COURT OF APPEAL FOR ONTARIO

CITATION: Hutchingame Growth Capital Corporation v. Independent Electricity System Operator, 2020 ONCA 430

DATE: 20200702

DOCKET: C66553

Lauwers, Hourigan and Thorburn JJ.A.

BETWEEN

Hutchingame Growth Capital Corporation

Plaintiff (Appellant)

and

Independent Electricity System Operator

Defendant (Respondent)

Michael S. Hebert and Cheryl Gerhardt McLuckie, for the appellant

Thomas G. Conway and Benjamin Grant, for the respondent

Heard: February 25, 2020

On appeal from the judgment of Justice Pierre E. Roger of the Superior Court of Justice, dated January 10, 2019, with reasons reported at 2019 ONSC 259.

Lauwers J.A.:

[1] This appeal arises from a contract dispute over a failed renewable energy project that was to be built and operated by a numbered company carrying on business as Greenview Power.

A. Overview

[2] In 2007, Greenview Power entered into a Renewable Energy Standard Offer Program Contract (“RESOP Contract”) to build a biomass renewable energy facility to generate and supply electricity to the Ontario Power Authority. The respondent, the Independent Electricity System Operator (“IESO”), is the Authority’s successor.

[3] Greenview Power’s obligations under the RESOP Contract were to build a renewable energy facility and supply electricity for a period of 20 years beginning on November 8, 2010, the “Commercial Operation Date.” Greenview Power could not meet this deadline and the IESO amended the RESOP Contract twice, extending the Commercial Operation Date to January 15, 2013. According to the appellant, Hutchingame Growth Capital Corporation (“HGC”), the RESOP Contract had a potential revenue stream of $80 million over its 20-year term.

[4] Greenview Power could not meet the original or revised deadlines in the RESOP Contract for reaching commercial operation. To save the project, in the fall of 2012, HGC, led by its principal Eric Hutchingame, purchased some of Greenview Power’s secured debt and assumed its effective control. Another Hutchingame investment vehicle, Sea to Sky Pollution Solutions Corporation (“Sea to Sky”), played a supporting role.

[5] In 2013, HGC entered into the Waiver and Amending Agreement with Greenview Power, the IESO, and Greenview Power’s other secured creditors. The Agreement waived specified events of default under the RESOP Contract and amended various targets under it, setting November 8, 2015 as the new Commercial Operation Date. However, Greenview Power went bankrupt on February 24, 2014 and the RESOP Contract terminated.

[6] HGC could have revived the RESOP Contract under s. 9.2(3), a provision in the Contract that permitted it, as a secured creditor, to step into the bankrupt’s shoes. Instead of invoking this provision, HGC tried to assign its rights under the RESOP Contract to Truestar Investments Ltd., including the RESOP Contract, using s. 9.2(2). The trustee obtained a vesting order from the bankruptcy court that approved Truestar’s purchase of Greenview Power’s assets.

[7] The trial judge found that the RESOP Contract clearly stated that it would terminate on bankruptcy, that HGC’s efforts to assign the Contract to Truestar failed, and that HGC had failed to prove that it was entitled to damages for breach of contract or negligence. He dismissed HGC’s action.

[8] I would dismiss the appeal for the reasons that follow.

B. The Issues

[9] HGC raised several issues that distill into five questions for determination:

1. Did the RESOP Contract terminate automatically when Greenview Power made an assignment in bankruptcy?

2. Was the vesting order effective in vesting the RESOP Contract in Truestar?

3. Did the IESO breach its contractual obligations?

4. Did the IESO owe HGC a duty of care in negligence?

5. Was HGC entitled to damages?

Before analyzing these questions, I set out the factual context.

C. The Factual Context

[10] The root of the case lies in the standard form 2007 RESOP Contract. Section 7 expressly stipulates the acts of default by a generator like Greenview Power that could result in the Contract’s termination. Some of the defaults could be cured within 30 days after the generator received written notice from the IESO. However, the RESOP Contract provided that when a generator files a proposal under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, or makes an assignment in bankruptcy, then the Contract terminates automatically without the need for the IESO to provide notice.

[11] Section 9.2 of the RESOP Contract, which is reproduced in the Appendix to this decision, gave HGC certain rights as a secured creditor. Section 9.2(2) allowed HGC to enforce its security by acquiring Greenview Power’s interest, defined as “the right, title and interest of the Generator in or to the Contract Facility and this Agreement or any benefit or advantage of any of the foregoing,” and then selling or assigning the interest to a third party. The s. 9.2(2) right to assign was subject to s. 13.4 of the RESOP Contract, which added two relevant stipulations. First, under s. 13.4(1), the Generator (Greenview Power and subsequently HGC, which stepped into Greenview Power’s shoes under the RESOP Contract) was obliged to provide prior written notice of any assignment to the IESO. Second, s. 13.4(4) provided that: “No assignment of this Agreement shall be valid or effective and no change of Control shall be permitted if the assigning Party is in default at the time of the assignment or change of Control.” Upon taking control of Greenview Power earlier, under s. 9.2(2), HGC, standing in Greenview Power’s shoes, became “bound by all of the Generator’s rights and obligations hereunder so long as it is the owner or is in control or possession of the Generator’s Interest.”

[12] Section 9.2(3) provided that if an identified “Generator Event of Default” terminated the RESOP Contract before the end of its term, then a secured creditor like HGC could revive it by assuming Greenview Power’s position. To do so, s. 9.2(3) required HGC to send a written request to the IESO within 90 days of the default that led to the Contract’s termination, pay the outstanding amounts, including fees owing to the IESO, and cure any outstanding defaults under the Contract.

(1) Greenview Power defaults and enters into the 2013 Waiver and Amending Agreement

[13] Greenview Power defaulted under the RESOP Contract by filing a notice of intention to make a proposal under the Bankruptcy and Insolvency Act in November 2012. It also missed several targeted dates by which commercial operation was to begin.

[14] On May 15, 2013, Greenview Power entered into the Waiver and Amending Agreement with the IESO, HGC, and its other secured creditors. The Agreement waived the effect of Greenview Power’s proposal under the Bankruptcy and Insolvency Act and its other defaults. It also amended certain provisions of the RESOP Contract.

[15] Sea to Sky also signed in its capacity as interim funder under the proposal. Sea to Sky provided interim financing through a loan made by Truestar to Sea to Sky. Under the loan agreement, Sea to Sky agreed to assign to Truestar all of its interest in the loan being made to Greenview Power and the security that it took over the Greenview assets. As interim funder, Sea to Sky was granted priority for advances that it made to Greenview Power.

[16] It is worth noting that the IESO could have relied on Greenview Power’s proposal under the Bankruptcy and Insolvency Act as a terminating event. But the IESO wanted the project to succeed. The IESO’s counsel, Harry Fogul, testified that the IESO was prepared to allow the project to proceed because: “the proposal was accepted and Greenview was going to complete the project in accordance with the terms of the proposal and in accordance with the terms of the RESOP contract, that was what [was] understood and that’s what the intention was.” He added: “technically speaking the contract would have terminated but for the fact that the [IESO] was prepared to waive it, which is why the agreement was called a waiver and amending agreement. It was waiving the default.”

[17] The trial judge found that after the parties entered into the Waiver and Amending Agreement, HGC took “no immediate real action” to meet Greenview Power’s new obligations and to put the project back on track to meet the revised Commercial Operation Date: at para. 27.

(2) Greenview Power goes bankrupt

[18] On February 24, 2014, Greenview Power made an assignment in bankruptcy, which had the effect of automatically terminating the RESOP Contract. The trial judge found that HGC did not engage the process required by s. 9.2(3) to revive the Contract, despite making representations to the IESO that it was doing so: at para. 55.

(3) HGC tries to assign its interest to Truestar

[19] HGC took a different tack. On May 15, 2014, several months after Greenview Power’s bankruptcy, HGC and Sea to Sky advised the IESO that they wanted to exercise their rights under s. 9.2(2) of the RESOP Contract. On the same day, and without advising the IESO, HGC alone entered into an assignment agreement with Truestar in which it purported to assign its interest in the RESOP Contract and in the Waiver and Amending Agreement, along with its security interest in Greenview Power, to Truestar for $4.7 million. The assignment was prepared without legal assistance. The principals of HGC, Mr. Hutchingame, and Truestar, William Baker, are longstanding acquaintances.

[20] Mr. Hutchingame admitted that the assignment “was not disclosed to the OPA/IESO, or to the secured creditors until after this action was started.” He testified that “only he and Mr. Baker were aware of the Assignment to Truestar.” Mr. Hutchingame said that: “he had no obligation to tell anyone.” However, the trial judge disagreed, noting that s. 13.4(1) of the RESOP Contract required written notice to be given to the IESO prior to the assignment: at para. 50.

[21] On May 23, 2014, the IESO responded to Mr. Hutchingame’s request to proceed by assignment under s. 9.2(2) of the RESOP Contract. The IESO stated that it considered that the Contract had terminated automatically under s. 7.1(20) on February 24, 2014 when Greenview Power made the assignment in bankruptcy, and that it assumed that HGC’s May 15, 2014 communication meant that HGC was exercising its rights under s. 9.2(3) of the Contract.

[22] HGC explained that, rather than pursue its rights under s. 9.2(3) of the RESOP Contract, in July 2014, Sea to Sky, in its capacity as interim funder under the terms of Greenview Power’s proposal, exercised its rights as a secured creditor and entered into an Agreement of Purchase and Sale to sell all of Greenview Power’s assets, including “all real estate, land, equipment, building, intellectual-property, and all of the contracts with the [IESO]” to Truestar for $500,000 (emphasis added).

[23] On July 29, 2014, the trustee in bankruptcy of Greenview Power, moved for an order in bankruptcy court to vest in Truestar all of Greenview Power’s assets, including its interest in the RESOP Contract, for $500,000. Mr. Hutchingame did not advise the IESO that this step was being taken. The court made the vesting order on August 21, 2014 and Mr. Hutchingame gave a copy of the order to the IESO that day.

[24] By letter dated September 4, 2014, the IESO reiterated its position that the RESOP Contract had terminated on February 24, 2014 upon Greenview Power’s bankruptcy and that HGC could only assign its interest under s. 9.2(2) after following the process mandated by s. 9.2(3) of the RESOP Contract. HGC did not comply with this direction.

[25] Truestar did not pay HGC for Greenview Power’s assigned assets. HGC brought this action. It claimed that by taking the position that the RESOP Contract was terminated, the IESO: had thwarted the assignment agreement between HGC and Truestar; had breached the Waiver and Amendment Agreement; and had acted negligently. HGC claimed $4.7 million in damages – the value of the Truestar assignment agreement. The trial judge dismissed the action.

D. Analysis

[26] In this appeal, the interpretation of the Bankruptcy and Insolvency Act and the applicable common law are questions of law subject to the correctness standard of review: Progressive Homes Ltd. v. Lombard General Insurance Co. of Canada, 2010 SCC 33, [2010] 2 S.C.R. 245, at para. 23. This standard would also apply to the interpretation of the RESOP Contract as a standard form contract, standing alone: Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23, at para. 46; MacDonald v. Chicago Title Insurance Co. of Canada, 2015 ONCA 842, 127 O.R. (3d) 663, leave to appeal refused, [2016] S.C.C.A. No. 39. The Waiver and Amending Agreement was a negotiated contract that amended the RESOP Contract. Accordingly, the interpretation of both contracts together with the remaining issues engage questions of mixed fact and law and are subject to the standard of palpable and overriding error, except for any extricable errors of law, which are subject to the correctness standard: Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, at para. 37; Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at paras. 8, 10.

(1) Issue One: Did the trial judge err in holding that the RESOP Contract terminated automatically upon Greenview Power’s bankruptcy?

[27] HGC argues that the RESOP Contract was not terminated by Greenview Power’s bankruptcy, for three reasons. First, the Waiver and Amending Agreement superseded the provision that automatically terminated the RESOP Contract on Greenview Power’s bankruptcy. Second, the termination provision in the RESOP Contract was invalid because it violated the stay imposed by s. 69.3 of the Bankruptcy and Insolvency Act. Third, the termination provision was invalid because it contravened the common law doctrine of fraud upon the bankruptcy law, also known as the “anti-deprivation rule”. I address each argument in turn.

(a) The Waiver and Amendment Agreement did not supersede the termination provisions in the RESOP Contract

[28] The trial judge rejected HGC’s argument that s. 10(b) of the Waiver and Amending Agreement superseded the termination clause in the RESOP Contract. It provides:

10(b) In this Agreement:

(i) breach of any covenant or other provision hereof by the Generator; or

(ii) a representation or warranty that is incorrect or untrue in any material respect,

shall be deemed to be a Generator Event of Default under the RESOP Contract, provided that a thirty (30) calendar day cure period shall be applicable thereto, and pursuant to which the [IESO] may inter alia pursue any remedy available to it under section 7.2 of the RESOP Contract, including (but not limited to) the termination of the RESOP Contract. [Emphasis added.]

[29] The trial judge found that s. 10(b) only provides that a default of any “new obligations” contained in “this Agreement,” being the Waiver and Amending Agreement itself, could be cured within 30 days: at para. 112. He rejected HGC’s core argument, repeated on appeal, for the following reasons: “I also disagree with [HGC] that section 10(b) of the Waiver and Amending Agreement eliminates any automatic terminations of the RESOP Contract and provides a thirty-day cure period for any breach of both the Waiver and Amending Agreement or the underlying RESOP Contract”: at para. 112. He added that, in reaching the Waiver and Amending Agreement, the parties had not discussed what would happen if Greenview Power went bankrupt. Instead, he noted that “the focus of the secured lenders, of Greenview Power, and of the [IESO] was on the success of the proposal, not on its failure”: at para. 116.

[30] The trial judge found that “the text of the RESOP Contract is unambiguous – an assignment into bankruptcy automatically terminates the RESOP Contract without [any obligation on the part of the IESO to provide] notice”: at para. 103. He found that the RESOP Contract therefore automatically terminated on Greenview Power’s bankruptcy: at paras. 104, 124. Accordingly, the IESO did not breach the RESOP Contract by taking the position that the bankruptcy had terminated it.

[31] I do not discern any error in the trial judge’s interpretation of either the RESOP Contract or the Waiver and Amending Agreement. I agree with him that the Waiver and Amending Agreement did not supersede the termination provisions of the RESOP Contract and that the termination was effective on February 24, 2014 when Greenview Power went bankrupt.

(b) The termination provision in the RESOP Contract was not invalid under s. 69.3 of the Bankruptcy and Insolvency Act

[32] Section 69.3 of the Bankruptcy and Insolvency Act provides:

69.3(1) Subject to subsections (1.1) and (2) and sections 69.4 and 69.5, on the bankruptcy of any debtor, no creditor has any remedy against the debtor or the debtor’s property, or shall commence or continue any action, execution or other proceedings, for the recovery of a claim provable in bankruptcy.

[33] The trial judge rejected HGC’s argument that the automatic termination in the RESOP Contract violated the automatic stay imposed by s. 69.3 of the Bankruptcy and Insolvency Act. He noted that the stay only prevents creditors from pursuing claims against the insolvent person: at para. 105.

[34] HGC argues that because the IESO was a creditor of Greenview Power, s. 69.3(1) stayed “any remedial action by [the] IESO to terminate the RESOP Contract.” On this argument, once the stay was in place, the IESO was required to move in bankruptcy court to lift the stay and to provide the written notice to commence the 30-day cure period “that it was required to provide” under the Waiver and Amendment Agreement; or, alternatively, to move in bankruptcy court to appeal or amend the vesting order. But the true reason for HGC’s approach to the stay issue is found in its assertion: “Had [the] IESO taken any of these steps, the matter could have been put before a bankruptcy court and the anti-deprivation rule considered.”

[35] Professor Roderick J. Wood explains: “the automatic stay of proceedings in bankruptcy has never been interpreted as preventing the exercise of [the] right” of “a contracting party [to] terminat[e] an agreement between it and the debtor”: Bankruptcy and Insolvency Law, 2nd ed. (Toronto: Irwin Law Inc., 2015) at p. 167. He notes that the presence of express provisions having that effect in proceedings under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 and in the restructuring provisions of the Bankruptcy and Insolvency Act “supports the view that the automatic stay of proceedings was not intended to extend to the termination of executory contracts, since the provision would not be needed otherwise”: at p. 167.

[36] Professor Wood’s logic is persuasive, especially in the absence of any contrary authority. I agree with the trial judge that s. 69.3 of the Bankruptcy and Insolvency Act did not invalidate the termination provision in the RESOP Contract. I have already noted that there is no basis for HGC’s assertion that under the Waiver and Amendment Agreement the IESO was required to give 30 days’ written notice of termination when the event of default was bankruptcy.

[37] While HGC anchors its approach to s. 69.3 on the Bankruptcy and Insolvency Act itself, it also relies on Garmeco Canada International Consulting Engineers Ltd. v. International Hi-Tech Industries Inc. for its submission that, in general, the Bankruptcy and Insolvency Act “allows secured creditors to realize on their security despite the stay of proceedings,” and that the Act’s intention is “not to interfere with the rights of secured creditors”: 2011 BCCA 292, 20 B.C.L.R. (5th) 1, at para. 16. HGC seems to argue that, as a secured creditor, it should have been free to exercise its security over Greenview Power’s assets without any impediment arising under the RESOP Contract.

[38] I would reject this argument. While the court affirmed the “position of secured creditors” in the event of bankruptcy in Garmeco, it ultimately concluded that a stay of proceedings did not apply in that case: at paras. 16, 18 and 23. HGC’s reliance on Garmeco is misplaced; the case does nothing to support its argument on the effectiveness of the stay of proceedings in this case.

[39] HGC seeks to use s. 69.3 of the Bankruptcy and Insolvency Act as a springboard to the common law anti-deprivation rule, to which I now turn.

(c) The termination provision in the RESOP Contract did not violate the common law “anti-deprivation rule”

[40] HGC submits that contractual provisions, like ss. 7.2(2) and 7.1(20), which terminated the RESOP Contract automatically on the bankruptcy of Greenview Power, are void as being contrary to public policy under the common law doctrine of “fraud on the bankruptcy law,” particularly the component of the doctrine known as the “anti-deprivation rule”. HGC argues that the automatic termination had the effect of removing value from Greenview Power’s insolvent estate and prevented secured creditors from exercising their rights over the secured assets.

[41] Professor Wood explains that the anti-deprivation rule invalidates contractual provisions that remove assets otherwise available to creditors in the event of insolvency. He discusses the fraud on the bankruptcy law doctrine in Bankruptcy and Insolvency Law at p. 88:

Canadian courts have recognized that a contractual provision that is designed to remove value from the reach of an insolvent person’s creditors is void on the basis that it violates the public policy of equitable and fair distribution on bankruptcy. This is referred to as the “fraud on the bankruptcy law principle.” The principle can be usefully broken down into two distinct components: the anti-deprivation rule and the pari passu rule. The anti-deprivation rule operates by invalidating provisions that withdraw an asset that would otherwise be available to satisfy the claims of creditors upon the insolvency of the party or the commencement of insolvency proceedings. [Internal citations omitted.]

[42] The common law anti-deprivation rule applies in commercial bankruptcies, including Greenview Power’s bankruptcy: Aircell Communications Inc. (Trustee of) v. Bell Mobility Cellular Inc., 2013 ONCA 95, at para. 12, citing Canadian Imperial Bank of Commerce v. Bramalea Inc. (1995), 33 O.R. (3d) 692, 1995 CanLII 7420 (C.J.); Capital Steel Inc. v. Chandos Construction Ltd., 2019 ABCA 32, 438 D.L.R. (4th) 195, at paras. 21 and 32, leave to appeal granted, [2019] S.C.C.A. No. 109.

[43] In each of these cases, the bankruptcy had the effect of depriving creditors of a valuable asset. In Aircell, a dealer of telecommunications products deprived the estate of earned commissions on sales: at paras. 1-2. In Bramalea, a clause in a partnership agreement permitted a partner to acquire an insolvent partner’s interest in a shopping mall venture at book value rather than at the substantially higher fair market value: at paras. 3, 10. In Capital Steel, the contract reduced the amount owing to the bankrupt by ten percent: at paras. 1, 16 and 32.

[44] By contrast, in this case, the IESO received no financial benefit from the automatic termination of the RESOP Contract and removed no value from the reach of Greenview Power’s creditors to its benefit. As Mr. Fogul testified at trial, his client had no “skin in the game” or an economic interest in the project; its interest as a regulator was ensuring “the rules, regulations and the contracts are covered.”

[45] The trial judge rejected HGC’s argument that the termination clause in the RESOP Contract violated the “anti-deprivation rule,” noting that the termination clause in this case “does not offend the public policy expressed in [Bramalea and Aircell],” because the contractual provision did not cause an inequity among creditors: at para. 109.

[46] I would reject HGC’s argument that its rights as a secured creditor under the Bankruptcy and Insolvency Act were prejudiced by the automatic termination of the RESOP Contract on bankruptcy. The trial judge noted that the Contract as a whole preserves the rights of secured creditors, like HGC: at paras. 119, 124. Section 9.2(3) of the RESOP Contract was designed to protect a secured creditor, such as HGC, against automatic termination resulting from the generator’s bankruptcy; HGC had the right to revive the terminated agreement within 90 days of the bankruptcy if it paid outstanding amounts owing to the IESO and cured existing defaults. Had HGC availed itself of the revival right, it could have exercised its rights as a secured creditor against the Greenview assets.

[47] I see no legal error in the trial judge’s determination. I also note that the RESOP Contract is an executory contract. As the IESO points out, “[the] IESO’s obligation to buy electricity [did] not arise until Greenview began supplying electricity in accordance with the contract’s terms.” In Capital Steel, the majority noted that clauses that “operate to terminate executory agreements … [and therefore] eliminat[e] a debtor’s opportunity to perform a contract [do] not necessarily result in a deprivation of value that would prejudice creditors” (citations omitted): at para. 34; see also Belmont Park Investments Pty Ltd. v. BNY Corporate Trustee Services Ltd. & Anor, [2011] UKSC 38, [2012] 1 A.C. 383.

(d) HGC could not assign its interest in the RESOP Contract to Truestar under s. 9.2(2) without curing the outstanding defaults and reviving the Contract under s. 9.2(3)

[48] Why did Mr. Hutchingame pursue the assignment approach under s. 9.2(2), rather than revive the RESOP Contract under s. 9.2(3)? As noted, revival required payment of outstanding amounts and the curing of existing defaults. The trial judge recounted Mr. Hutchingame’s testimony that HGC had the funds to assume Greenview Power’s obligations under the RESOP Contract but simply chose not to because doing so “would have been a bad business decision”: at para. 87. Perhaps the desire to avoid the minimal expense of complying with s. 9.2(3) explains Mr. Hutchingame’s effort to engage s. 9.2(2), rather than s. 9.2(3).

[49] The trial judge found that it would have been impossible for HGC to assign its interest in the RESOP Contract to Truestar under s. 9.2(2) without first curing the outstanding defaults: at para. 132. He noted that an assignment is only permitted in accordance with s. 13.4, which states that “No assignment of this Agreement shall be valid or effective and no change of Control shall be permitted if the assigning Party is in default at the time of the assignment or change of Control”: at para. 133. The trial judge held that, since Greenview Power, in whose shoes HGC effectively stood, was in default at the time of the purported assignment, HGC could not assign its interests in the RESOP Contract or the Waiver and Amending Agreement. The trial judge reasoned that a secured creditor could not have greater rights to assume and assign Greenview Power’s obligations under the RESOP Contract than Greenview Power itself would have had: at para. 136.

[50] I agree with the trial judge’s interpretation of s. 9.2 of the RESOP Contract. Once the Contract was automatically terminated, HGC’s sole avenue to wring value out of it was to pursue its rights under s. 9.2(3). If it wanted to assign its interest to Truestar under s. 9.2(2), it could only do that after reviving the Contract under s. 9.2(3). But, as Mr. Hutchingame’s trial evidence suggests, he might have avoided this course of action, in part, because he did not want to incur the expense.

(2) Issue Two: Was the vesting order effective in vesting the RESOP Contract in Truestar?

[51] HGC argues that the trial judge erred in ignoring the effect of the vesting order, which was to vest the RESOP Contract in Truestar. The vesting order stated:

All of the Bankrupt’s and Trustee’s right, title and interest in and to the Property and the Purchased Assets [defined to include the RESOP Contract]… shall vest absolutely in the Purchaser [defined as Truestar], free and clear of and from any and all security interests (whether contractual, statutory, or otherwise)...[.]

[52] The trial judge observed that the IESO was “clear in its communications with the trustee and Mr. Hutchingame that [its] position was that the RESOP Contract had not been transferred under the vesting order,” that Greenview Power’s bankruptcy terminated the Contract, and that the Contract “could only be assigned by following the process mandated by section 9.2(3) of the RESOP Contract”: at para. 63. He said: “the evidence shows that this was understood by Mr. Hutchingame and Mr. Baker”: at para. 63.

[53] The trial judge accepted the IESO’s position and found that Mr. Hutchingame’s conduct was “the probable cause of the project’s failure and of the failed Assignment to Truestar”: at para. 152. In arriving at this conclusion, he canvassed the evidence on the vesting order: at paras. 60-64 and 142-154. The trial judge was attentive to the “unusual” circumstances surrounding the vesting order, particularly that the IESO was not served with motion materials and the motion was made without notice to the IESO, that both the trustee and the court were unaware of the $4.7 million assignment to Truestar, and that “Mr. Hutchingame’s dealings were secretive, and he delayed directly addressing the [IESO’s] position until … it was too late”: at paras. 144-145, 151-152.

[54] When the vesting order came to the IESO’s attention, Mr. Fogul went into problem-solving mode. While the IESO wanted the project to succeed, it was not prepared to permit the vesting order to be the vehicle for that success. That was communicated to HGC. Mr. Fogul testified: “My solution was, go and get an amendment to the vesting order, take the RESOP contract out of it and proceed under 9.2(3).”

[55] When asked whether he got instructions from the [IESO] to challenge the vesting order, Mr. Fogul explained that he did not because at that point he understood that “the trustee [would] bring a motion to amend the order[,] change the purchaser, and remove the RESOP contract” from the assets to be vested. This understanding arose from a conference call between Mr. Fogul, counsel for the trustee, counsel for HGC, and Mr. Hutchingame, to which the trial judge referred at para. 148.

[56] At trial, Mr. Fogul explained that the IESO did not bring a motion in bankruptcy court because of this agreement in principle, which never materialized:

Q. Did you get instructions from the [IESO] to bring any - any motion to amend the vesting order?

A. No, because at that point I had understood that there was an agreement in principle that the trustee was going to bring a motion to amend the order and change the purchaser and remove the RESOP contract, so we were waiting for him to do that, which never happened.

Q. How did - where did you get that understanding from?

A. Well, from the last call we had on the 24th where they said we now have to go to court because we have a new purchaser. We’re going to move to amend the approval and vesting order and so I assumed that they were going to do it, but apparently they never did. [Emphasis added.]

[57] On appeal, HGC argues that the vesting order, by its terms, vested the RESOP Contract in Truestar, free and clear of all encumbrances, leaving to creditors the proceeds generated by the sale transaction. In support of its argument, HGC relies on Third Eye Capital Corporation v. Ressources Dianor Inc./Dianor Resources Inc., 2019 ONCA 508, 435 D.L.R. (4th) 416, at paras. 25 and 139. HGC adds that it was up to the IESO to appeal the vesting order, or apply to vary it or have it set aside; having failed to do so, the vesting order binds the IESO.

[58] I would reject HGC’s argument that the effect of the vesting order was to vest the RESOP Contract in Truestar. The premise of this argument is that the RESOP Contract had not terminated automatically on the date of Greenview Power’s bankruptcy, a premise that has already been rejected. There was, in short, nothing left of the RESOP Contract to vest in Truestar. There is also merit in the IESO’s argument that if the order effectively had vested the RESOP Contract in Truestar, then only Truestar could bring an action seeking to enforce the IESO’s obligations under the RESOP Contract, not HGC.

(3) Issue Three: Did the trial judge err in finding that the IESO did not breach its contractual obligations?

[59] On the facts, the IESO did not give HGC notice of the automatic termination of the RESOP Contract. HGC’s argument, that the IESO was required to give at least 30 days’ written notice of termination as the result of the Waiver and Amending Agreement, has been rejected. However, the trial judge observed that: “The [IESO] might have acted more transparently upon learning that Greenview had filed for bankruptcy, rather than waiting silently for the 90-day period to expire”: at para. 127.

[60] At trial, HGC argued that good faith contractual performance and the common law duty to act honestly in the performance of contractual obligations imposed a duty on the IESO to advise HGC that the RESOP Contract would terminate automatically if Greenview Power went bankrupt. In support of this argument, HGC invoked the duty of good faith in contractual performance stemming from Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494.

[61] The trial judge rejected this argument. In his view, this consequence “should have been quite obvious to [HGC] from the clear language of the RESOP Contract”: at para. 126. He took the view that: “The duty of honesty in contractual performance ‘does not impose a duty of loyalty or of disclosure or require a party to forgo advantages flowing from the contract’”: at para. 126, citing Bhasin, at para. 73.

[62] As for the effect of the IESO staying silent during the 90-day period in which HGC could have asked to revive the RESOP Contract, the trial judge found that the IESO’s actions did not constitute bad faith or a breach of the general duty of honesty in contractual performance. He stated, at para. 127:

I do not find that this constituted bad faith or acting in breach of the general duty of honesty in contractual performance because the [IESO] did not lie or otherwise mislead [HGC], and the [IESO’s] understanding of section 9.2(3) of the RESOP Contract was straightforward and correct. I also find that thereafter the [IESO] acted honestly and in good faith, and made all reasonable efforts to facilitate [HGC’s] obtaining a new agreement under section 9.2(3) of the RESOP Contract; this is quite apparent from the evidence…[.]

The IESO’s efforts to help revive the RESOP Contract continued well after the end of the 90-day period.

[63] HGC made much of Mr. Hutchingame’s testimony that he was “gob-smacked” by the IESO’s position that the RESOP Contract had automatically terminated. The trial judge quoted this evidence, noting that Mr. Hutchingame “considered it to be a declaration of war”: at para. 54. But the trial judge then pointed out some 11 actions that belied Mr. Hutchingame’s asserted position, noting that his communications made “no mention of his alleged shock and dismay at [the IESO’s] position”: at paras. 54-55, 67. He did not find Mr. Hutchingame to be credible, remarking that his evidence “is often contradicted by the documents”: at para. 78. The documents prepared by Mr. Hutchingame “often contain exaggerations and misstatements, and they are also often unsupported by the evidence”: at para. 78.

[64] I make this observation about HGC’s argument. Assuming that HGC was not fully aware of the automatic termination provision, the IESO’s silence during the 90-day period did not prejudice HGC. This is because the IESO effectively waived HGC’s obligation to give written notice within the 90-day period of its intention to trigger the revival of the RESOP Contract under s. 9.2(3) by working with HGC to get the vesting order amended, an effort that HGC itself abandoned. There was no basis for HGC’s argument that the IESO breached any duty of good faith contractual performance or the common law duty to act honestly in the performance of its contractual obligations.

[65] The trial judge properly instructed himself on the law and made no palpable and overriding error on the facts. I would dismiss this ground of appeal. The IESO did not breach the terms of the RESOP Contract nor did it fail in its duty of good faith contractual performance.

(4) Issue Four: Did the trial judge err in finding that the IESO was not negligent?

[66] HGC’s claim for negligent misrepresentation rests on the foundation that the IESO misrepresented that the Waiver and Amending Agreement would extend the RESOP Contract even if Greenview Power went bankrupt. The trial judge dismissed this claim: “[HGC] failed to prove that the [IESO] made any statement that was untrue, inaccurate, or misleading, that [HGC] relied on such a statement to its detriment, or that such reliance led to [HGC’s] damages”: at para. 128.

[67] HGC has not shown that the trial judge made a palpable and overriding error in this factual finding. I would dismiss this ground of appeal.

(5) Issue Five: Did the trial judge err in his approach to damages?

[68] Because HGC has not established a legal entitlement to damages for breach of contract or negligence on the IESO’s part, there is no need to address the issue of damages.

E. DISPOSITION

[69] For the reasons given, I would dismiss the appeal and award the IESO costs for the appeal in the agreed amount of $25,000 plus disbursements and applicable taxes.

Released: “P.L.” July 2, 2020

“P. Lauwers J.A.”

“I agree. C.W. Hourigan J.A.”

“I agree. Thorburn J.A.”

APPENDIX

9.2(2) A Secured Lender may, subject to the provisions of this Agreement, enforce any Secured Lender’s Security Agreement and acquire the Generator’s Interest in any lawful way and, without limitation, may sell or assign the Generator’s Interest provided such sale or assignment complies with the requirements of Section 13.4 and provided further that if the Secured Lender is the owner or is in control or possession of the Generator’s Interest, then it shall be entitled to and bound by all of the Generator’s rights and obligations hereunder so long as it is the owner or is in control or possession of the Generator’s Interest. Despite anything else contained in this Agreement, any Person to whom the Generator’s Interest is transferred shall take the Generator’s Interest subject to the Generator’s obligations under this Agreement.

(3) In the event of the termination of this Agreement prior to the end of the Term due to a Generator Event of Default, the [IESO] shall enter into a New Agreement, which New Agreement shall be effective as of the Termination Date and shall be for the then-remainder of the original Term of this Agreement and otherwise upon the terms contained in this Agreement, provided that the Secured Lender delivers to the [IESO] a written request thereof within ninety (90) days after the Termination Date; and provided further that the [IESO’s] obligation to enter into a New Agreement is conditional upon the Secured Lender (a) paying all sums that would, at the time of the execution and delivery thereof, be due to the [IESO] under this Agreement but for such termination, (b) otherwise fully curing any defaults under this Agreement existing immediately prior to termination of this Agreement that are capable of being cured, (c) paying all reasonable costs and expenses, including legal fees, incurred by the [IESO] in connection with such default and termination, and the preparation, execution and delivery of such New Agreement and related agreements and documents, provided, however, that with respect to any default that could not be cured by the Secured Lender until it obtains possession, such Secured Lender shall have the applicable cure period commencing on the date that it obtains possession to cure such default, and (d) if there is more than one Secured Lender's Security Agreement outstanding in respect of which the [IESO] has received the notice described in Section 9.2(1), delivering to the [IESO] the written consent of all other Secured Lenders with respect to such New Agreement.