Granite Power Corporation v. Her Majesty the Queen in Right of Ontario et al.

[Indexed as: Granite Power Corp. v. Ontario]

72 O.R. (3d) 194

[2004] O.J. No. 3257

Docket No. C41084

Court of Appeal for Ontario,

Catzman, Moldaver and Goudge, JJ.A.

August 3, 2004

*Application for leave to appeal to the Supreme Court of Canada was dismissed with costs March 3, 2005 (McLachlin C.J.C., Binnie and Charron JJ.).

Negligence -- Duty of care -- Electricity utility being exclusive supplier of electricity to Town of Gananoque -- Utility alleging that government owing it duty of care to administer legislation about supply of electrical power -- Utility alleging that government owing duty to protect its rights as exclusive electrical suppler to town -- Claim in negligence struck out as not showing reasonable cause of action.

Torts -- Wrongful expropriation -- Electricity utility being exclusive supplier of electricity to Town of Gananoque -- Utility suing government for wrongful expropriation -- Elements of claim not made out -- Claim struck out as not showing reasonable cause of action.

Torts -- Misfeasance in public office -- Electricity utility being exclusive supplier of electricity to Town of Gananoque -- Utility suing government for misfeasance in public office -- Utility's claim adequately pleaded -- Claim not struck out as not showing reasonable cause of action.

Granite Power Corporation ("Granite") was a small private utility that had enjoyed a monopoly in the supply, distribution and sale of electricity to the town of Gananoque and its inhabitants since 1885. Under a 1994 agreement ("Agreement"), it had the exclusive right to supply the town and its inhabitants, and in [page195] the Agreement, the town agreed that it would not obtain or use electricity from anyone other than Granite. In 1997, the government of Ontario announced a shift in policy designed to open Ontario's electricity market to competition. In the years that followed until 2002, Granite communicated with government officials of the Minister of Energy, Science and Technology about the effect of the policy on it, but the government responses were inconclusive. During this period, Granite alleged that the government's actions promoted the notion that Granite's exclusivity under the Agreement was abrogated. Finally, in 2002, Granite was granted an exemption from the policy, which had been implemented by regulation under the Electricity Act, 1998, S.O. 1998, c. 15, Sched. A. Granite, however, alleged that when the exemption was finally granted, it was "too little, too late" and that, by acting or omitting to act as he had, the Minister and his staff had effectively destroyed Granite's business and rendered its Agreement with the town virtually worthless.

Granite sued the government for damages. The government moved under rule 21.01(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 to have Granite's claim struck out as not disclosing a reasonable cause of action. Chadwick J. found that Granite's pleading disclosed three reasonable causes of action: (a) misfeasance in a public office; (b) negligence; and (c) wrongful expropriation. On appeal, with leave, the Divisional Court agreed. Leave having been granted, the government appealed to the Court of Appeal.

Held, the appeal should be allowed in part.

The motion judge and the Divisional Court erred in allowing the claim in negligence to proceed. Having regard to the statutory scheme under which the Minister was operating and the many competing interests he was required to weigh and balance in fulfilling his duties, the Minister did not owe a duty of care to Granite. The Minister owed a duty of care to the public as a whole, of which Granite was but one constituent. Even if the Minister ought reasonably to have foreseen that Granite would suffer economic harm if he was careless in carrying out his duties under the Act, there was insufficient proximity between the Minister and Granite to ground a prima facie duty of care. Further, assuming that the Minister did owe a prima facie duty of care to Granite, his recommendation as to the nature and extent of the exemption Granite should receive constituted a policy decision sufficient to negate that duty. His recommendation amounted to a non-justiciable policy decision.

The motion judge and the Divisional Court also erred in allowing the claim for wrongful expropriation to proceed. On the facts pleaded, that cause of action was not made out. The government neither deprived Granite from doing business, nor did it appropriate Granite's business for its own or the public's use or benefit. Those factors distinguished this case from the Supreme Court of Canada's judgments in Manitoba Fisheries Ltd. v. Canada and British Columbia v. Tener. In the immediate case, the impugned legislation was not an act of expropriation by the government. The worst that could be said of it was that it created a potential economic advantage for retailers who had heretofore been unable to compete in the electricity market. It did not transfer Granite's property to the government or to retailers. Rather, it regulated the market in a way that affected the economic interests of Granite and others wishing to participate in the sale and distribution of electricity.

The motion judge and the Divisional Court were correct in concluding that the claim for misfeasance in a public office could proceed. This claim had been adequately pleaded. [page196]

APPEAL from an order of the Divisional Court (O'Driscoll, Cusinato and Howden JJ.), [2003] O.J. No. 3535 (Div. Ct.), affirming an order of Chadwick J., [2002] O.J. No. 2188 (S.C.J.), dismissing a motion pursuant to rule 21.01(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 to strike out the plaintiff's action as not disclosing a reasonable cause of action.

Cases referred to A & L Investments Ltd. v. Ontario (Minister of Housing) (1997), 1997 3115 (ON CA), 36 O.R. (3d) 127, [1997] O.J. No. 4199, 152 D.L.R. (4th) 692, 47 C.R.R. (2d) 57, 15 R.P.R. (3d) 311 (C.A.) [Leave to appeal to S.C.C. refused (1998), 50 C.R.R. (2d) 376n; 227 N.R. 281n and 282n]; British Columbia v. Tener, 1985 76 (SCC), [1985] 1 S.C.R. 533, [1985] S.C.J. No. 25, 28 B.C.L.R. (2d) 241, 17 D.L.R. (4th) 1, 59 N.R. 82, [1985] 3 W.W.R. 673, 32 L.C.R. 340, 36 R.P.R. 291; Cooper v. Hobart, [2001] 3 S.C.R. 537, [2001] S.C.J. No. 76, 2001 SCC 79, 96 B.C.L.R. (3d) 36, 206 D.L.R. (4th) 193, 277 N.R. 113, [2001] 11 W.W.R. 221, 8 C.C.L.T. (3d) 26 (sub nom. Cooper v. Registrar of Mortgage Brokers (B.C.)); Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959, [1990] S.C.J. No. 93, 49 B.C.L.R. (2d) 273, 74 D.L.R. (4th) 321, 117 N.R. 321, [1990] 6 W.W.R. 385, 4 C.C.L.T. (2d) 1, 43 C.P.C. (2d) 105 (sub nom. Hunt v. T & N plc); Manitoba Fisheries Ltd. v. Canada, 1978 22 (SCC), [1979] 1 S.C.R. 101, 88 D.L.R. (3d) 462, 23 N.R. 159, [1978] 6 W.W.R. 496 (sub nom. Manitoba Fisheries v. R.); Odhavji Estate v. Metropolitan Toronto Police Force, [2003] 3 S.C.R. 263, [2003] S.C.J. No. 74, 2003 SCC 69, 233 D.L.R. (4th) 193, 312 N.R. 305, 19 C.C.L.T. (3d) 163, 11 Admin. L.R. (4th) 45 (sub nom. Odhavji Estate v. Woodhouse) Statutes referred to Electricity Act, 1998, S.O. 1998, c. 15, Sched. A, s. 114(1) Municipal Franchises Act, R.S.O. 1990, c. M.55, ss. 2, 3 Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rule 21.01(1) (b)

Sara Blake, for appellant. K. Scott McLean, for respondent.

The judgment of the court was delivered by

[1] MOLDAVER J.A.: -- At issue in this appeal is whether Granite Power Corporation ("Granite") can continue its action for damages against Her Majesty the Queen in Right of Ontario (the "Crown"). The Crown submits that it cannot because Granite's pleading does not disclose a reasonable cause of action, and it should therefore be struck out under rule 21.01(1)(b) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.

[2] To date, two courts have disagreed with the Crown. On a motion brought by the Crown, Chadwick J. found that Granite's pleading disclosed three reasonable causes of action: (a) misfeasance in a public office, (b) negligence, and (c) wrongful expropriation. On appeal, with leave, the Divisional Court agreed. [page197]

[3] The Crown now appeals, with leave, to this court. It seeks to have the order of the Divisional Court set aside and Granite's pleading struck out.

[4] For reasons that follow, I am of the view that Granite's pleading does not disclose a reasonable cause of action in negligence or wrongful expropriation. Accordingly, I would allow the appeal to that extent and strike out the offending portions of the pleading. As for the tort of misfeasance in a public office, I am satisfied that, upon a generous reading, the pleading does support that cause of action. Accordingly, I would allow the action to continue in respect of that claim alone.

The Material Facts

[5] I do not propose to detail the facts pleaded by Granite. Suffice it to say that I agree with the Divisional Court [at para. 7] that the "statement of claim . . . is lengthy, unnecessarily repetitive and difficult to penetrate". That said, when the claim is reduced to its essentials, it is apparent that the dispute between Granite and the Crown centres around Granite's dealings with the Crown from 1997 to 2002, the time frame within which the government of the day introduced and ultimately implemented legislation designed to open Ontario's electricity market to competition.

[6] This shift in government policy was a matter of serious concern to Granite. As a small private utility that had enjoyed a monopoly in the supply, distribution and sale of electricity to the town of Gananoque and its inhabitants continuously since 1885, the proposed changes posed a significant threat to Granite's economic well-being and its ability to carry on business. Of particular concern to Granite was the impact the changes were going to have on a 20-year power supply agreement (the "Agreement") entered into by Granite and the town in 1994. [See Note 1 at the end of the document] Under that Agreement, Granite was given the exclusive right to supply, distribute and sell electricity to the town and its inhabitants until December 31, 2014. The town further agreed that it would not obtain or use electricity from anyone other than Granite and it would not permit or assist any commission, public utility or other person to supply electricity to the town or its inhabitants.

[7] Granite viewed the Agreement as its economic lifeblood. Paragraph 21 of the claim makes this clear: [page198]

21. In the fall of 1994 Granite negotiated a long term power supply agreement (the "Power Supply Agreement" or the "Agreement") with the Town, to replace an expiring 20 year agreement. Long term agreements were required by Granite to enable it to secure long term debt financing at competitive rates and to commit to necessary capital expenditures. Granite incurred significant management, legal and professional costs in completing the Agreement with the Town. Premised upon the term of the Agreement, Granite committed to infrastructure and capital costs to ensure that its facilities could meet the level of service required under the Agreement, for the term of the Agreement.

[8] In these circumstances, when the government unveiled its open market policy in 1997, Granite considered it crucial that it be informed as soon as possible whether it would be exempted from the new regime and, if so, for how long and under what terms and conditions. Without that information, Granite could not move forward with a coherent business plan.

[9] According to Granite's pleading, in the fall of 1997, Granite wrote to the Minister of Energy, Science and Technology (the "Minister") seeking "clarification . . . on the application of the new legislative regime to [Granite's] Power Supply Agreement [with the town of Gananoque] and . . . assurances that its vested proprietary right would be protected . . .". The Minister's failure to provide a definitive response to that letter resulted in further correspondence from Granite. For example, in a detailed letter dated August 20, 1998, Granite reminded the Minister of its Agreement with the town and its unique history as the town's sole supplier of electricity since 1885. It further advised the Minister that "the business decisions it was contemplating . . . were premised on the understanding, informally confirmed by Ministry officials, that the scope of the then proposed legislation was not intended to extend to private utilities and their contractual relationships." Granite also identified its "operational framework and the operational disruption represented by the proposed legislation". Once again, Granite did not receive a definitive response.

[10] In the years that followed, Granite persisted in writing to the Minister and on occasion, at Granite's urging, meetings were arranged with Ministry personnel. Despite Granite's efforts, it was not until February 2002, some four-and-a-half years after Granite's initial inquiry, that Granite finally received the government's official response.

[11] In a letter dated February 5, 2002, signed by the Minister, Granite was told that the government had "recently approved a regulation under the Electricity Act, 1998, exempting those customers who are subject to the franchise agreement . . . from the open-access provisions of the act until the agreement expires". [page199] The letter further stated that it was the "government's goal . . . that electricity customers in Gananoque . . . not be disadvantaged by the continuation of [Granite's] monopoly" and to that end"Granite Power and its subsidiaries [would] be fully regulated by the Ontario Energy Board" including "licensing, compliance with codes of conduct, and regulation of rates".

[12] The exemption took the form of a regulation made by the Lieutenant Governor in Council, on advice from the Minister, under s. 114(1) of the Electricity Act, 1998, S.O. 1998, c. 15, Sched. A. That provision reads:

114(1) The Lieutenant Governor in Council may make regulations,

(m) exempting any person or class of persons from any provision of this Act, subject to such conditions or restrictions as may be prescribed by the regulations[.]

Had the exemption not been granted, other provisions of the Electricity Act, 1998 would have come into play and Granite would have lost the monopoly it enjoyed under its Agreement with the town.

[13] According to the claim, while awaiting the government's final response, Granite did not know where it stood. This was due, in part, to the mixed messages it kept receiving from the Minister and his staff. For example, on July 24, 2000, Granite received a letter from the Minister stating that Granite "would be provided with an initial exemption from the open access provisions of the Electricity Act, 1998". The letter further stated that the government expected private utilities to comply with the regulatory requirements of the Electricity Act, 1998 and that once the details had been negotiated"the government [would] insure that necessary exemptions to deal with outstanding matters, including the protection of the existing customer base captured in the franchise agreement, are put in place." At the same time, however, to the knowledge of the Minister, the Ontario Energy Board was issuing licences to retail applicants which enabled the applicants "to sign up Granite customers to long term contracts for the sale of electricity". Because of this"Granite was required to write to all licensees asserting its interest in the Agreement and . . . it was required to publish and/or issue a notice to its customers."

[14] Granite further alleges that during the same time frame, the Ministry "promoted widespread media advertising throughout Ontario touting the prospective introduction of non- discriminatory access" and that "these advertisements were received in [page200] the town of Gananoque and seen or heard by Granite customers." According to Granite, a combination of the advertisements and the granting of unrestricted retail licences acted "to promote the notion that the exclusivity under [the Agreement] was abrogated".

[15] Accordingly, in February 2000, Granite wrote two letters to the Minister protesting against the advertisements and the issuance of retail licences and alerting the Minister to the harm these activities were causing. Granite's request for intervention was ignored. The Ministry did not acknowledge the letters and the situation continued unabated. Granite also asserts that in 1998, because of the Minister's failure or refusal to let Granite know where it stood, the town was "encouraged to challenge" Granite's Agreement and "encouraged to believe that its terms, and the benefits to Granite, would be abrogated". Indeed, according to the claim, on several occasions in 1998, when the Minister met with town representatives, he was urged by them to open up the Gananoque market to competition and reduce Granite's Agreement from 17 years to two years.

[16] In sum, Granite alleges that when the exemption was finally granted in 2002, it was "too little, too late". In the interim, by acting or omitting to act as he did, the Minister and his staff effectively destroyed Granite's business and rendered its Agreement with the town virtually worthless.

[17] Against that backdrop, I turn to the various causes of action pleaded by Granite.

Negligence

[18] Although difficult to pinpoint, I believe that the essence of Granite's claim in negligence is found in paras. 58 to 61. Those paragraphs read as follows:

58. Granite says that under the Electricity Act, 1998 and the Ontario Energy Board Act, 1998, there was determined a sufficiently close relationship between Granite and the Minister and/or his offices and staff such that it was in the reasonable contemplation of the Minister and/or his staff that carelessness on his or their part might injure and cause damage to Granite. Granite says that the Minister and/or his offices and staff owed a duty to Granite not to act carelessly in the implementation and administration of the legislation as it affected Granite, and that this duty was breached. Granite has been and continues to be injured thereby. Granite says that there was a web of relationships developed that the Minister and/or his offices and staff could not ignore, and that the web of relationships imposed on the Minister a duty of care.

59. Granite says that the exemption powers were conferred for a public purpose, and that the Minister and/or his offices and staff had a duty to consider whether or not to exercise all of the powers available. Granite says that [page201] the Minister did not properly and in a timely fashion consider the question whether to exempt Granite from the provisions of the Acts, nor did the Minister give proper and timely consideration as to how to administer and implement the Acts without causing harm or loss, which harm or loss to Granite and the ongoing viability of the Granite's business was reasonably foreseeable.

60. In the operational functions exercised by the Minister and/or his offices or staff a duty of care was owed to Granite to act reasonably in the circumstances. Granite says that this duty was breached.

61. Granite says that the Minister and/or his offices or staff owed a positive duty to Granite to administer and implement the Acts in such a manner as to protect all pre- existing contractual and proprietary rights vested in Granite. This duty included a positive duty to act so as to ensure that such rights were protected, and it arose from the day that Bill 35 was introduced. Granite says that the Minister and/or his staff breached this duty and that as a result of that breach Granite has been and continues to be injured thereby.

[19] The Crown submits that Granite's claim in negligence must fail because the Minister did not owe a duty of care to Granite. Alternatively, the Crown contends that, even if such a duty existed, the Minister's recommendation that Granite only receive a partial exemption amounted to a non-justiciable policy decision.

[20] On the motion by the Crown to strike out Granite's pleading, the motion judge did not specifically address either of those arguments. Rather, in his opinion, the allegations which supported the tort of misfeasance in a public office -- the Minister legally exercised his power for improper purposes and knew that his conduct would cause damage to Granite -- were likewise sufficient to support a claim in negligence.

[21] On appeal, the Divisional Court addressed only the second of the two arguments. Citing Cooper v. Hobart, 2001 SCC 79, [2001] 3 S.C.R. 537, [2001] S.C.J. No. 76 for the proposition that "government action may attract liability in negligence for the manner in which the policy is executed or carried out", the court held [at para. 12] that "[t]he divide between policy and operational actions in pursuance of the policy is not as yet clear enough in this case to warrant striking the claim".

[22] With respect, I believe that the motion judge and the Divisional Court erred in allowing the claim in negligence to proceed.

[23] To begin, I agree with the Crown's submission that, in the context of this case, having regard to the statutory scheme under which the Minister was operating and the many competing interests he was required to weigh and balance in fulfilling his duties, the Minister did not owe a duty of care to Granite. While Granite was clearly a stakeholder, it was one of many to be considered by the Minister in determining the reach of the new legislation. As a [page202] small private utility, it was decidedly vulnerable to the proposed changes and justifiably concerned with the nature, extent and timing of their implementation. In the circumstances, Granite's efforts to have the Minister protect its interests by recommending that it be fully exempted from the open-market regime are clearly understandable. In my view, however, Granite cannot rely on those efforts to saddle the Minister with a duty of care that otherwise did not exist.

[24] Manifestly, under the legislative scheme, the Minister did not owe a duty of care exclusively to Granite. On the contrary, he owed a duty of care to the public as a whole, of which Granite was but one constituent. Hence, even if the Minister ought reasonably to have foreseen that Granite would suffer economic harm if he was careless in carrying out his duties under the Act, there was insufficient proximity between the Minister and Granite to ground a prima facie duty of care: see Cooper v. Hobart, supra, at paras. 49 and 50. That determination alone is fatal to the claim in negligence.

[25] Assuming, however, that the Minister did owe a prima facie duty of care to Granite, I am of the view that his recommendation as to the nature and extent of the exemption Granite should receive constituted a policy decision sufficient to negate that duty. Hence, it is not justiciable: see Cooper v. Hobart, at paras. 52 and 53.

[26] The Minister's decision as to the appropriate recommendation required him to balance the interests of Granite on the one hand against the interests of the town, its inhabitants, retailers seeking to compete, and the public at large on the other. As a matter of policy, the Minister had to decide how far he could go in protecting the interests of Granite while at the same time protecting the interests of other stakeholders and the public at large. In making the recommendation he did (assuming it was not the product of misfeasance in a public office), the Minister was not carrying out a predetermined government policy but determining instead what that policy should be in relation to Granite. As such, his recommendation amounted to a non-justiciable policy decision.

Wrongful Expropriation

[27] As with its claim in negligence, Granite's wrongful expropriation claim suffers from a lack of clarity and precision. Nonetheless, as I understand it, Granite maintains that the Crown effectively deprived it of its Agreement with the town and appropriated its business undertaking without compensation. [page203] Paragraphs 71 to 73 of the pleading contain the essence of Granite's wrongful expropriation claim:

71. Granite says that the action or inaction of the Minister and[/]or his offices and staff in the administration and implementation of the legislation has interfered with the day to day activities of Granite and threatened and continues to threaten Granite's operational framework to such a degree as to amount to a deemed expropriation of the commercial interests which it was otherwise entitled to exercise and control, and that certain provisions in the legislation have the same effect.

72. Granite says further that the interference with the use and control of its private assets mandated by the provisions of both Acts amounts to an expropriation of those assets.

73. Granite says further that the administration and implementation of the Acts had the effect of depriving Granite of its goodwill as a going concern and of rendering its physical assets virtually useless. The goodwill taken away constitutes property of Granite for the loss of which no compensation has been paid. Nothing in the Acts provides for the unauthorised taking of such property without due compensation. The Defendant Crown benefits from this taking by being able to introduce competition in the Ontario electricity industry sector across the board to all new entrants, without protecting the interests of a long time, smaller industry participant such as Granite.

[28] On the Crown's motion to strike out Granite's pleading, the motion judge ruled that Granite could pursue its claim for wrongful expropriation. In his view [at para. 21], the case was analogous to the situation in Manitoba Fisheries Ltd. v. Canada, 1978 22 (SCC), [1979] 1 S.C.R. 101, 88 D.L.R. (3d) 462 where the "effect of the legislation [the Freshwater Fish Marketing Act, R.S.C. 1970, c. F-13] was to deprive the Plaintiff of its market and to put the Plaintiff out of business, without compensation". In those circumstances, absent express language in the statute authorizing the Crown to appropriate the plaintiff's business without compensation, the Supreme Court upheld the plaintiff's claim for wrongful expropriation. In the motion judge's view, the facts pleaded by Granite were capable of supporting a similar claim.

[29] On appeal, the Divisional Court observed [at para. 13] that in Granite's pleading, the term "expropriation" appeared to be "used as an ancillary claim for damages for piecemeal loss of parts of alleged proprietary interests during the four year hiatus between passage of the legislation and its coming into force". While recognizing that such a claim might "more properly [be] framed in damages", the court was nonetheless "loath to strike all references to it because of the intertwined nature of the allegations and claims and the episodic nature of the ministry's conduct and [Granite's] issues". The Divisional Court further observed that in the area of expropriation, cases such as [page204] British Columbia v. Tener, 1985 76 (SCC), [1985] 1 S.C.R. 533, [1985] S.C.J. No. 25 and Manitoba Fisheries signalled an evolution in which "loss of a proprietary interest in company with a benefit to the state" could constitute expropriation. Accordingly, Granite was allowed to pursue that aspect of its claim.

[30] With respect, I am of the view that the motion judge and the Divisional Court erred in allowing the claim for wrongful expropriation to proceed. On the facts pleaded, that cause of action is not made out. The Crown neither deprived Granite from doing business, nor did it appropriate Granite's business for its own or the public's use or benefit. Those factors serve to distinguish this case from Manitoba Fisheries and Tener.

[31] In Manitoba Fisheries, the legislation in issue put the plaintiff out of business, forced its customers to do business with the Crown and thus enabled the Crown to acquire the plaintiff's proprietary interest in its goodwill. According to the Supreme Court, the acquisition of the plaintiff's proprietary interest in its goodwill constituted expropriation. In Tener, the impugned legislation enhanced the value of a public park by depriving the plaintiffs of their right to exploit minerals on the property. The enhancement in value of the public parkland conferred a benefit on the public for which the mineral right holders received no compensation. Hence, in the opinion of the Supreme Court, the essential elements of expropriation had been made out.

[32] In the case at hand, leaving aside the exemption which preserved Granite's Agreement with the town until its expiry in 2014, the worst that can be said of the impugned legislation is that it created a potential economic advantage for retailers who had heretofore been unable to compete in the electricity market. It did not transfer Granite's property to the Crown or to retailers. Rather, it regulated the market in a way that affected the economic interests of Granite and others wishing to participate in the sale and distribution of electricity. In that sense, this case is analogous to the situation in A & L Investments Ltd. v. Ontario (1997), 1997 3115 (ON CA), 36 O.R. (3d) 127, [1997] O.J. No. 4199 (C.A.), where the provincial legislation in issue retroactively voided rent increases that landlords had been authorized to seek. In concluding that the impugned legislation was "not an act of expropriation by the Crown", Goudge J.A. stated, at [p. 135 O.R.]:

There is no principle of statutory interpretation that would presume that those adversely affected by a statute regulating their affairs are entitled to compensation unless the statute says otherwise. No policy basis is readily apparent for such a rule. Indeed, such a principle would severely hamper the operation of the modern state where most regulatory legislation, however remedial, adversely affects someone. . . . [page205]

Nor can it be said that the 1991 Act is legislation transferring property from landlords to tenants and in that sense an expropriation engaging the rule discussed in Manitoba Fisheries. Firstly, as I have indicated, this rule of statutory interpretation is triggered by legislation transferring the citizen's property to the state rather than to another citizen. Hence, it is the state that has the presumed obligation to compensate. Secondly, while the 1991 Act voids orders obtained by landlords and in that sense takes their property, that property is not transferred to tenants. At most, the legislation creates economic advantages for tenants. The 1991 Act does not effect an expropriation but rather regulates in a way that affects both landlords and their tenants. The fact that the effect on landlords may be said to be significant and, indeed, unusual in its retroactivity, cannot turn the legislation into an act of expropriation.

[33] Those principles apply with equal force to the case at hand. In my view, they are fatal to Granite's wrongful expropriation claim.

Misfeasance in a Public Office

[34] Granite's claim for misfeasance in public office is difficult to pinpoint. It too suffers from a lack of clarity and precision. To the extent that it is discernible, the essence of the claim is best captured in paras. 19 and 20 and 66 and 67 of Granite's pleading. They read as follows:

19. At the end of 1994 Ontario Hydro's total long term debt was approximately $33 billion. The Minister determined to reorganize the industry to promote policies designed to reduce or reorganise this debt.

20. In doing so, the Minister and the Ministry knew at all material times of the existence and operational framework of Granite as a private utility. The Minister determined that there would be no room in the new electricity regime in Ontario for small private utilities (Granite being the smallest) and he instructed Ministry staff accordingly.

21. Further, Granite says that the Minister and/or his offices and staff have acted, in the particular circumstances, for purposes other than the purposes contemplated by the Acts, including the undue consideration of political factors, in breach of a duty owed to Granite. Granite says that the acts and/or omissions of the defendant Minister and his offices and staff in failing to exercise discretionary powers, and/or the decision to exercise or not to exercise statutory powers, as the case may be, and any actions taken in the exercise of statutory powers, constituted an abuse of power and a breach of duty, and represented invalid and unlawful actions and omissions deliberately taken by the Minister for improper purposes and on the basis of irrelevant considerations which caused and were intended to cause injury to Granite. Granite says that the Minister and/or his offices and staff knew or ought to have known that harm and loss to Granite would probably result and/or were recklessly indifferent to the consequences for Granite. As a result of the Minister's conscious disregard for the interests of Granite, Granite has and will suffer injury and loss. [page206]

22. Granite says further that the discretionary authority or power to exempt a player in the Ontario electricity industry from the application of the new statutes was provided specifically, although not necessarily exclusively, to give the Minister the power to avoid harsh, unnecessary or invalid consequences of the new laws. Failure to properly and lawfully exercise those discretionary powers was intended to affect Granite in the continued conduct of its business, to the benefit of the introduction of competition in the Ontario electricity industry. In all of these circumstances Granite says the conduct of the Minister and/or his offices and staff amounts to misfeasance in a public office and abuse of public office.

[35] On the Crown's motion to strike out Granite's pleading, the motion judge found [at para. 17] that the pleading contained "allegations of improper purpose and motive" which provided a "sufficient foundation to support the claim" of misfeasance in a public office. Without particularizing the allegations, he simply noted that the claim contained allegations "that the Minister legally exercised his power for improper purposes" and that he "knew his conduct would cause damage to Granite" [at para. 19].

[36] The Divisional Court agreed with the motion judge but said very little about the subject. Citing Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959, [1990] S.C.J. No. 93 at para. 52, the court noted [at para. 10] that the tort of misfeasance in a public office was part of "a developing area of the law" and for that reason, it was appropriate to allow the claim to proceed.

[37] For reasons that follow, I believe that the motion judge and the Divisional Court were correct in concluding that the claim for misfeasance in a public office can proceed. In assessing the matter, I have had the benefit of the recent decision in Odhavji Estate v. Woodhouse, 2003 SCC 69, [2003] 3 S.C.R. 263, [2003] S.C.J. No. 74, in which the Supreme Court clarified the elements of the tort. At para. 32, Iacobucci J. summarized those elements as follows:

To summarize, I am of the opinion that the tort of misfeasance in a public office is an intentional tort whose distinguishing elements are twofold: (i) deliberate unlawful conduct in the exercise of public functions; and (ii) awareness that the conduct is unlawful and likely to injure the plaintiff. Alongside deliberate unlawful conduct and the requisite knowledge, a plaintiff must also prove the other requirements common to all torts. More specifically, the plaintiff must prove that the tortious conduct was the legal cause of his or her injuries, and that the injuries suffered are compensable in tort law.

[38] Earlier, at para. 30, in discussing the underlying purpose of the tort, Iacobucci J. observed that, in his view, there was:

[N]o principled reason . . . why a public officer who wilfully injures a member of the public through intentional abuse of a statutory power would be liable, but not a public officer who wilfully injures a member of the public through . . . a deliberate failure to discharge a statutory duty. In each instance, the alleged misconduct is equally inconsistent with the obligation [page207] of a public officer not to intentionally injure a member of the public through deliberate and unlawful conduct in the exercise of public functions.

(Emphasis in original)

[39] Finally, as Iacobucci J. observed at para. 28:

[M]isfeasance in a public office requires an element of "bad faith" or "dishonesty". . . . In order for the conduct to fall within the scope of the tort, the [public] officer must deliberately engage in conduct that he or she knows to be inconsistent with the obligations of the office.

[40] With those principles in mind, I am satisfied that, on the facts pleaded, there exists a narrow window of opportunity for Granite to make out its claim in misfeasance. Specifically, I believe that the claim will have been made out if Granite can establish that the Minister and his staff pursued a course of conduct that was actuated by malice, duplicity and bad faith and that was designed to put Granite out of business long before the expiry date of its Agreement in 2014 in order to fulfill the Minister's predetermined policy that "there would be no room in the new electricity regime in Ontario for small private utilities" such as Granite.

[41] In support of its claim, Granite points to such things as the delay tactics employed by the Minister and his staff; the failure of the Minister to let Granite know in a timely fashion whether it would be exempted from the new regime and, if so, under what terms and conditions; Granite's inability (well-known to the Minister) to make critical business decisions pending the Minister's final determination; the Minister's duplicity in making assurances to Granite during the four-year waiting period while, at the same time, permitting the new regime to be advertised in the town, allowing retailers to gain a foothold in the town, meeting with town officials behind Granite's back, encouraging the town to lobby for the early termination of Granite's Agreement and, in the end, providing Granite with an unsatisfactory and unworkable exemption.

[42] These and other allegations lead me to conclude that the claim for misfeasance in a public office has been adequately pleaded. Regardless of how difficult it may be to establish, Granite should not be "driven from the judgment seat" at this juncture: see Hunt v. Carey Canada, supra, at para. 33.

[43] Accordingly, I would allow the claim for misfeasance in a public office to continue.

Costs

[44] The appeal has resulted in mixed success. In the circumstances, I am of the view that the parties should bear their own costs. Accordingly, I would make no order as to costs.

Order accordingly. [page208]

Notes

Note 1: The Agreement with the town was approved by the town electors in accordance with the requirements of ss. 2 and 3 of the Municipal Franchises Act, R.S.O. 1990, c. M.55.