Alectra Utilities Corporation v. Solar Power Network Inc.

[Indexed as: Alectra Utilities Corp. v. Solar Power Network Inc.]

Ontario Reports Court of Appeal for Ontario Paciocco J.A. (motion judge) April 24, 2019

145 O.R. (3d) 794 | 2019 ONCA 332

Case Summary

Appeal — Stay pending appeal — Court of Appeal reinstating arbitrator's multi-million-dollar damages award against applicant — Applicant intending to seek leave to appeal to Supreme Court of Canada and applying for stay of execution of court's order pending disposition of appeal — Stay denied — Balance of convenience strongly favouring denial of stay as respondent was having liquidity problems and faced existential risks if stay was granted.

The parties entered into an agreement which contained an arbitration clause. When the applicant purportedly exercised its discretion to terminate the agreement, the respondent invoked the arbitration clause. The arbitrator found that the applicant did not exercise its discretion in good faith. He rejected the applicant's argument that the respondent was barred by the terms of the agreement from claiming lost profits as damages, and awarded the respondent $12.3 million in damages. The applicant applied successfully to set aside the arbitrator's award. The application judge found that the arbitrator exceeded his jurisdiction under the agreement by awarding damages for loss of profits. The Court of Appeal allowed the respondent's appeal and reinstated the award, holding that the arbitrator did not exceed his jurisdiction, but rather did exactly what he was authorized to do by the terms of the arbitration agreement, when he interpreted the agreement as not precluding an award of damages for lost profits. The applicant intended to seek leave to appeal that decision, and applied for a stay of execution of the court's order pending the disposition of the appeal.

Held, the stay application should be dismissed.

While it was not likely that leave to appeal would be granted, the applicant had met the low threshold of showing that there was a serious issue to be tried and that the issue had national or public importance. The applicant would suffer some irreparable harm if a stay was not ordered. However, it was not in the interests of justice to order a stay. The case in favour of the stay was not compelling, and the balance of convenience strongly favoured denying the stay, since the respondent was having liquidity problems and faced existential risks if the stay was granted, whereas the applicant had earnings and assets in the billions.

Cases Referred To

• Alectra Utilities Corp. v. Solar Power Network Inc., 2019 ONCA 254
• BTR Global Opportunity Trading Ltd. v. RBC Dexia Investor Services Trust, 2011 ONCA 620
• Iroquois Falls Power Corp. v. Ontario Electricity Financial Corp., 2016 ONCA 687
• Livent Inc. v. Deloitte & Touche, 2016 ONCA 395
• Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53
• Sistem Muhendislik Insaat Sanayi Ve Ticaret Anonim Sirketi v. Kyrgyz Republic, 2014 ONCA 576
• Smyth v. Perth and Smiths Falls District Hospital, 2008 ONCA 794
• United Mexican States v. Cargill, Inc., 2011 ONCA 622

Statutes Referred To

• Arbitration Act, 1991, S.O. 1991, c. 17, s. 46(1)3
• Supreme Court Act, R.S.C. 1985, c. S-26, s. 65.1

Application for a Stay of Execution of an Order Pending Appeal

Counsel:

• Gavin MacKenzie and Brooke MacKenzie, for moving party
• Nathaniel Read-Ellis, for responding party

Decision

[1] PACIOCCO J.A.: — Alectra Utilities Corporation ("Alectra") intends to seek leave of the Supreme Court of Canada to appeal this court's decision of April 2, 2019, Alectra Utilities Corp. v. Solar Power Network Inc., 2019 ONCA 254. Solar Power Network ("SPN") is currently attempting to collect on the arbitrator's damages award of almost $14 million inclusive of costs and interest that was reinstated in that decision. Alectra is therefore applying, on an urgent basis, for a stay of the execution of the order of this court pending disposition of Alectra's leave to appeal application.

[2] For the reasons elaborated upon in this decision, I deny Alectra's application. Simply put, while I am persuaded that Alectra can meet the serious question to be tried threshold, and that there is a foundation for finding that Alectra will suffer some irreparable harm if a stay is not ordered, it is not in the interests of justice to order the stay. The case in favour of the stay is not compelling, and the balance of convenience strongly favours its denial.

The Background Facts

[3] On October 5, 2015, Alectra, a municipally owned utilities company, and SPN, a renewable energy company, entered into a Purchasing and Management Agreement (the "PAMA") relating to "Feed in Tariff Program" contracts ("FIT contracts") awarded by the Government of Ontario. In simple terms, SPN would provide and operate solar projects on leased sites for each FIT contract secured. Alectra would provide the financing.

[4] On June 29, 2016, 69 FIT contracts were awarded for the PAMA sites. On September 14, 2016, Alectra purported to terminate the partnership with respect to all 69 sites. There is some suggestion that this may have been done to pressure SPN into agreeing to sell its interest in the projects to Alectra.

[5] SPN invoked the PAMA's arbitration clause, challenging Alectra's decision to terminate. The arbitrator found that Alectra had not exercised its discretion to terminate the partnership in good faith, and awarded $12,337,655 in damages for lost profits, plus interest and costs.

[6] Alectra brought an application to set aside the arbitrator's award, relying on s. 46(1)3 of the Arbitration Act, 1991. Alectra claimed that the arbitrator's damages award was "beyond the scope of the agreement".

[7] The application judge set aside the arbitrator's decision. He found that although the arbitrator did not exceed his jurisdiction in concluding that the PAMA imposed an obligation to use good faith in terminating the partnership, the arbitrator lacked jurisdiction under the PAMA to award SPN damages for its loss of profits.

[8] SPN appealed the application judge's decision to this court. This court set aside the application judge's order and reinstated the arbitrator's award since "the arbitrator did exactly what he was authorized to do by the terms of the arbitration agreement: he resolved the parties' dispute concerning the alleged breach of their agreement and awarded damages". This court held that it was improper for the application judge to have interpreted the substantive provisions of the PAMA to determine whether the arbitrator's decision to award damages for future lost profits was unreasonable or incorrect.

[9] Alectra intends to seek leave to appeal this court's decision to the Supreme Court of Canada, but unless and until that leave application is determined in Alectra's favour, SPN is entitled to enforce the reinstated arbitrator's award. SPN fully intends to do so because it is under tremendous pressure from its creditors, and its current financial situation prevents it from competing for lucrative contracts under a new government program. Enforcing the arbitrator's award will solve its financial woes. Alectra believes that if SPN is able to enforce the damages award before Alectra's application for leave is determined, and Alectra obtains leave to appeal and succeeds in setting aside this court's decision, that success will prove to have been moot. Alectra will not be able to recover the money that SPN has collected, leaving SPN with an improper windfall. Alectra therefore seeks a stay of the enforcement of this court's order.

Analysis

A. Is there a serious issue to be tried?

[10] In BTR Global Opportunity Trading Ltd. v. RBC Dexia Investor Services Trust, 2011 ONCA 620, the test in an application to impose a stay pending appeal was described by Laskin J.A.:

The moving party . . . must show that it has raised a serious issue to be adjudicated, that it will suffer irreparable harm if a stay is not granted, and that the balance of convenience favours a stay. These three components of the test are interrelated in the sense that the overriding question is whether the moving party has shown that it is in the interests of justice to grant a stay.

[11] When a party is seeking a stay of a decision of this court pending an application for leave to appeal, pursuant to Supreme Court Act, R.S.C. 1985, c. S-26, s. 65.1, the serious issue factor is modified: Livent Inc. v. Deloitte & Touche, 2016 ONCA 395.

[12] As Gillese J.A. explained in Iroquois Falls Power Corp. v. Ontario Electricity Financial Corp., 2016 ONCA 616, the application judge "must make a preliminary assessment of the merit of the leave application, taking into consideration the stringent leave requirements in the Supreme Court Act": at para. 17. Since the Supreme Court of Canada typically grants leave only in cases of public or national importance, an application judge must consider whether these considerations are apt to be met.

[13] To be sure, the threshold on both the merits and the national or public importance considerations remains low: Livent Inc.. If there is little likelihood that leave to appeal will be granted, however, this will militate against the imposition of a stay: Iroquois Falls.

[14] Alectra's primary argument is that this court's decision raises a serious issue of public importance as to whether an arbitrator's jurisdiction is to be determined by interpreting the arbitration clause in isolation, or in the context of the agreement as a whole.

[15] Alectra urges that the decision is contrary in two respects to this court's previous direction in United Mexican States v. Cargill, Inc., 2011 ONCA 622. First, Cargill directs that when determining jurisdiction, it should be asked whether there is anything in the agreement as a whole that precludes the arbitrator from making the award: para. 52. Alectra contends that this court did not look at the agreement as a whole in the case under consideration. Second, Cargill recognizes that language that prohibits an arbitrator from making a damages award is a jurisdictional limitation: para. 72. Alectra contends that this court's decision appears to hold otherwise.

[16] Alectra maintains that there is significant public interest in settling the proper approach to interpreting contracts when identifying the jurisdiction an arbitrator has been given.

[17] Alectra also proposes that this court's holding that the application judge erred in considering the reasonableness of the arbitrator's interpretation of the contract when determining jurisdiction raises important issues relating to the appropriate standard of review, particularly after the decision in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53.

[18] SPN argues that both of these issues are neither serious nor do they raise issues of public importance. Instead, they are hypothetical issues in the sense that neither arises from this decision. SPN argues that this court considered the agreement as a whole, including the provisions relied on by the application judge, ss. 2 and 5. Moreover, since this court recognized in para. 43 of its decision that an arbitrator's jurisdictional question must be answered correctly, the application of the reasonableness standard does not arise here. Ultimately, SPN urges that it will not be possible for Alectra to persuade the Supreme Court of Canada that this case, which turns on an idiosyncratic contract between the parties, raises issues of public or national interest.

[19] I am inclined to the view expressed by SPN. It strikes me that the proper characterization of this court's decision is that this court considered the PAMA as a whole before finding that the arbitrator correctly decided that he had jurisdiction to interpret and apply the terms of the PAMA, including whether to award damages for lost profits. I agree with SPN that since the issues relied upon by Alectra are not clearly raised in this case, a finding that the proposed grounds of appeal are of public importance is unlikely.

[20] I cannot go so far as to say, however, that Alectra has not met the low threshold of showing that it raises serious issues that could be found to be of sufficient public importance to enable leave to appeal to be granted.

[21] This court's decision is complicated and its proper interpretation is open to debate. That being so, there may be questions relating to the fit between this court's reasoning and what it said in Cargill. This court's decision in Smyth v. Perth and Smiths Falls District Hospital, 2008 ONCA 794, can also be read as providing some support to Alectra's position that there is a role for reasonableness review of an arbitrator's decision. In rendering the decision underlying this application, this court overcame that complication by describing that part of Smyth as obiter: para. 44.

[22] As counsel for Alectra pointed out in oral argument, a commercial list judge also approached the matter as Alectra suggests, and a panel of this court found SPN's leave application relating to these same questions to have sufficient importance to warrant granting leave to this court.

[23] Simply put, while I do not believe that Alectra's claim strongly raises serious issues of public importance, and I believe it to be unlikely that leave to appeal will be granted, I cannot find that the low threshold has not been met.

B. Will Alectra suffer irreparable harm?

[24] Alectra relies on SPN's precarious financial situation to satisfy the irreparable harm consideration. It argues that if this court's decision is not stayed, and SPN collects damages, SPN will be unable to repay those damages if the Supreme Court of Canada ultimately rules that those damages were not due.

[25] Were that to prove true, it would qualify as irreparable harm within the meaning of the test for a stay: Sistem Muhendislik Insaat Sanayi Ve Ticaret Anonim Sirketi v. Kyrgyz Republic, 2014 ONCA 576. As Strathy C.J.O. said in Livent Inc., irreparable harm can refer to harm that cannot be cured "because one party cannot collect damages from the other".

[26] The risk that SPN will be unable to repay those damages therefore satisfies the irreparable harm consideration. However, that risk should not be exaggerated. First, even in the event that SPN was to collect the entire damages award, it requires approximately half of that amount to repay its creditors. There is no basis for apprehending that the entire amount of the damages award will be put at risk if a stay is not ordered. Second, and more importantly, SPN has presented evidence that it has a liquidity problem, not net worth problems. It has assets it can monetize in time to repay Alectra, if required.

[27] I am not persuaded that those assets are speculative, as Alectra contends. SPN's claim that the leases are worth approximately $2.5 million may not prove to be sustained, but $463,913 was backed out of the damages award in this case to represent the value of the leases.

[28] Moreover, the non-contradicted evidence before me is that SPN is entitled to compensation from the Independent Electricity System Operator ("IESO compensation") for cancelled FIT contracts, of up to $250,000 per contract. Although it is not clear how much will actually be recovered, even if SPN does not recover the entire $14.4 million in IESO compensation it is claiming, it can reasonably be anticipated that its claims are worth a considerable amount.

[29] Finally, the irreparable damage that Alectra apprehends is entirely contingent on the Supreme Court of Canada granting leave and overturning this court's decision. While not impossible, that outcome is unlikely.

[30] Although refusing the stay does pose some incalculable risk that this decision could cost Alectra money in the long run which it could prove to be entitled to, that risk is not as grave as Alectra claims.

C. Does the balance of convenience favour a stay?

[31] In my view, on the evidence before me, the balance of convenience strongly favours denying Alectra's application for a stay of the enforcement of this court's order.

[32] The parties agree that currently SPN is having serious liquidity problems. Its creditors, owed approximately $7 million, are standing down in the expectation that SPN can collect the damages this court has determined SPN is entitled to. If this court's decision is stayed, SPN's continued viability will be placed at increased risk by those creditors.

[33] Moreover, SPN's liquidity problems, which would be solved if this court's decision is enforced, are preventing SPN from competing for lucrative contracts.

[34] It is not too much to say in these circumstances that there are existential risks to SPN if a stay is granted. If those risks materialize and SPN does ultimately prove to be entitled to the damages award this court has upheld, the damage that the stay of enforcement will cause cannot readily be undone.

[35] In contrast, Alectra has earnings and assets in the billions. While there is a modest risk that if the stay is denied Alectra may end up losing money that it could prove to be entitled to, the intensity of that risk pales next to the risk to SPN if the stay is granted.

Conclusion

[36] On balance, I am not persuaded that it is in the interests of justice to stay the enforcement of this court's order of April 2, 2019. The application is dismissed.

[37] As agreed between the parties, costs are awarded to SPN in this application in the amount of $7,500, inclusive of all applicable taxes and disbursements.

Application dismissed.

End of Document