A climate finance legal first – Canadian appeal court allows $2.25 billion wind farm lawsuit against government over alleged misfeasance in public office but only on one narrow ground

The Court of Appeal for Ontario has ruled that a prospective wind farm firm, Trillium Power Wind Corporation (“Trillium“), may proceed on its $2.25 billion litigation against the Ontario government over Ontario’s decision to impose a moratorium on the installation of offshore wind farms in that province. The win is a narrow one.

Trillium sued the Ministry of Natural Resources, the Ministry of Energy and the Ministry of the Environment (collectively, the “Ministries“) on numerous grounds including breach of contract, unjust enrichment, expropriation, negligent misrepresentation, misfeasance in public office and economic harm. The Court ruled that Trillium could proceed only on the claim of misfeasance in public office. And in rendering its decision, the Court for the second time, drew attention to Trillium’s confused and prolix pleadings and struck the entire Statement of Claim, allowing Trillium a chance to re-write the pleadings in support of the remaining claim of misfeasance in public office.

The Facts

The facts of the case are as follows. Trillium found what it believed to be an ideal location for an offshore wind farm in Ontario near Main Duck Island in Lake Ontario (the “Site“).

Lake Ontario is Crown property, the ownership and use thereof which is governed by overlapping international, federal, provincial and municipal laws and unresolved claims of aboriginal rights. In order to build a wind facility in Ontario on Crown land, a proponent must obtain certain regulatory approvals which take years to obtain by virtue of the fact that such approvals require engagement with affected stakeholders and multiple government agencies at various levels, and the conclusion of a favourable environmental risk assessment. The process is expensive and time consuming. Subsequent to the environmental risk assessment, an applicant must then negotiate a long-term lease for use of the Crown land and enter into a contract to connect to the power grid and supply energy.

In 2004, Trillium applied for permission with the Ontario Ministry of Natural Resources (“MNR“) to lease the Site for a wind facility. In 2005, the MNR informed Trillium in writing that it was the applicant of record for the Site. Trillium believed that its status as the applicant of record meant that it had acquired certain legal rights, namely a contractual right to supply wind power subject to meeting certain conditions precedent.

Almost a year later, the MNR announced a first moratorium on offshore wind farm development in the province to evaluate the social and environmental impacts of offshore wind energy. A year later, the first moratorium was lifted. A year later, Trillium was reinstated as the applicant of record in respect of the Site.  There were two phases involved to proceed as an applicant of record – firstly, a three-year wind farm test period, and secondly, an environmental risk assessment which could lead to the development of a wind farm if requisite approvals were obtained. The application of record status merely conferred on Trillium the right to conduct  tests in respect of a prospective offshore wind facility.

In February 2011, the MRN announced another moratorium (the “Moratorium“) on offshore wind energy, cancelling offshore wind leases which included the Site.

The Superior Court of Justice Decision

In September 2011, Trillium sued the Ministries over the Moratorium, claiming, inter alia, that its “property rights were confiscated”, presumably meaning the Crown land under Lake Ontario, seeking $2.25 billion in damages for various legal claims described above, including misfeasance of public office by the then Premier of Ontario, the Minister of Energy, the Minister of Natural Resources and the Minister of the Environment. The alleged misfeasance was described as the decision to “place political expediency… over the public interest in green energy” and to issue a press release announcing the Moratorium knowing it would “destroy”  financing Trillium was in the process of obtaining. With respect to the alleged breach of contract claim, Trillium’s position was that its applicant of record status was a “contract” which was breached by the Ministries, and that the Ministries intended to inflict economic harm on Trillium by imposing the Moratorium. It also alleged that the Ministries effectively expropriated its asset and property (namely, its applicant of record letter which Trillium believed was “property”, an “asset” and a “contract”) without compensation.

The Crown applied to the Court to have the action dismissed, or in the alternative, to have the claims struck on several grounds, including that there was no reasonable cause of action, there were no facts pleaded to support any of the claims, the claims were vexatious, and, in any event, the Ministries were protected by Crown immunity.

Justice Goldstein, the motions judge hearing the case, noted several defects in respect of Trillium’s pleadings, namely:

  • The claim was confusing;
  • The torts were difficult to understand;
  • The position that in law, an “asset” was the same as “property”;
  • The claims were internally inconsistent and prolix;
  • The documents contradicted the facts alleged;
  • Much of the pleadings were hyperbole or irrelevant, or both; and
  • They alleged the Ministries breached several laws that have nothing to do with offshore wind farms, namely the Green Energy Act, 2009, S.O. 2009 c. 12 and the Ontario Water Resources Act, R.S.O. 1990, O.40.

The Court dismissed the entire claim without allowing Trillium the right to amend its pleadings. It made no findings with respect to the issue of the vexatiousness of the allegations and held as follows with respect to the other claims:

  • Intentional infliction of economic harm – this claim was dismissed because the requisite element, malice, was not sufficiently pleaded;
  • Misfeasance in office – this claim was dismissed as having no chance of success because the allegations amounted to bare assertions based on mere assumptions and speculation without any facts connecting the Ministers implicated to the alleged misconduct;
  • Negligent misrepresentation – this claim was dismissed because the decision to impose the Moratorium (or to refuse a wind farm permit or deny regulatory approval) is a policy decision that can be changed in accordance with public interest and thus while there is a duty of care in respect of green energy and wind farms to the public as a whole, there is no private law duty of care to a corporation or person and nor were there any facts to establish a special relationship existed between the parties. The Court noted that the type of policy decision made over the Moratorium is precisely the type that is protected from litigation and the remedy for such decisions “is found in the ballot box, not the courtroom”;
  • Taking without compensation – this claim was dismissed and on this point, the Court noted that the letter informing Trillium that it was the applicant of record was neither an asset, property or, as also asserted, a contract and, parenthetically, that something in law cannot be both property and a contract – the applicant of record letter was merely a right to enter into a regulatory process. And, in any event, Trillium failed to plead an essential element of the tort, namely that if there was property involved, it was transferred from Trillium to the Ministries for its own use; and
  • Breach of contract – this claim was dismissed because there were no facts to establish an offer, acceptance and consideration between the parties and more importantly, that an essential element of breach of contract is the existence of an actual contract – in this case, there was no contract and the applicant of record letter was not, as asserted, a contract.

The Court of Appeal for Ontario

Trillium appealed the decision to the Court of Appeal for Ontario.

It summarily refused the appeal on all grounds except the tort of misfeasance in public office, and in that respect, it held that Trillium could proceed only on the claim that the government’s decision to cancel the wind farm program in Ontario was specifically targeted at Trillium in order to cripple its financial capacity.

The Court of Appeal reinstated that claim because, procedurally, the Rules of Court require that once a claimant, such as Trillium, asserts a claim for bad faith in the context of misfeasance in public office, and assuming the claim is at least plausible on the facts alleged, the lower court must accept those facts as true unless patently unreasonable. The facts as alleged by Trillium were not patently unreasonable and therefore, the claim should not have been dismissed by the motions judge.

Clarification of government immunity

With respect to the tort of misfeasance in public office, the Court of Appeal clarified the types of government decisions which are shielded from liability. Political “core policy” decisions made by government officials are immune from review by the courts for tort actions except if they are: (a) irrational; (b) made in bad faith; or (c) are not made for political purposes.

Decisions by public officials that are not made for political purposes may, for example, be those that are made for personal purposes, or for corrupt purposes, for example in cases where infrastructure contracts are awarded to friends or acquaintances of government officials.

The Court of Appeal held that policy decisions made on the basis of political expediency are part and parcel of the policy making process and there is nothing unlawful or in the nature of bad faith about a government taking into account public response to matters and reacting accordingly. The Court held that the decision with respect to the Moratorium was neither irrational or made in bad faith and as neither of those exceptions applied in this case, Trillium’s claim on those grounds was dismissed.

With respect to the third exception regarding decisions made by public officials for non-political purposes, the Court of Appeal allowed the claim but only to the extent that the decision in respect of the Moratorium was not made for political purposes but rather was made to specifically injure Trillium.

The appeal result may seem like a win except that, put in its proper context, the result of the litigation is that several of Trillium’s claims for which it was seeking $2.25 billion were dismissed; not on the basis of the merits (or lack thereof) of those claims but rather because of the condition of its pleadings.

Given the state of the pleadings, the entire Statement of Claim was struck by the Court of Appeal and Trillium was permitted 30 days to prepare, serve and file an amended Statement of Claim on the remaining issue.

Reducing the risk of misfeasance claims in public procurement

The real legacy of the Trillium case is likely to be the revival of the relatively ancient tort of misfeasance in public office against government officials from unsuccessful contract bidders and tenders, particularly with the recent announcement of lucrative large-scale public procurement contracts for public infrastructure projects across Canada.

To avoid liability, decisions from government officials should obviously be consistent with the Trillium decision, namely be rational, made in good faith and for political purposes.

However, a decision can meet those requirements and still be successfully attacked when there are issues of integrity in respect of the decision. That may arise, for example, when there is corruption or bribery or in cases where contracts are awarded to companies whose chief executive or other officers fraternize or socialize with the government leaders responsible for the relevant procurement decisions. The appearance of integrity is vitally important for government officials and this may require awarding a contract to persons with whom government officials have no social contact.

From a financial crimes perspective, globally, and in Canada, public procurement is the government activity most vulnerable to waste, fraud and corruption due to its complexity, the size of financial flows it generates and the close interaction between the public and private sectors.

The key for government agencies is to adopt a standard of integrity in public procurement that is based on transparency and that involves making decisions that are properly documented and based on sound decision-making practices within legal parameters. Adopting a decision-making policy and adhering to it helps in that regard.

When the speed and volume of decision-making increases, there may be a tendency to take short cuts. Material decisions by public officials in haste should be avoided, as should those made without documentation, particularly in situations where:

  • There are questions in respect of the scope of the power exercised;
  • The decision is politically sensitive or controversial;
  • The decision affects First Nations; or
  • There is a history of acrimony in respect of the decision.

Some situations may require that decisions be made rapidly and in that case, it is vitally important to document the reasons for the decisions in writing with supporting documents.

Generally speaking, taking the following additional steps will reduce the risk of a successful misfeasance claim against the government:

  • Obtaining outside legal advice for high profile, controversial or lucrative projects;
  • Incorporating into the decision-making process persons who are unconnected to the file (neutrals who assist in the process and can buffer the decision from attack);
  • Allowing all applicants in a procurement equal access to the decision-maker and equal access to the decision-making process. With respect to the former this includes private access at social functions;
  • Avoiding conflicts of interests and the appearance of a conflict of interest; and
  • Ensuring transparency of the entire procurement process.

Recent studies show that 18% of the overall budgets in public procurement projects are attributable to corruption – exercising integrity and transparency in decision-making not only protects government officials from liability for misfeasance claims it also saves taxpayers money and eliminates messy scandals down the road.