Tesla wins court challenge against province in cancellation of rebate program

In ruling in Tesla Motors Canada ULC’s favour in a lawsuit launched against Ontario’s Ministry of Transportation for the cancellation of electric car rebates, the judge called the government’s actions “arbitrary” and “egregious,” which “singled out Tesla for reprobation and harm.”

In Tesla Motors Canada ULC v. Ontario (Ministry of Transportation) released Aug. 27, Ontario Superior Court of Justice Fred Myers examined when the court has the authority to review a policy decision made by an elected government, says Ewa Krajewska, partner in the litigation practice at Borden Ladner Gervais LLP in Toronto who was not involved in the case.

“That is a pretty fundamental question,” Krajewska says. “And it's not always clear where that line is drawn.”

Myers “quashed and set aside” the “unlawful exercises of discretion” that was the Ministry of Transportation’s rollout of the transition program, compelling the government to implement a new policy.

Counsel for Tesla from Polley Faith LLP declined comment when contacted by Legal Feeds.

On July 11, the Progressive Conservative government in Ontario announced the end to the province's Electric and Hydrogen Vehicle Incentive Program, which provided for rebates up to $14,000 on purchases of electric cars. The government gave a two-month extension for orders that had already been placed under two conditions: that the cars be registered, plated and delivered on or before July 11 or if a dealership had ordered it before that date and it was delivered to a consumer, registered and plated, by Sept. 10.

The government had sent Tesla a letter saying it did not qualify for this transition program because it was not a “franchised automobile dealership” but an original manufacturer, wrote Myers in the decision.

Tesla Motors Canada ULC is a registered Ontario dealership but not a franchised dealership.

Tesla argued that the government “unlawfully targeted it without any rational basis” and that it was “being demonized for purposes that are outside the legitimate reach of the laws that govern electric car subsidies in Ontario.”

Myers wrote that the court does not have an opinion on the decision to cancel the cap and trade program and stop funding projects with its revenues or the decision to continue to fund the electric car subsidy program for two months but that the issue pertains to the decision to set the terms of the subsidy transition in the Public Transportation and Highway Improvement Act in a way so as to “include only franchised dealers and to exclude Tesla.”

To determine when the courts can appropriately intervene in public policy, Myers cited Hamilton-Wentworth (Regional Municipality) v. Ontario (Minister of Transportation), a 1991 case about a government decision to stop funding a municipal expressway construction project. In that decision, the court found that “it does not set funding priorities for government and it does not tell the government how to spend public funds,” but that “the propriety of the payment or the withholding of payment may in some circumstances be inquired into,” the decision states.

“The courts will not review whether a policy is a good one or a bad one, because that is the government's mandate,” says Krajewska. “The lawfulness of a decision, which is usually kind of a very narrow scope of review, is where the courts come in.”

Myers wrote that by setting the “operative terms” of the transition program, the government went from “policy-setting at a high level of abstraction” to “executive program administration” and the legality of those decisions under the act and the applicable environmental laws “is the subject of this application.”

Myers also cited Tsleil Waututh Nation v. Canada (Attorney General) and Black v. Chretien to show that “the law of judicial review has narrowed the class of non-justiciable decisions.”

In Black, Justice John Laskin of the Ontario Court of Appeal wrote in the decision that the actions of a government, even when “an exercise of the prerogative,” are subject to judicial review “if its subject matter affects the rights or legitimate expectations of an individual.”

“And that's where the whole issue of ‘legitimate expectations’ comes out of, which is that ‘legitimate expectations,’ although it sounds like a substantial review on the substance of the decision, it's actually a procedural fairness ground,” says Krajewska. “So, basically just as Justice Myers said, if you were going to do this, government, you had to give Tesla an opportunity to respond and provide submissions.”

Tesla tried to communicate with the Ministry of Transportation since the subsidy program was cancelled, but the government has not responded.

In his conclusion, Myers said the government singled out Tesla without providing the company “any opportunity to be heard or any fair process whatsoever.”

Further allowing the court to have a say on how the government uses its executive discretion is the doctrine of improper purpose. The purposes of the electric car subsidy program, wrote Myers, are: “reducing greenhouse gases in response to climate change, protecting the environment and assisting Ontarians to transition to a low carbon economy.”

Courts have the authority to review executive action taken for improper purpose, the decision states, citing Roncarelli v. Duplessis, from 1959 where the premier of Quebec intervened in a matter before the liquor board to deny a liquor licence to someone because he was a Jehovah’s Witness. Justice Ivan Rand wrote that for a person to be subject to “action dictated by and according to the arbitrary likes, dislikes and the irrelevant purposes of public officers acting beyond their duty, would signalize the beginning of disintegration of the rule of law as a fundamental postulate of our constitutional structure.”

Tesla’s lawyers referred to two statements by Ontario government officials that they said vilified the company.

On July 31, the parliamentary assistant to the Minister of the Environment, Conservation and Parks said the previous government had used the cap and trade program to balance its budget and provide “Tesla subsidies” and that the chief of staff of her department’s previous minister was given a job at Tesla, according to the decision.

Tesla also referred to a statement from Premier Doug Ford, who said, “I have a message for Tesla. Stop 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.”

Myers wrote that Tesla’s exclusion from the transition process was “arbitrary . . . unrelated to the achievement of the supposed policy goal . . . not related to any of the conservationist purposes of the electric car subsidy program . . . not related to any purpose under the Public Transportation and Highway Improvement act. Therefore it cannot stand.”

He added: "If the government wants to transition out of the electric car subsidy program, the Minister must exercise his operational discretion in a lawful manner. He has yet to do so. I therefore quash and set aside the Minister's unlawful exercises of discretion to implement the transition program announced July 11, 2018. . . ."

Brian Gray, ministry spokesperson for the Ministry of the Attorney General, said via email, “We are reviewing the ruling and will make a decision on how to proceed in the coming days.”

Myers also ordered the province to pay Tesla costs in the amount of $125,000 on a partial indemnity basis, saying, "Its efforts to contact the Ministry were never responded to. It was forced to bring urgent court proceedings to vindicate its rights." Tesla had asked for $185,000 in costs on a partial indemnity basis.