Aug 10, 2020

[Feldman, Lauwers and Huscroft JJ.A.]

Counsel:

Sarit E. Batner and Brandon Kain, for the appellants

Alan Mark and Melanie Ouanounou, for the respondent

Keywords: Contracts, Interpretation, Termination, Damages, Defences, Estoppel by Convention, Promissory Estoppel, Civil Procedure, Appeals, Standard of Review, Ryan v. Moore, 2005 SCC 38, Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, Di Millo v. 2099232 Ontario Inc., 2018 ONCA 1051, leave to appeal refused, [2019] S.C.C.A. No. 55, Ajayi v. R.T. Briscoe (Nig) Ltd., [1964] 1 W.L.R. 1326 (P.C. (Nigeria)), Rossi v. Canadian Imperial Bank of Commerce, [1969] O.J. No. 180 (C.A.), Loyola High School v. Quebec (A.G.), 2015 SCC 12, Whiten v. Pilot Insurance Co., 2002 SCC 18, Cavendish Square Holdings BV v. Makdessi, [2016] A.C. 1172 (U.K.S.C.), Central London Property Trust v. High Trees House, [1947] K.B. 130, Soboczynski v. Beauchamp, 2015 ONCA 282

Facts:

These companion appeals concerned the respondent Independent Electricity System Operator’s decision to terminate contracts with the appellants, renewable energy companies, as a result of their failure to achieve commercial operation of solar power facilities they were building by the “Milestone Date for Commercial Operation” set out in their contracts. The failure of the appellants to achieve commercial operation by the Milestone Date is not in dispute. What was in dispute is whether the respondent had the right to terminate the contracts as a result, without paying damages.

Issues:

1. Did the application judge err in concluding that the contracts could be terminated by the respondent if the appellants failed to achieve commercial operation by the Milestone Date?

2. Did the application judge err in finding that the respondent was not estopped from terminating the contracts?

Holding:

Appeal dismissed.

Reasoning:

1. No. The application judge made no errors in interpreting the contract. His analysis was thorough and complete and there was little that could usefully be added.

The standard of review of the application judge’s contractual interpretation was correctness because the contracts at issue were standard form contracts and a decision interpreting them had precedential value.

The respondent was entitled to terminate the FIT Contracts pursuant to s. 9.2 as a result of the appellants’ failure to achieve commercial operation by the Milestone Date. The fatal flaw in the appellants’ interpretation of the contract lay in its failure to give effect to a key provision in the contract, s. 2.5, which contained a “time is of the essence” clause. Such a clause required strict compliance with the Milestone Date.

2. No. The respondent was not estopped from terminating the contract under s. 9.2. Neither estoppel by convention nor promissory estoppel applied in this case.

The application of the estoppel doctrine was a mixed question of fact and law that was reviewable on a standard of palpable and overriding error, subject to any extricable legal errors, which are reviewable on a correctness basis.

Estoppel by Convention

The reiterated an important concern. Although the doctrine of estoppel cannot vary the terms of a contract, it may operate to prevent a party from relying on the terms of the contract to the extent necessary to protect the reasonable reliance of the other party. Thus, the doctrine has the potential to undermine the certainty of contract and must be applied with care, especially in the context of commercial relationships between sophisticated parties represented by counsel.

Estoppel by convention is a relatively rare form of estoppel that may arise when both parties to a contract act based on a shared assumption concerning circumstances relevant to their contract. If it would be unfair to allow a party to resile from the assumption, the doctrine operates to provide a remedy for detrimental reliance on the assumption by the other party. In effect, the estoppel operates to circumscribe the factual context in which the contract exists, thus affecting the obligations that the contract contains. Estoppel by convention requires a manifest representation of a shared assumption, which may arise out of a statement or conduct but may also arise from silence. Regardless of how an assumption arises, it must be clear and it must be shared. There is no room for doubt about the nature of an assumption that gives rise to the estoppel. The parties must be of a like mind at the material time, and this will not be so if the nature of the assumption is in doubt. This requirement is reflected in the purpose of the doctrine. Estoppel exists to protect reasonable reliance: it must be reasonable to adopt a particular assumption and reasonable to act in reliance on it.

The appellants argued that two of the three elements of estoppel by convention wre satisfied in this case and that the application judge found that only “the remaining element” was not. This submission put the cart before the horse. A shared assumption is not simply a remaining element; it is the thing that gives rise to the need for equitable relief. Without a shared assumption there can be no reliance and no detriment, and hence no need for equitable relief. In the absence of a shared assumption, the argument for estoppel by convention collapses.

A shared assumption giving rise to estoppel by convention may concern fact or law, and may be based on a mistake. But whatever the assumption concerns, it typically involves existing as opposed to future circumstances. The assumption asserted by the appellants in this case was unusual in that it included elements of both past practice as well as existing and future circumstances. Moreover, the assumption arose out of dealings not between the appellants and the respondent, but between the respondent and third parties. The appellants argued before the application judge that the parties assumed that the respondent would continue to follow its existing policy of not terminating FIT Contracts as a result of a supplier’s failure to meet the Milestone Date. The application judge found that this was not an assumption shared by the respondent. This was the judge’s call to make, and the Court saw no basis to interfere with it on appeal. The application judge’s conclusion was amply supported by the record

Promissory Estoppel

Promissory estoppel typically involves a promise by one party not to rely on its strict contractual rights. Where such a promise has been made with an intention that the other party will rely on it, and that party relies on the promise to his or her detriment, the party who made the promise is estopped from acting inconsistently with it. As with a shared assumption, although the promise does not vary the terms of the contract, the party who made the promise may be precluded from resiling from it to the extent necessary to protect the position of the party who has relied on the promise to his or her detriment.

The classic case is Central London Property Trust v. High Trees House, [1947] K.B. 130. In that case, in the context of a 99-year lease, a landlord agreed to accept reduced rent from a tenant for an indefinite period of time as a result of reduced demand during WWII. Lord Denning held that the landlord’s dispensation came to an end when full occupancy resumed but could also have been terminated at any time by notice. That is, the landlord could require the terms of the lease to govern future payments but was estopped from recovering past rent he had promised to discount.

In the absence of a shared assumption, was the respondent nevertheless estopped from relying on the strict terms of the FIT Contracts on the basis of promissory estoppel – that is, on the basis that the respondent promised that it would not enforce the contractual terms that permitted it to terminate the contracts? In the Court’s view, just as there was no shared assumption capable of supporting estoppel by convention, there was also no promise capable of supporting a claim of promissory estoppel.

The respondent’s past practice with other suppliers could not be taken to be a promise made to the appellants. Thus, the claim failed whether it was styled as estoppel by convention or promissory estoppel.

In summary, the appellants may well have assumed that time limits they contracted to meet did not really matter. But the respondent did not share that assumption, nor did it promise that it would not enforce those time limits. In these circumstances, the problem of detrimental reliance did not arise, as there was neither a shared assumption nor a promise on which the appellants could have relied on to their detriment. The application judge’s statement that the respondent’s break with its past practice “does seem unfair” was inappropriate. It is not the role of the judge to pronounce on the fairness of a contract or actions taken in accordance with it. In the absence of a finding that there was a shared assumption or a promise that was reasonably relied upon by the appellants, the question of fairness simply does not arise. The appellants chose to enter a contract with the respondent that made time of the essence. There was no basis for the Court not to give effect to their choice and the consequence it entailed: the respondent’s right to terminate the contracts under s. 9.2.