Aug 11, 2020

Grasshopper was a solar electricity provider. It had entered into a standard form contract with the Ontario independent electricity provider. Grasshopper was to provide solar electricity to the grid. Grasshopper was under strict written milestones which Grasshopper had to achieve. Grasshopper failed the milestones thus formally breaching the contract.

The important clauses were:

  • the time is of the essence clause, another example where boilerplate language actually decides the case;
  • the contract actually contained a ‘milestone’ clause and the parties agree that commercial operation shall be achieved in a timely manner and by the milestone date for commercial operation.
  • the contract contained a termination clause which specifically contemplated termination in the event that Grasshopper failed to meet the milestone.

But of course Grasshopper argued that the Independent electricity provider was estopped from terminating the contract because somehow or other the Independent electricity provider’s conduct had induced Grasshopper to believe that the milestones would not be treated as milestones.

what was the Operator’s conduct upon which Grasshopper purports to rely:

  1. the Operator sent out a ‘bulletin’ regarding delays which specifically stated: that information provided here is for informational purposes and shall not be relied upon by Suppliers.
  2. the bulletin set out a possibility of Operator forbearance in the event of Supplier delay. But the possibility ‘does not constitute a waiver of any actual or potential default.’
  3. The Operator sent out a warning telling the Supplier that the contract milestones would not be extended.

Despite all of this fatal evidence against Grasshopper, Grasshopper decided to try its luck with estoppel, suggesting that Operator conduct induced Grasshopper to think that the Milestones were merely suggestions.

What is estoppel by convention?

The Court of Appeal said that Grasshopper failed to prove estoppel. The ONCA looked to the SCC in Ryan v Moore for the meaning of estoppel by convention.

In Moore, the latest SCC statement on estoppel, Moore’s car hit Ryan’s car on November 27th 1997. In December 1997 and continuing thereafter, Ryan is in constant communication with Moore’s insurer, which pays some of Ryan’s early expenses. Neither Ryan nor Moore’s insurer realize that Moore dies on December 26, 1998 (still 11 months before the expiry of Ryan’s ordinary limitation period against Moore).

The Newfoundland Survival of Actions Act however sets a 6 month limitation upon actions against the estate. When Ryan realized that he had filed action after the expiry of this Survival of Actions limitation period (6 months) Ryan tried to estop Moore’s estate from relying upon the 6 month limitation period.

Wells C.J. determined that when the deceased’ insurer communicated with the plaintiff, both under the mistaken assumption that Moore was alive, this communication amounted to ‘confirmation’ of the claim. Confirmation is an important question (according to Wells C.J.) because under the Limitations Act, if one party ‘confirms’ the claim of the other party, that stops the limitation period.

But, says the SCC overruling Wells C.J., it doesn't matter if the 2 year limitations clock is stopped since a second statute,the Survival of Actions Act determines the true limitations period of 6 months. At common law there is no survival of actions against the dead. The Survival of Actions Act is the legislature creating an action. That the legislature sets a 6 month limit on the existence of such action is determinative. (Moore SCC at 79)

In other words, all the estoppel dialogue is beside the point. The legislature created the cause of action against a deceased. The court does not get to extend that statutory 6 month limitation period regardless of whether all parties acted as though it extended, regardless of whether the insurer induced the victim into a feeling that the victim did not need to file immediately after accident.

my parenthetic note on Ryan v Moore: Despite the SCC using Ryan as its vehicle to discuss estoppel, Ryan v Moore did not turn upon estoppel. Estoppel is not the ratio. The ratio is that an Act creating a cause of action and setting 6 months as the limitation period - such special case statutory limitation period shall not be extended by ‘conduct’. In other words, it didn’t matter how perfect the estoppel conduct was, it would not have mattered to extend a statutory limitation period.

Back to Grasshopper: Was there, maybe, a promissory estoppel?

Grasshopper tried to suggest that Grasshopper and the electricity provider operated upon a shared assumption that the Operator promised not to enforce. The ONCA properly went to High Trees to show what such an estoppel requires (ONCA para 68). The bulletin did not constitute the Operator’s promise not to enforce (para 70). It was not a promise. It was not directed to the Appellant who was not then a Supplier. Grasshopper could neither rely upon the purported ‘past practice’ of the Operator as Grasshopper was not party to any ‘past practice.’ (para 70).

My law note:

although this case is discussed through the estoppel prism, it is not an interesting estoppel case. There are no estoppel facts per se. The contractual and conduct language against estoppel is overwhelming.

My economics note:

It seems to me, that the most important aspect of this case is the rejection by the ONCA of a dangerous legal theory proposed by Grasshopper.

Grasshopper suggested that because Grasshopper had already invested large amounts, on the perhaps mistaken reliance upon an imaginary 'understanding' that was inconsistent with the contract, well, the magnitude of the investment should itself estop the contract enforcer. In other words, the possibility that Grasshopper will suffer a loss should be the sufficient condition to impose estoppel against the Operator.

The two cases cited by Grasshopper for this proposition Loyola High School v. Quebec (A.G.) 2015 SCC 12 at para 38 and Whiten v. Pilot Insurance Co 2002 SCC 18 at para 111 (see Grasshopper at para 48) do not stand for what Grasshopper wants them to stand for,

But Grasshopper's point is heard: is the SCC inducing contract parties to think that the SCC will not permit contract enforcement if the breacher is set to lose more than the victim of breach?

Why Grasshopper's loss-theory doesn't make sense:

the common law should care about total social loss, not the subjective 'loss' to Grasshopper, which is not an actual social loss. (I hesitate to use the word 'social' given that word is so distorted by the left, see Hayek: the constitution of liberty p.65). In economics, 'social' means that the court should not care whether Grasshopper loses its investment, so long as overall resources are maximized by the court's conduct.

In Grasshopper's case, all that really happens to 'its millions in sunk investments' is that those solar investments are distributed in bankruptcy to other users and those resources re-enter the economic mechanism, albeit in someone else's hands. There is negligible social loss from the mere act of denying Grasshopper relief.

But if the SCC, for instance, led contract parties to effectively ignore the contract on the premise that investment, once sunk, would constitute estoppel, it is easy to see how many uneconomic investments would be made because the investor, can, the moment after investment, effectively rely upon the opposing contract party as 'locked-in'. In Grasshopper's case, it is not the functionality of the investment (i.e. that it is working by the milestone date) rather it is the fact of money being spent, functional or not, upon which the economy will now equilibrate.

The SCC must always be (and is) concerned about economically efficient incentives. Perverse incentives, to over-invest, too-rapidly invest, or uneconomically invest, so as to lock-in the other party in contradiction to the contract terms, must be aggressively suppressed.

The ONCA suppressed such perverse incentives in this case.