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Payne v. Ontario (Ministry of Energy, Science and Technology)

July 02, 2002

Superior Court of Justice halts privatization of Hydro One

The Ontario Superior Court of Justice has held that the Harris government did not have legal authority to relinquish public control of Hydro One by offering its shares for sale to private investors. The Court of Appeal has since concluded the Government’s appeal is moot.

Background

When the Harris government reformed the electricity sector, it set out detailed plans for introducing competition at the consumer level and broke Ontario Hydro into various parts. The government did not indicate that its plans included privatizing Hydro One Inc., which took over the transmission grid from Ontario Hydro.

To the contrary, in 1998, when the Electricity Competition Act was introduced for second reading, Jim Wilson, the Minister of Energy, Science and Technology told the Ontario Legislature that “we’re not talking about privatization”. Mr. Wilson made the same point in a letter to the editor of the Financial Post in December 1998, writing “Hello! Is anybody listening? …. the Harris Government introduced the Energy Competition Act to bring about customer choice, lowest possible prices and investment for Ontario – not privatize the utility”.

But in December 2001, the Harris government announced that it planned to sell Hydro One. The privatization would be “several times larger” than $2.65 billion privatization of CN Rail, the largest privatization completed to date. Hydro One was estimated to have assets worth $11.1 billion, and was generating an annual net cash flow of almost $1 billion for the benefit of Ontarians. In a newspaper article written at the time the deal was announced, an executive at a Bay Street firm vying for a piece of the deal was quoted as saying: “We’re all just trying not to pee our pants with excitement.”

On March 28, 2002, the details of the proposed transaction were made public for the first time. The Electricity Act authorized the Minister to “acquire” and “hold” shares in Hydro One on behalf of the Province of Ontario. However, it was silent on the question of selling them.

CEP and CUPE brought an application challenging the sale. They argued that specific statutory authorization, or an election, was required before the government could sell Hydro One.

The Court’s decision

On April 19th, 2002, Justice Gans of the Superior Court of Justice put the brakes on the sale of Hydro One. After closely reviewing the  Electricity Act, the court held that the legislature did not intend to embark on a privatization program at this stage in the reorganization and corporatization of Ontario Hydro.

The Court noted that, while one of the purposes of the Act was to ensure that the debt of Ontario Hydro is repaid, there was no provision in the Act to pay down the debt from the sale of Hydro One. Any money generated from the sale would be paid into the Consolidated Revenue Fund and could be used by the government for any purpose. In contrast, the Act provided that, where a municipality sold any assets or shares in respect of any local utility it owned or controlled, the funds must be paid over to the financial corporation set up to hold Ontario Hydro’s debt. No similar requirement was imposed on the Minister in respect of the sale of Hydro One.

The Court also noted that the purposes of the Electricity Act were set out in detail in the Act and privatization was not among them. The Court concluded:

I would have thought that the notion of privatization should have been set out in clear and unequivocal terms in the ‘purposes’ portion of the Electricity Act, as were a whole range of other important social and economic matters. Privatization of a long-standing important public institution, such as Ontario Hydro, is not something I would have thought would or should occur without addressing the issue head on. The fact that it wasn’t set out as a stated purpose is consistent with the conclusion that the Electricity Act, as comprehensive a piece of legislation as it is, is not intended to deal with privatization, as such, let alone through any implied ability to alienate personal property as a natural person.

Finally, the Court noted that its interpretation of the Act was supported not only by other provisions of the Act, but also by the Minister’s assurances at the time the legislation was introduced that the government was “not talking about privatization” and by the White Paper preceding the legislation which did not discuss privatization.

The Court also rejected the government’s arguments that CEP and CUPE did not have standing to bring the application. It held that, while the unions and their members may not have a direct personal interest in the sale of Hydro One, they met the test for public interest standing. The Court noted that the interests of trade unions extend beyond the immediate economic interests of their members:

It has long since been recognized that unions have an interest in matters which transcends the ‘realm of contract negotiation and administration’… To borrow [from a case of the Supreme Court of Canada] “the interests of labour do not end at some artificial boundary between the economic and political”. Inherent in this proposition is the notion that interests of labour are expansive and are meant to include more than mere economic gain for workers.

Aftermath

In response to the Court’s decision, the government tabled Bill 58 to amend the Electricity Act so that it would have the legal power to hand over the giant public utility to private investors.

The government also appealed Justice Gans’ decision, although it was never clear why. Once the government’s amendments to the Electricity Act passed the Legislature, the privatization could have gone ahead. Justice Gans’ ruling only applied to the Act as it read before the amendments.

The Conservative government and its supporters on Bay Street were particularly incensed that unions had been granted “public interest” standing to launch the legal proceedings in the first place. “Who runs Ontario – unions or Eves?” screamed a headline in the National Post (referring to the new Conservative premier, Ernie Eves). An article in the Globe and Mail raised the spectre of “… a whole set of scenarios where frustrated interest groups such as the teachers will use this decision to challenge controversial government decisions”. Horrors.

The Court of Appeal’s decision

On the appeal, CUPE and CEP argued that the appeal was “moot”. They said there was no point in having the Court of Appeal determine whether the privatization would have been allowed under the now-out-of-date provisions of the Electricity Act. In a unanimous decision released on July 4, 2002, the Court of Appeal accepted the unions’ argument and dismissed the government’s appeal on the basis that the amendment to the Electricity Act “removes the legal significance of the declaration made by” Justice Gans.

In the appeal hearing, the panel of the Court of Appeal advised counsel that they did not need to hear submissions from CUPE and CEP on the issue of their standing to bring the case. In other words, after hearing everything the government had to say about whether or not the unions should have been allowed to bring the lawsuit to challenge the legislation, the Court decided that this aspect of the government’s appeal could not succeed. In its written reasons, the Court of Appeal noted that CUPE and CEP have a “long and public record of opposition to the privatization of ‘public’ assets”.

Read Justice Gans’ decision.

Read the Court of Appeal’s decision.

Lawyers

Lorne Richmond, Steven Shrybman

Practice Areas

Public Interest Litigation