toronto Hydro’s licence, the Distribution System Code, the Standard Supply Service Code and the Retail Settlement Code, all as amended from time to time.

Any Person(s) who take or use electricity delivered and/or supplied by Toronto Hydro shall be liable for payment for such electricity. …

In the absence of a contract for electricity with a tenant, or in the event the electricity is used by a Person(s) unknown to Toronto Hydro, then the cost for electricity consumed by such Person(s) is due and payable by the owner(s) of such property.”

[13] With respect to the trial judge’s reference to Toronto Hydro’s failure to bring the Conditions of Service to Mr. Schmidt’s attention, the Distribution System Code sets out Toronto Hydro’s obligations in 2.4.2. There was no evidence in this case that Mr. Schmidt asked for a copy of the Conditions of Service.

[14] As a matter of policy, it is necessary to provide a utility such as Toronto Hydro with these implied terms because the provision of electricity is considered a vital service and is heavily regulated. The Electricity Act, 1998 requires that the utility must supply electricity to any person located along its lines who requests a connection; the manner in which a utility can terminate electrical service for non-paying customers is limited, and the utility must provide advance notice of any intention to do so

[15] Even in the absence of the Conditions of Service, the contract between Mr. Schmidt and Toronto Hydro would have necessarily contained an implied term that Mr. Schmidt must pay for electricity supplied to his property, in order to give the contract “business efficacy”. A contractual term may be implied on the basis of presumed intentions of the parties where necessary to give business efficacy to the contract. The implication of the term must have a certain degree of obviousness to it. See M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd. (1999), 170 D.L.R. 577 (S.C.C.), at para. 29. Given that the agreement is to supply electricity to his property, it is difficult to conceive that the parties intended that he not pay for the electricity if he did not live there himself.

[16] I am therefore satisfied that the Deputy Judge erred in law. Having found that Mr. Schmidt set up the account with Toronto Hydro, he was required to find that the contract contained the implied term that Mr. Schmidt must pay for the electricity provided to his property.

Mitigation

[17] The trial judge also considered, in the alternative, Mr. Schmidt’s argument that Toronto Hydro should have acted sooner to cut off electricity. He found that Toronto Hydro waited too long before taking steps to collect the amount outstanding, and discounted Toronto Hydro’s damages by 90%, assessing them in the amount of $668.82.

[18] This is a question of mixed fact and law in this case. It is beyond doubt that the innocent party to a breach of contract has a duty to mitigate its losses, however the defendant alleging non-mitigation bears the onus of proving mitigation subject to the defendant being content to allow the matter to be disposed of on the trial Judge’s assessment of the plaintiff’s evidence on avoidable consequences. Asamera Oil Corp. Ltd. v. Sea Oil & General Corp., [1979] 1 S.C.R. 633 at para 25

[19] The first billing occurred July 31, 2002. A statutory provision prevented termination of service between November 2002 and April 2003. Thereafter Toronto Hydro took steps to terminate service in late April 2003, which required several months to complete given the confusion about whether there were tenants living on the property and due to statutory safeguards which designate the provision of electricity as a “vital service”.

[20] The trial judge’s finding that Toronto Hydro failed to act reasonably to mitigate the loss, was not reasonable on the record before him. Furthermore, this finding of the trial judge was made with minimal reasons. The trial judge did not appear to consider the legal reasons for the delay in cutting off service or the legal requirements once Toronto Hydro attempted to cut off service in April 2003. There was no evidence of what Toronto Hydro could have done to cut off service earlier. The actions of Toronto Hydro must be viewed in the context that electricity is a vital service and it was prohibited by statute to cut off electricity during a significant part of the period.

[21] For these reasons, the appeal is allowed, the judgment is set aside and judgment is granted to the appellant in the amount of $6,688.26 plus interest.

Costs

[22] The appellant seeks costs of $14,698.30, which include $1,844.39 of disbursements. While the issue is important to Toronto Hydro and impacts all its customers who do not have written contracts, and the legislative and regulatory scheme has some complexity, the amount in issue is modest, and costs sought are out of all proportion to the reasonable expectation of the respondent and are not fair and reasonable. I note however that the apparent efforts of the respondent to avoid service have added to the costs. Costs to the appellant are fixed in the amount of $3,000 inclusive of fees, disbursements and GST.

Karakatsanis J.

Released: February 27, 2009