Tesla, the intrepid electric car company owned by entrepreneur and businessman Elon Musk, recently drove headfirst into a controversy with Ontario’s newly elected government. The result of the collision is a reminder to the government to drive within the lines of existing laws when making executive decisions.

The case arose out of the cancellation of a subsidies program aimed at promoting zero emission vehicles. These subsidies were provided to purchasers of vehicles which the government had listed as environmentally approved, including Tesla’s Model 3.

On July 11, 2018, the government, under Premier Ford’s new leadership, announced a wind-down of the subsidy program. However, there would be a two month extension for some orders for eligible vehicles that had already been placed:

Applications will be accepted from dealerships, car owners or prospective car owners only if one of the following conditions has been met:

  • Eligible vehicles that have been delivered to consumers, registered, and plated on or before July 11 will receive the incentive.
  • Inventory that dealers have on lots or orders made by dealerships with manufacturers on or before July 11, will also be honoured for the incentive provided that the vehicle is delivered to consumers, registered, and plated by September 10.1

The statutory discretion under which this transition program (“Transition Program”) had been created was contained largely in s. 118(2) of the Public Transportation and Highway Improvement Act.2  That section reads:

118 (2) On and after January 1, 1997, the Minister may, out of money appropriated therefor by the Legislature and upon such conditions as he or she considers advisable, provide grants, loans and other financial assistance to any person…for specific projects that the Minister considers to be of provincial significance.

The government’s announcement said that letters would be sent to car dealers to provide further details about the transition program. Tesla, however, received a different letter. That letter explained that the Transition Program would only apply to orders for cars made by a “franchised automobile dealership” and not where vehicles “have been ordered directly from an original manufacturer by a consumer”. Because Tesla Motors Canada is not a franchised business, it was excluded by the terms of this letter. Tesla was the only dealer to receive the letter.3 Approximately 600 customers were affected.

Tesla attempted to communicate several times with the Ministry of Transportation after the government’s announcement, but without success.4

Believing it had been singled out for “vilification”, Tesla applied for judicial review. At issue was whether the decision to set the terms and conditions of the Transition Program to exclude Tesla was permissible under the Public Transportation and Highway Improvement Act (and the applicable environmental laws).5

Justice Myers of the Ontario Superior Court of Justice began with an extensive review of the case law relating to the justiciability of executive government decisions. “Justiciability” refers generally to whether it is appropriate for a court to decide an issue.6

Justice Myers noted that executive government actions exist along a spectrum ranging from “high policy” (e.g. declaring war) which is not justiciable, to more mundane executive decisions which affect “the rights or legitimate expectations of an individual” (e.g. issuing a passport) which are justiciable. In the latter cases, the Court will review the action where it has been taken “for improper reasons or without affording the applicant procedural fairness”.7

In this case, no party argued that the subsidies could not be cancelled. This was “high policy”.8 Rather, Tesla’s concern was it that it had been directly targeted in the implementation of that cancellation for improper purposes.

Justice Myers then focused in on the issue of “improper purpose” and harkened back to a cornerstone case in Canadian administrative law: Roncarelli v Duplessis, [1959] SCR 121. In that case, the Premier of Quebec, Maurice Duplessis, had intervened in a liquor license proceeding in order to deny an applicant a license simply because he was a Jehovah’s Witness. Justice Myers quoted Justice Rand’s decision:

In public regulation of this sort there is no such thing as absolute and untrammeled “discretion”, that is that action can be taken on any ground or for any reason that can be suggested to the mind of the administrator; no legislative Act can, without express language, be taken to contemplate an unlimited arbitrary power exercisable for any purpose, however capricious or irrelevant, regardless of the nature or purpose of the statute… “Discretion” necessarily implies good faith in discharging public duties; there is always a perspective within which a statute is intended to operate; and any clear departure from its lines or objects is just as objectionable as fraud or corruption. Could an applicant be refused a permit because he had been born in another province, or because of the colour of his hair? The ordinary language of the legislature cannot be so distorted.9

In other words, courts will ensure that discretion by public authorities is exercised in accordance with the statutory purposes for which the discretion was created. Extraneous, irrelevant, and collateral considerations should not be permitted to influence a decision maker in the exercise of that discretion.10

Unfortunately for the government, that is precisely what had happened.

Ms. Vrinda Vaidyanathan, the Acting Manager of Policy and Programs at the Ministry of Transportation testified on behalf of the government. She stated that the government had extended the subsidy program to protect small to mid-sized dealerships from potential losses. The government was concerned, she claimed, that if dealers had cars on their lots or already on order on July 11, the cancellation of the subsidy would leave the dealers exposed to loss at the hands of the vehicle manufacturers.11

However, on cross-examination, Vaidyanathan was unable to say whether any car dealerships in Ontario are very large businesses. There was also no evidence about the terms of payments due from dealers to manufacturers or whether refunds were available to any dealerships for car orders that may be cancelled after the July 11 termination of the subsidy program. Moreover, the government did not produce “any contemporaneous documents supporting its decision to include only purchases from franchised dealers in the transition program.”12

Justice Myers essentially rejected Vaidyanathan’s explanation for Tesla’s exclusion and found that the statutory discretion had been exercised for improper purposes. His reasoning at this point can be divided into three parts:

  • He found that the government’s requirement that dealers be franchised was “not at all related to either protecting small to mid-sized dealers or to protecting dealers who may suffer losses to manufacturers.” In reality, “all it seems to do is to include in the transition all dealerships in Ontario…except Tesla.”13 This exercise of the discretion was unrelated to the achievement of the supposed policy goal.
  • He found that the exercise of the discretion was “not related to any of the conservationist purposes of the electric car subsidy program.” Nor was it “related to any purpose under the Public Transportation and Highway Improvement Act.”14
  • Finally, Tesla was denied basic procedural fairness. Despite being singled out, Tesla was not asked to provide any facts that might have been relevant to the government’s decision making. Indeed, as noted above, Tesla’s attempts to contact the Ministry had come to naught.15

Consequently, the Minister’s exclusion of Tesla was set aside.

However, there was something missing from Justice Myer’s analysis. Although he described the government’s exercise of its discretion as being for “improper purposes”, he never actually determined what the government’s improper purpose had been. This appears to have been an evidentiary problem.

Tesla had led evidence of various remarks and speeches by government officials which essentially condemned Tesla for using the subsidy program to subsidize cars for millionaires.16 For example, in an interview given by Premier Ford, Mr. Ford warned Tesla to “[s]top trying to get rebates for your millionaire buddies, and putting it on the backs of the hardworking people of Hamilton and the rest of the hardworking people of Ontario.”17

Ultimately, Justice Myers concluded that the interview, and various speeches in the Legislature, were not admissible for the purpose of proving that the transition program had a “colourable or improper purpose.”18 Instead, he simply did not make a finding about why Tesla was targeted.

What does all this mean?

This decision is a cautionary tale for Ontario’s new government. Discretionary decisions that impact the rights and reasonable expectations of people and businesses must be connected to the statutory purpose under which the decision is being made. If a Minister makes a decision which affects you personally, that decision cannot be based on irrelevant considerations.

 

1 Tesla Motors Canada ULC v Ontario (Ministry of Transportation), 2018 ONSC 5062 [Tesla] at para 11.

2 Public Transportation and Highway Improvement Act, RSO 1990, c P.50, s 118(2).

3 Tesla at paras 16-17.

4 Ibid at para 24.

5 Ibid at para 40.

6 Canada (Auditor General) v Canada (Minister of Energy, Mines & Resources), [1989] 2 SCR 49 at para 50.

7 Tesla at paras 45-47.

8 Ibid at paras 37-38.

9 Ibid at para 51, quoting Roncarelli v Duplessis, [1959] SCR 121 at 143.

10 Ibid at paras 53-55.

11 Ibid at para 28.

12 Ibid at para 29.

13 Ibid at paras 60-61.

14 Ibid at para 61.

15 Ibid at paras 63-64.

16 Ibid at paras 18-22.

17 Ibid at para 22.

18 Ibid at para 58