Toronto Hydro Electric System Ltd. (“Toronto Hydro”) was successful in appealing from a Divisional Court decision that had concluded that the Ontario Energy Board (“OEB”) made an unreasonable decision in deciding that a lower hydro system rate should apply to the installation of the electricity distribution system in the Graywood building where Toronto Hydro and Graywood had agreed to a higher rate prior to the date of installation.

Administrative law – Decisions of administrative tribunals – Energy and Utilities Board – Rates – Natural resources – Distribution – Contracts – Validity – Timing – Judicial review – Standard of review – Reasonableness simpliciter

Graywood Investments Ltd. v. Toronto Hydro-Electric System Ltd., [2006] O.J. No. 2030, Ontario Court of Appeal, May 24, 2006, K.N. Feldman, J.C. MacPherson and S.E. Lang JJ.A.

In 2000, Graywood and Toronto Hydro had discussions about Toronto Hydro installing an electricity distribution system in a Graywood building project. A price was discussed.

Thereafter, the OEB lowered the applicable rates. Toronto Hydro insisted on installing the electricity distribution system in the Graywood building at the higher rates. Graywood paid the higher rate under protest and reserved the ability to take a legal challenge to it. There was an express provision in the Distribution System Code which provided that the change in rates would not apply to projects that were the subject of an agreement entered into prior to November 1, 2000.

Graywood wrote a letter to the OEB requesting a hearing on the issue of whether it had a true agreement with Toronto Hydro prior to November 1, 2000. The OEB declined to hold a hearing but investigated. The OEB issued a decision in July 2001 dismissing Graywood’s complaint on the grounds that there was an implied agreement that had been entered into prior to November 1, 2000. The OEB’s decision acknowledged that the industry practice at the time was not to have a formal offer to connect electricity and associated written contracts between the parties, but that the evidence showed that Graywood had included Toronto Hydro in the project for approximately one year prior to November 1, 2000 and that Graywood was committed to the project proceeding.

Graywood sought judicial review of the OEB decision and the Divisional Court issued reasons finding that the question of whether there was an agreement between the parties was a question of mixed fact and law. The Divisional Court applied the factors in Pushpanathan v. Canada (Minister of Citizenship and Immigration), [1998] 1 S.C.R. 982 and determined the standard of review to be applied to a decision of the OEB was reasonableness.

The Divisional Court found that the OEB decision was unreasonable and quashed the decision, remitting the matter back to the OEB. Toronto Hydro obtained leave to appeal the decision of the Divisional Court.

The issue on appeal was whether the majority of the Divisional Court erred in holding that it was unreasonable for OEB to conclude that the parties had an agreement for electricity connection before November 1, 2000.

The Court of Appeal agreed that the OEB decision was subject to judicial review on a reasonableness standard. However, the Court of Appeal noted that a reasonableness standard requires the court to exercise deferential self‑discipline in judicial review of an administrative action. The test is not whether the decision is correct but whether after a somewhat probing examination the reasons given, taken as a whole, can support the decision.

The Court of Appeal considered whether the existence of a written contract between Toronto Hydro and Graywood, where they had chosen the date of contract of November 8, 2000 ought to override their previous discussions about installation of the electricity distribution system. The Court of Appeal disagreed with the Divisional Court and held that the history of the relationship between the parties and their extensive discussions about the installation of a system as well as the parties’ expectations could reasonably lead to a conclusion that there was an implied agreement prior to reduction of rates of November 1, 2000.

The Court of Appeal held that this conclusion was more faithful to the analytic framework set out in the decisions of Ryan, Dr. Q., and Donnini v. Ontario (Securities Commission). This was because the OEB is a specialized and expert tribunal, the legislation applicable is drafted by the OEB itself, the question is one of mixed fact and law and the OEB identified several factors in support of its original conclusion in the written reasons issued. These included the industry’s practice and the relationship between the parties in terms of Toronto Hydro’s retainer to perform the design work on the project.

The Court of Appeal overturned the Ontario Divisional Court’s decision and held that there was an implied agreement that the installation component of this project would be performed by Toronto Hydro under the statutory regime applicable prior to November 1, 2000. Although this was not the only interpretation and result open to the OEB, it was a disposition that was eminently reasonable. The decision of the OEB was reinstated with costs of the appeal to Toronto Hydro.

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