Commercial Alcohols Inc. v. Power, 2006 CanLII 31445 (ON CA)

DATE: 20060914

DOCKET: C44893

COURT OF APPEAL FOR ONTARIO

RE:

COMMERCIAL ALCOHOLS INC. (Plaintiff/Appellant) – and –

BRUCE POWER, L.P. (Defendant/Respondent)

BEFORE:

ROSENBERG, MACPHERSON and GILLESE JJ.A.

COUNSEL:

Alan J. Lenczner, Q.C. and Ryan Stewart Breedon

for the appellant

Glenn Hainey and Michael Watson

for the respondent

HEARD:

September 12, 2006

On appeal from the judgment of Justice Alexandra Hoy of the Superior Court of Justice dated January 31, 2006.

E N D O R S E M E N T

1The appellant appeals from the judgment of Hoy J. dated January 31, 2006, wherein she dismissed the plaintiff/appellant’s claim that the steam rate it was obligated to pay the defendant/respondent pursuant to the 1994 Steam Sale Agreement (“the SSA”) was to be based on nuclear‑generated steam only, not oil‑fired steam. The trial judge also held that the respondent did not breach its obligation to negotiate steam rates for 2004 and, as a result, the contract between the parties came to an end on either November 30 or December 31, 2003.

2The central issue at trial was the interpretation of the words “the full reasonable cost recovery principle” in Article 2.2 of the SSA which provided:

2.2 The term of this Agreement may be extended for one (1) year on the second anniversary of the Commencement Date and thereafter on each anniversary of the Commencement Date on the same terms and conditions as herein contained save and except for rates for Steam and Condensate. The parties agree to commence negotiation of the rates for Steam and Condensate for the extension period of the Agreement on November 1^st of each year with a schedule for completion of negotiations not later than November 30^th of the same year. Negotiations of the rates for Steam and Condensate will be based on the total quantity of Steam supplied by Hydro to all customers in BEC using the full reasonable cost recovery principle [emphasis added].

3After a comprehensive review of the witnesses and their evidence, the wording of Article 2.2 and related provisions in the SSA, and the jurisprudence relating to the interpretation of contracts, the trial judge concluded:

It seems clear to me that a clause entitling the supplier of goods to be paid an amount equal to the supplier’s full reasonable costs of supplying goods entitles the supplier to recover its actual costs. I am able to come to that conclusion without considering extrinsic evidence of surrounding circumstances; however, what is “reasonable” cannot be determined in a vacuum. Therefore, in my view, the phrase “full reasonable cost recovery principle” should be read in light of the surrounding circumstances prevalent at the time the 1994 Agreement was executed.

In my view, the interpretation of the phrase “full reasonable cost recovery” advanced by Bruce Power, which I accept, promotes a sensible commercial result. The 1994 Agreement does not have a fixed term, and has no provision for termination on notice. It is not tied to Bruce Power’s ability to produce or supply nuclear generated steam to CAI. Circumstances change over the course of a long‑term arrangement. “Full reasonable cost recovery” provides the requisite flexibility in such a potentially long‑term arrangement. It is unreasonable to adopt an interpretation that in addition to requiring Bruce Power to forego profit on the commercial supply would require Bruce Power to sustain a loss for an indefinite period.

4The appellant contends that the trial judge erred in her interpretation of Article 2.2 in two respects – first, in her approach to the SSA; and second, in her failure to read it against its factual matrix. We disagree.

5The trial judge approached the interpretation of the contract in precisely the fashion set out in the leading cases which she reviewed with great care. In our view, the trial judge’s understanding and application of the principles in Consolidated‑Bathurst v. Mutual Boiler and Machinery Insurance Co., [1980] 1 S.C.R. 888, Venture Capital USA Inc. v. Yorkton Securities Inc. (2005), 75 O.R. (3d) 325 (C.A.), and Hi‑Tech Group Inc. v. Sears Canada Inc. (2001), 52 O.R. (3d) 97 (C.A.), were, in a word, impeccable.

6We also do not accept that the trial judge made any reversible error respecting the factual matrix. The parties put forward competing versions of the factual matrix in 1994. The trial judge accepted the respondent’s evidence as to the factual matrix. As such, this submission raises a question which attracts the high hurdle of the “palpable and overriding error” standard of review: see Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235.

7The trial judge very carefully set out and analyzed the factual background relating to the contract, and in particular in relation to the interpretation of the “full reasonable cost recovery” principle. Moreover, her conclusion was explicit:

The litigation involving Hydro, the fact that in 1994 a portion of the steam supplied to CAI in 1994 was generated by the oil fuelled back‑up boiler, and the factual matrix identified by Bruce Power, comprise the surrounding circumstances that were prevalent at the time that the parties entered into the 1994 Agreement. Those surrounding circumstances, in addition to assisting in interpreting what is “reasonable”, also buttress my finding that the 1994 Agreement entitles Bruce Power to recover its actual costs.

8In our view, there is nothing in the record before us or in the trial judge’s comprehensive analysis of the SSA in the context of its factual matrix to suggest that her conclusion on this issue amounts to a palpable and overriding error. The circumstances set out in this paragraph and in her description of the “factual matrix identified by Bruce Power” are founded in the evidence and support her interpretation of the contract.

9Finally, the appellant submits that the trial judge erred in her application of the doctrine of res judicata with respect to the judgment of Cameron J. in 1997 in a related lawsuit between the same parties. Nothing turns on this issue. The subject matter of the litigation before Cameron J. was far removed from the factors relevant to the interpretation of Article 2.2 of the SSA. Moreover, the trial judge made it clear in para. 125 of her reasons that she was able to come to the findings she did without reliance on the doctrine.

10The appeal is dismissed. The respondent is entitled to its costs of the appeal fixed at $20,000 inclusive of disbursements and GST.