COURT OF APPEAL FOR ONTARIO

CITATION: Grasshopper Solar Corporation v. Independent Electricity System Operator, 2020 ONCA 499

DATE: 20200807

DOCKET: C67794 and C67795

Feldman, Lauwers and Huscroft JJ.A.

DOCKET: C67794

BETWEEN

Grasshopper Solar Corporation,

GSC Solar Fund I Inc., One Point Twenty One Gigawatts Inc.,

Egerton Polar Power LP, and MPI GM Solar 1 LP

Applicants (Appellants)

and

Independent Electricity System Operator

Respondent (Respondent)

DOCKET: C67795

AND BETWEEN

KL Solar Projects LP, Highlands Solar Projects LP,

Madawaska Solar Projects LP, McNab Solar Projects LP,

PB Solar Projects LP, Ramara Solar Projects LP,

Sudbury Community Solar Projects LP and

Sustainable Ottawa Projects LP

Applicants (Appellants)

and

Independent Electricity System Operator

Respondent (Respondent)

Sarit E. Batner and Brandon Kain, for the appellants

Alan Mark and Melanie Ouanounou, for the respondent

Heard: May 20, 2020 by video conference

On appeal from the orders of Justice Glenn A. Hainey of the Superior Court of Justice, dated November 15, 2019, with reasons reported at 2019 ONSC 6397 and 2019 ONSC 6501.

Huscroft J.A.:

Overview

[1] These companion appeals concern 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 is in dispute is whether the respondent had the right to terminate the contracts as a result, without paying damages.

[2] Two questions arise. First, 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? Second, if the contracts permitted the respondent to terminate on this basis, did the application judge err in finding that the respondent was not estopped from doing so?

[3] I conclude that the application judge did not err in finding that the respondent had the right to terminate the contracts without paying damages. Although I agree that the respondent was not estopped from terminating the contracts, I reach this conclusion for reasons slightly different from those of the application judge.

[4] I would dismiss the appeal.

BACKGROUND

The FIT Contracts

[5] In August or September 2016, the appellants entered into Feed in Tariff (FIT) Contracts with the respondent Independent Electricity System Operator (IESO) for the construction of solar facilities that would provide energy to the Ontario electricity grid. The FIT Contracts were made pursuant to the Ontario government’s Green Energy plan then in force.

[6] The contracts required the appellants (referred to in the contracts as “the Supplier”) to achieve commercial operation for the facilities they were building by the specified Milestone Date for Commercial Operation (MCOD), which was in August or September 2019, and included the following provisions:

2.5 (a) The Supplier acknowledges that time is of the essence to the Sponsor with respect to attaining Commercial Operation of the Facility by the Milestone Date for Commercial Operation set out in Exhibit A. The Parties agree that Commercial Operation shall be achieved in a timely manner and by the Milestone Date for Commercial Operation.

(b) The Supplier acknowledges that even if the Facility has not achieved Commercial Operation by the Milestone Date for Commercial Operation and this Agreement is not terminated in accordance with section 9.2 as a result of such failure, the term shall nevertheless expire on the day before the twentieth or fortieth anniversary (as applicable) of the Milestone Date for Commercial Operation, pursuant to Section 8.1. [Emphasis added.]

[7] Termination and Default are addressed in Article 9 of the contracts, which provides:

9.1 Each of the following will constitute an Event of Default by the Supplier (each, a “Supplier Event of Default”):

(b) The Supplier fails to perform any material covenant or obligation set forth in this Agreement (except to the extent constituting a separate Supplier Event of Default) if such failure is not remedied within 15 Business Days after written notice of such failure from the Sponsor, provided that such cure period shall be extended by a further 15 Business Days if the Supplier is diligently remedying such failure and such failure is capable of being cured during such extended cure period.

(j) The Commercial Operation Date has not occurred on or before the date which is 18 months after the Milestone Date for Commercial Operation, or otherwise as may be set out in Exhibit A.

9.2 (a) If any Supplier Event of Default (other than a Supplier Event of Default relating to the Supplier referred to in Sections 9.1(e), 9.1(g) and 9.1(h)) occurs and is continuing, upon written notice to the Supplier, the Sponsor may terminate this Agreement.

Termination pursuant to a Supplier Event of Default under s. 9.2 is significant in that it does not require the respondent to pay damages. Although termination is also possible regardless of a Supplier Default, termination on this basis (pursuant to s. 9.6) requires the respondent to pay the supplier an Optional Termination Sum that compensates the supplier for construction costs.

The 2013 bulletin

[8] The Ontario Power Authority (OPA) was the body responsible for power system planning and procurement of new power generation until 2015, when it amalgamated with the IESO and continued operations under that name. The OPA published the following bulletin on its website in June 2013, prior to the appellants’ entry into FIT Contracts with the respondent:

June 17, 2013: Approach to project delays and potential Events of Default

In response to a number of questions the OPA has received regarding project delays and potential Supplier Events of Default, the OPA has developed the following approach to such delays. Please note that the information provided here is meant for informational purposes only and shall not be relied on by Suppliers.

Suppliers will be sent a letter should they fail to meet their Notice to Proceed (NTP) Request date and/or their Milestone Date for Commercial Operation (MCOD). The letter will advise that the OPA will not act upon its termination rights arising under Sections 9.2(a) of the FIT Contract for those Suppliers that have not provided the OPA with a completed NTP Request in compliance with Section 2.4(c) of the FIT Contract and/or have not attained Commercial Operation of the Contract Facility on or before the MCOD pursuant to Section 2.5 (or Schedule 2 Special Terms and Conditions (Launch Applications)) of the FIT Contract.

This information does not constitute a waiver of any actual or potential default, nor does it amend the FIT Contract. The FIT Contract remains in full force and effect. For clarity, it shall remain a Supplier Event of Default (and the OPA maintains its right to terminate the Supplier’s FIT Contract) if the Commercial Operation Date has not occurred on or before the following:

• For solar rooftop facilities, the date which is six months after the Milestone Date for Commercial Operation pursuant to section 1.3 of Exhibit A of the FIT Contract.

• For solar ground-mounted projects, the date which is 18 months after the Milestone Date for Commercial Operation pursuant to section 1.3 of Exhibit A of the FIT Contract, as amended by the OPA’s letter to Suppliers of August 2011.

• For all other FIT facilities, the date which is 18 months after the Milestone Date for Commercial Operation pursuant to 9.1(j) of the FIT Contract.

Questions about this approach to delays and potential Events of Default should be directed to your contract analyst.

The 2019 warning letter

[9] On March 29, 2019, the respondent sent the following letter to the Suppliers with whom it had contracted, including the appellants:

This notice is to remind you that the Milestone Date for Commercial Operation for the FIT Contract is September 8, 2019. As of the date of this letter, the Facility has not yet attained Commercial Operation. As you are aware, the failure to attain Commercial Operation by the Milestone Date for Commercial Operation (the “MCOD”), as required by Section 2.5 of the FIT Contract, is a breach of, and constitutes a Supplier Event of Default under, Section 9.1(b) of the Fit Contract.

PLEASE NOTE that except as expressly provided in the FIT Contract, the MCOD will not be extended. Failure to attain Commercial Operation by this date will constitute a Supplier Event of Default, for which the IESO will terminate the FIT Contract pursuant to s. 9.2(a).

It is the IESO’s intent to strictly enforce its rights and remedies under the FIT Contract and the Supplier may not rely on any of the IESO’s past practices, waivers, statements or any actual or perceived indulgences regarding the achievement of the MCOD, whether with respect to this or any other contract, as a waiver of any of the IESO’s rights or remedies under the FIT Contract. For greater certainty, the IESO hereby specifically revokes its communication date June 17, 2013 referencing a previous approach to project delays and potential Events of Default, and retracts any past waivers of its right to terminate contracts for failure to achieve Commercial Operation by the MCOD.

The risk of whether or not the Facility achieves Commercial Operation by the MCOD rests solely with the Supplier and the IESO accepts no risk or liability in this regard. The receipt, review or discussion by the IESO of any project schedule, update or any other information or documentation provided by the Supplier to the IESO does not, and shall not be considered to, constitute an acknowledgment or warranty, express or implied, with respect to the accuracy, completeness or feasibility of such project schedule, update or other information or documentation, nor shall it constitute a waiver by the IESO of its right to insist upon strict compliance with the MCOD or of any other provision under the FIT Contract.

The IESO reserves all rights and remedies under the FIT Contract and at law, including the right to exercise any rights and remedies at any time and from time to time including its right to terminate the FIT Contact under Section 9.2(a).

This letter is being provided pursuant to the FIT Contract only and shall not be deemed to be an acknowledgement or notification by the IESO under the IESO Market Rules … [Emphasis in original.]

The application

[10] In July 2019, the appellants brought a notice of application for a determination of their contractual rights under the FIT Contracts.

The application judge’s decisions

1. The respondent had the right to terminate the contracts

[11] The application judge began with s. 2.5(a) of the FIT Contract, which states that time is of the essence with respect to achieving commercial operation. He noted that time is of the essence clauses require strict compliance and that the failure to meet a timeline in a contract with such a clause entitles the other party to terminate the contract, citing this court’s decision in Di Millo v. 2099232 Ontario Inc., 2018 ONCA 1051, 430 D.L.R. (4th) 296, at para. 31, leave to appeal refused, [2019] S.C.C.A. No. 55. The application judge noted, further, that s. 2.5(b) specifically refers to the respondent’s right to terminate the contract in accordance with s. 9.2 for failure to achieve commercial operation by the MCOD, and that the definition of MCOD in Appendix I of the contracts defines the MCOD as the date “by which the facility is required to attain Commercial Operation”. The application judge concluded that the obligation to achieve commercial operation by the MCOD was a “material covenant or obligation” to which s. 9.1(b) applies.

[12] The application judge rejected the appellants’ submission that the failure to achieve commercial operation by the MCOD was not an Event of Default because it was not specifically listed in s. 9.1. He noted that the appellants’ interpretation of s. 9 rendered the time is of the essence provision irrelevant, as it ignored both the qualifying language in s. 2.5(b) and the definition of MCOD. The appellants’ interpretation meant that no default would rise to the level of a Supplier Event of Default under s. 9.1 unless it were specifically so stated, but this rendered s. 9.1(b) ineffective because it refers to breach of a “material covenant or obligation” rather than any specific type of default. The application judge noted, further, that the appellants’ interpretation would render the force majeure provision irrelevant. That provision, which provides relief from a failure to achieve commercial operation by the MCOD, is only necessary if such an obligation otherwise exists.

[13] The application judge acknowledged that s. 9.1(j) refers to a termination 18 months following the MCOD, but he interpreted this provision as a “long-stop termination right” – a hard stop deadline with no cure period that applied if the respondent waived its right to terminate the contract under s. 9.1(b) for failing to meet the MCOD. Thus, s. 9.1(b) was not inconsistent with s. 9.1(j). Likewise, s. 8.1, which shortens the guaranteed revenue period under the FIT Contracts in the event of a failure to reach commercial operation by MCOD, was not inconsistent with the right to terminate under s. 9.1(b) because it applied only if the respondent waived its right to terminate.

[14] The application judge concluded that this interpretation of the respondent’s termination right was commercially reasonable, adding that there was no ambiguity to which the contra proferentem principle could be applied and that its application was specifically foreclosed by s. 1.12 of the contracts in any event.

2. The respondent was not estopped from terminating the contracts

[15] The related application, brought by KL Solar Projects LP and others, raised the additional question whether the respondent was estopped from terminating the contracts, assuming that it was otherwise entitled to do so. The appellants argued there had long been a shared assumption that the respondent would not terminate the contracts unless commercial operation was not achieved within 18 months of the MCOD, and that this assumption triggered the application of estoppel by convention.

[16] The application judge applied the estoppel by convention doctrine as outlined by the Supreme Court in Ryan v. Moore, 2005 SCC 38, [2005] 2 S.C.R. 53, at para. 59. In that case, Bastarache J. reviewed the law and distilled the following criteria:

1. The parties’ dealings must have been based on a shared assumption of fact or law: estoppel requires manifest representation by statement or conduct creating a mutual assumption. Nevertheless, estoppel can arise out of silence (impliedly).

2. A party must have conducted itself, i.e. acted, in reliance on such shared assumption, its actions resulting in a change of its legal position.

3. It must also be unjust or unfair to allow one of the parties to resile or depart from the common assumption. The party seeking to establish estoppel therefore has to prove that detriment will be suffered if the other party is allowed to resile from the assumption since there has been a change from the presumed position. [Emphasis in original.]

[17] The application judge found that there was no shared assumption that the respondent would not terminate the FIT Contracts for failure to achieve commercial operation by the MCOD. The respondent never advised either the appellants or any other suppliers that it did not have a valid right to terminate the contracts on this basis, or that it had waived its termination right for all future contracts. The application judge noted that the June 2013 bulletin stated specifically: 1) that the respondents had the right to terminate under s. 9.2(a) for failure to reach commercial operation by the MCOD; 2) that the bulletin was “for informational purposes only and shall not be relied upon by suppliers”; and 3) that the information provided in the bulletin “does not constitute a waiver of any actual or potential default, nor does it amend the FIT Contracts. The FIT Contracts remain in full force and effect”.

[18] The application judge found that the bulletin was not evidence of a shared assumption of fact or law but was, instead, simply an announcement of the respondent’s approach to project delays – “how it intended, at the time, to approach breaches of the FIT Contracts with respect to the requirement to achieve commercial operation by the MCOD.” The application judge stated that the respondent was free to change its approach provided that it gave reasonable notice of its intention to do so, and that the warning letter, giving six months’ notice prior to the MCOD, provided reasonable notice.

[19] The application judge acknowledged that the appellants may have believed the respondent would not terminate their FIT Contracts and that the respondent may have been aware of their belief. However, this was insufficient to establish a shared assumption in the absence of a manifest representation, orally or in writing, from the respondent confirming that it shared the appellants’ belief. Although the appellants appeared to rely on the respondent’s practice of not terminating FIT Contracts for failure to achieve commercial operation by the MCOD when they entered the FIT Contracts, detrimental reliance could not be established in the absence of a shared assumption.

[20] The application judge stated that the respondent’s departure from its past practice of not terminating FIT Contracts “does seem unfair to me”, given the millions that the appellants and others would lose as a result, and that if he had concluded that the first two parts of the test were met he would have concluded that the third criterion of unfairness was also met. He added that there was no reason to deny the appellants an equitable remedy if it were otherwise available to them.

[21] Finally, the application judge concluded that the entire agreement clause (s. 1.9) precluded the June 2013 bulletin and the respondent’s past practice from amending the terms of the FIT Contracts, while the waiver provision (s. 1.10), which requires waiver of contractual terms to be executed in writing, prevented the appellants from relying on estoppel by convention arising out of previous waivers by the respondent.

DISCUSSION

Did the application judge err in interpreting the contract?

Standard of review

[22] The parties disagree on the appropriate standard of review concerning the application judge’s interpretation of the contract. The appellants submit that the FIT Contracts are standard form contracts that should be reviewed on a correctness standard, relying on the decision of the Supreme Court of Canada in Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, [2016] 2 S.C.R. 23. The respondent acknowledges that the contracts are standard form in nature but contends that the correctness standard does not apply because the contracts have no precedential value, given the cancellation of the FIT program and the inapplicability of the result in this case beyond the appellants. Accordingly, the respondent submits that the applicable standard is palpable and overriding error: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633.

[23] The FIT Contracts share some of the characteristics that led the court to create the exception for standard form contracts in Ledcor. Significantly, the application judge found that they were standard contracts with standard pricing over a fixed term, typically 20 years. They were offered pursuant to a standard procurement process rather than negotiated separately. They were, he found, identical for the purpose of this application.

[24] The respondent acknowledges that the FIT Contracts are standard form contracts but contends that their interpretation has little precedential value and will be of little interest to judges and lawyers in the future. I do not agree. The cancellation of the FIT program does not render the interpretation of the terminated contracts irrelevant beyond this case. On the contrary, the precedent established by the interpretation of the termination provisions may be important to suppliers in the same or similar position as the appellants, regardless of whether they have commenced or intend to commence proceedings.

[25] Accordingly, the standard of correctness applies to the application judge’s interpretation of the FIT Contracts.

The positions of the parties

The appellants

[26] The appellants acknowledge their obligation to achieve commercial operation by the MCOD but say that if the respondent wanted to terminate the FIT Contracts on the basis of their failure to do so, it had to terminate pursuant to s. 9.6, which requires the respondent to compensate them for their construction costs. The appellants submit that the FIT Contracts do not permit termination on the basis of a Supplier Event of Default under s. 9.2(a) – that is, without compensation – until and unless more than 18 months have passed since the MCOD. According to the appellants, the failure to achieve commercial operation by the MCOD is remedied by a reduction of the supplier’s guaranteed revenue period by the amount of the delay in meeting the MCOD, a remedy the appellants say is reflected in numerous provisions of the contract and is consistent with commercial reality and the broader structure of the FIT Contracts.

[27] The appellants acknowledge that s. 2.5(a) establishes that time is of the essence but insist that the remedy for breach is a shortening of the supplier’s guaranteed revenue period. They contend that nothing in s. 9.1 makes a breach of s. 2.5(a) a “Supplier Event of Default”, nor does anything in s. 2.5(a) do so. On the contrary, the appellants say that the failure to achieve commercial operation by the MCOD is excluded from the basket clause of Supplier Events of Default under s. 9.1(b) because it constitutes a separate Supplier Event of Default under s. 9.1(j), but only after the failure extends beyond 18 months after the MCOD.

[28] The appellants argue that the application judge’s interpretation renders s. 9.1(j) a nullity. Given that s. 9.1(b) includes a 15 to 30-day cure period if commercial operation is not reached by the MCOD, it makes no sense to establish a lengthier cure period of 18 months in s. 9.1(j) before termination can occur for the same breach. The appellants acknowledge the reference to termination in s. 2.5(b) but point out that this section refers to s. 9.2 rather than s. 9.1(b), and means that only if commercial operation is not achieved by the MCOD and the contract has not been terminated in accordance with s. 9.1(j), the contract expires 20 years after the MCOD, regardless of when commercial operation is achieved.

[29] The appellants argue that the application judge’s interpretation is commercially unreasonable and renders the suppliers’ contractual rights uncertain, as it would permit termination not only following the 15 to 30-day cure period in s. 9.1(b) but also at any further point up to and including the end of the 18-month cure period so long as commercial operation were not achieved. That is so, they say, because s. 9.2(a) allows termination whenever a Supplier Event of Default is continuing.

[30] The appellants argue, further, that the overall contractual structure and other provisions in the FIT Contracts support their interpretation. They note that there are several key thresholds under the FIT Contracts, one of which is when the respondent issues a Notice to Proceed (NTP). To receive an NTP, the supplier must achieve specific prerequisites listed in s. 2.4(d). The issuance of an NTP ends the period during which the respondent can terminate a FIT Contract “in its sole and absolute discretion” without paying damages. Following issuance of an NTP, the respondent can terminate the project “in its sole and absolute discretion” under s. 9.6 only by paying the supplier an Optional Termination Sum that compensates the supplier for construction costs, while s. 9.2 permits termination without paying the Optional Termination Sum only in the event of a Supplier Event of Default under s. 9.1.

[31] The appellants note that s. 2.4(e) requires a supplier to deliver a completed NTP request “no later than the [MCOD]” and that s. 2.4(g) requires the respondent to respond to an NTP request by either the NTP Response Date or 20 business days following the receipt of a complete NTP request. Because an NTP request is due by the MCOD, a supplier may not even receive an NTP until after the MCOD. Thus, the appellants argue that the FIT Contracts clearly contemplate that the agreement will continue even if commercial operation is not achieved by the MCOD. Accordingly, they say, the more commercially sensible interpretation is that failure to achieve commercial operations by the MCOD does not give rise to a termination right under s. 9.2.

The respondent

[32] The respondent emphasizes the importance of s. 2.5(a), which makes time of the essence in achieving commercial operation by the MCOD – the only provision in the contract subject to this obligation. It is well established, the respondent says, that a failure to observe a timeline in a contract in which time is of the essence entitles the innocent party to terminate the contract regardless of the length of delay or the reasons for it, and regardless of the consequences for the other party. Although the concept of a material covenant or obligation is not defined in the contract, the respondent says it is clear that the obligation to achieve commercial operation by the MCOD is material. Section 9.1(b) must be read as enabling breaches of the FIT Contracts to rise to the level of Supplier Events of Default if the breach is of a material covenant or obligation that is not specified in the other subparagraphs of s. 9.1. If it were otherwise, then s. 9.1(b) would be superfluous.

[33] The respondent contends that the exception to the application of s. 9.1(b) – that breach of a material covenant or obligation will be considered a Supplier Event of Default under s. 9.1(b) only if it does not constitute a separate Supplier Event of Default under a different provision of s. 9.1 – does not apply. The failure to achieve commercial operation by the MCOD does not constitute a Supplier Event of Default under any other provision in s. 9.1, so the exception is not triggered. Sections 9.1(b) and 9.1(j) are not two termination rights for the same default, but rather two termination rights for separate defaults that occur at different times. The termination right under s. 9.1(j) arises only 18 months following a failure to achieve the MCOD; termination under s. 9.1(b) for failure to achieve the MCOD is a separate and distinct termination right. This interpretation comports with s. 2.5(b), which expressly contemplates termination under s. 9.2 for failure to achieve commercial operation by the MCOD.

[34] The respondent argues that the application judge’s interpretation of the contract is commercially sensible, given its legitimate and reasonable interest in requiring suppliers to achieve commercial operation by the MCOD. The interpretation of s. 9.1(j) as establishing a “hard stop” allows the respondent to waive its termination right under s. 9.1(b) while permitting the right to terminate to be exercised at a later date, protecting the respondent from indefinite delay without prejudicing the supplier in the meantime. Once waived, the failure to meet MCOD is not a continuing breach under s. 9.2(a) and the respondent would no longer be able to terminate the contract under s. 9.1(b) for this breach. If it were, there would be no need for the hard stop termination right under s. 9.1(j).

[35] The respondent refutes the appellants’ argument that it is commercially unreasonable to conclude that the contracts can be terminated without compensation for failing to achieve commercial operations by the MCOD because a supplier may not have received an NTP by the MCOD. First, it is entirely within the supplier’s discretion when to submit a request for an NTP. Accordingly, suppliers bear any risk associated with submitting their NTP request shortly before the MCOD. Second, receipt of an NTP from the respondent is not a pre-condition for a supplier to commence construction. As a result, it is not inconsistent with the contractual framework for the receipt of an NTP and achieving commercial operation to be close in time or even concurrent.

The respondent was entitled to terminate the contracts

[36] In my view, the application judge made no errors in interpreting the contract. His analysis is thorough and complete and there is little that can usefully be added. 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 MCOD.

[37] The fatal flaw in the appellants’ interpretation of the contract lies in its failure to give effect to a key provision in the contract, s. 2.5, which I set out below for convenience:

2.5 (a) The Supplier acknowledges that time is of the essence to the Sponsor with respect to attaining Commercial Operation of the Facility by the Milestone Date for Commercial Operation set out in Exhibit A. The Parties agree that Commercial Operation shall be achieved in a timely manner and by the Milestone date for Commercial Operation.

[38] This provision makes plain not only that the parties agreed that commercial operation was to be achieved in a timely manner, and in any event by the MCOD, but also that time was of the essence. Although the appellants acknowledge this provision, their position deprives it of any effect. “Time is of the essence” is a term with a clearly defined and well understood meaning. In short, and as the application judge noted, strict compliance with the MCOD was required. The failure of a supplier to establish commercial operation by the MCOD gave rise to the respondent’s right to terminate the contract.

[39] The appellants say that s. 2.5(a) does not import the common law right of termination; the respondents, they say, contracted out of it in s. 9 by including notice and cure periods in s. 9.1(b) and an 18-month period in s. 9.1(j).

[40] The application judge was right to reject this interpretation. Section 9.1 enumerates Events of Default by the Supplier and s. 9.1(b) specifies that the failure to perform any material covenant or obligation is such an event. The time is of the essence provision in s. 2.5(a) is plainly a material covenant; it is by definition an important, if not essential, provision in the context of the contract as a whole. The establishment of brief notice and cure periods in s. 9.1(b) does not alter the essential character of the provision or the consequences of a breach. Breach of the time is of the essence provision constitutes a Supplier Event of Default under s. 9.1, the remedy for which is set out clearly in s. 9.2, which allows for termination on written notice.

[41] The appellants’ argument depends on s. 9.1(j) being characterized as the only provision that addresses the failure to achieve commercial operation by the MCOD. But this interpretation is fundamentally at odds with the time is of the essence provision in s. 2.5(a), which specifically states that commercial operation “shall be achieved in a timely manner and by the Milestone Date for Commercial Operation”.

[42] Section 9.1(j) must be understood not as addressing the failure to achieve commercial operation on the timely basis required by s. 2.5 but, instead, the failure to achieve commercial operation within 18 months of the MCOD. As the application judge concluded, s. 9.1(j) establishes a “hard stop” – a clearly defined deadline for completion of the project. Thus, s. 9.1(j) is relevant only if commercial operation has not been achieved by the MCOD and the respondent chooses not to terminate the contract on that account.

[43] The breach in this case occurred when the appellants failed to achieve commercial operation by the MCOD. The respondent had the right to terminate the contract if the appellants failed to cure the breach in accordance with s. 9.1(b). It cannot be said that this interpretation was not commercially reasonable. If the respondent chooses not to exercise its right to terminate following a supplier’s failure to achieve commercial operation by the MCOD, the default no longer constitutes a Supplier Event of Default that is “occurring and continuing” for purposes of s. 9.2(a), and delay in completion gives rise to a new right to terminate only 18 months after the MCOD. If it were otherwise – if the respondent was entitled to terminate the FIT Contracts at any time following the MCOD in the event a supplier had not yet achieved commercial operation on the basis that the breach was continuing – the long-stop termination right in s. 9.1(j) would be rendered superfluous.

[44] The application judge’s interpretation is not inconsistent with other provisions of the FIT Contract. Although ss. 2.5(b) and 9.1(j) clearly contemplate a scenario in which the FIT Contract is “not terminated in accordance with section 9.2” as a result of failure to achieve commercial operation by MCOD and ss. 2.4(e) and 2.4(g) demonstrate that a supplier might not receive an NTP until shortly before or even shortly after the MCOD, these provisions demonstrate only that the FIT Contract may continue following a failure to comply with some timelines. The contract provides various options. But these options do not undermine the respondent’s right to terminate the contract as a result of a supplier’s breach of the time is of the essence clause.

Did the application judge err in concluding that the respondent was not estopped from terminating the contract?

Standard of review

[45] The application of the estoppel doctrine is a mixed question of fact and law that is reviewed on a standard of palpable and overriding error, subject to any extricable legal errors that are reviewed on a correctness basis.

The positions of the parties

The appellants

[46] The appellants argue that the application judge applied the wrong test for a shared assumption by requiring a manifest representation, either orally or in writing, from the respondent confirming that it shared the appellants’ beliefs. Estoppel by convention can arise by conduct and silence, and it was clear that the respondent communicated the shared assumption that it would not terminate the FIT Contracts for failure to achieve commercial operation by the MCOD without providing reasonable notice of its intention to do so.

[47] The appellants contend that the application judge erred in not affording them a “reasonable opportunity” to resume their position after the respondent changed its position, citing Ajayi v. R.T. Briscoe (Nig) Ltd., [1964] 1 W.L.R. 1326 (P.C. (Nigeria)) and Rossi v. Canadian Imperial Bank of Commerce, [1969] O.J. No. 180 (C.A.). The application judge wrongly relied on the appellants’ belief that they could meet the MCOD deadline without the additional 18 months and confused steps taken by the appellants in mitigation with the criteria for reasonable notice. The respondent’s conduct in sending the warning letter exacerbated the appellants’ difficulties in meeting the MCOD because it caused a fight among suppliers for the limited resources that were available to complete construction of the facilities.

[48] The appellants say that the respondent has no legitimate contractual interest in terminating the FIT Contracts, on what they say is less than six-months’ notice, that is proportionate to the millions of dollars in construction costs the appellants will lose as a result of the termination. This is a case, they say, that cries out for an equitable remedy. The appellants cite a variety of cases in support of the proposition that it is not reasonable to prejudice a counterparty’s legitimate interest in a manner that is disproportionate to any legitimate interest it seeks to advance, including Loyola High School v. Quebec (A.G.), 2015 SCC 12, [2015] 1 S.C.R. 613, at para. 38, and Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] 1 S.C.R. 595, at para. 111. According to the appellants, “the law will not generally make a remedy available to a party, the adverse impact of which on the defaulter significantly exceeds any legitimate interest of the innocent party”, citing Cavendish Square Holdings BV v. Makdessi, [2016] A.C. 1172 (U.K.S.C.), at para. 29.

[49] The appellants argue, finally, that the test for waiver is met in this case even if the test for estoppel by convention is not. The application judge erred in limiting his analysis to finding that the bulletin and the respondent’s past practice could not amend the terms of the FIT Contracts. The respondent continued its practice of not terminating any suppliers for failing to achieve commercial operation by the MCOD for more than 2.5 years after the appellants entered into their FIT Contracts and remained silent throughout this time, despite its knowledge that the appellants thought it had waived its termination right. Furthermore, the respondent remained silent for nine months after the new provincial government was elected on a platform hostile to the FIT program. Neither the entire agreement clause nor the waiver clause precludes the appellants from relying on shared assumptions because they are not the specific sorts of communications excluded by those clauses. The entire agreement clause does not preclude the appellants from relying on communications that occur subsequent to entry into the contract.

The respondent

[50] The respondent says that the appellants have changed the position they advanced at trial. At trial, the appellants argued that there was a shared assumption that the respondent would not terminate the FIT Contracts for failure to meet the MCOD, whereas on appeal they argue that the assumption was that the respondent could not terminate the contracts without reasonable notice that it was changing its position. The respondent argues the appellants cannot change their position on appeal and that the application judge’s finding that the respondent provided reasonable notice is entitled to deference in any event.

[51] The respondent rejects the appellants’ characterization of the application judge’s decision. According to the respondent, the application judge did not find that the respondent’s conduct was unfair; he said only that he would have found it unfair if he had found that the respondents represented that they would never terminate the contracts for failure to meet the MCOD. But the application judge found that the parties did not share the same assumption in any event. The respondent always understood that its June 2013 bulletin itself did not constitute a waiver of default of any provision of the FIT Contracts, nor did its subsequent practice in accordance with the bulletin constitute a waiver of its right to terminate. There was nothing to indicate that the respondent shared the appellants’ assumption that it did not have a right to terminate, even if it knew of the appellants’ belief.

[52] Finally, the respondent says that even if the elements of estoppel by convention were met, the application would fail because the entire agreement clause and the non-waiver provision expressly prevent the appellants from relying on the respondent’s historical representations, conduct, or waivers. The appellants’ allegation of a shared assumption is based on their alleged reliance on the respondent’s representations and past practice of waiving its termination right, both of which fall within the scope of the waiver and entire agreement provisions in the FIT Contracts.

The respondent was not estopped from terminating the contract

[53] In my view, the respondent was not estopped from terminating the contract under s. 9.2. As I will explain, neither estoppel by convention nor promissory estoppel applies.

Estoppel by convention

[54] I begin by reiterating 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 is a fact-specific doctrine and the concern noted by Bastarache J. in Moore at para. 50 remains apposite: “estoppels are to be received with caution and applied with care”, citing Harper v. Cameron (1892), 2 B.C.R. 365 (Div. Ct.) at p. 383.

[55] 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”: Bruce MacDougall, Estoppel, 2nd ed. (Toronto: LexisNexis Canada, 2019), at s. 1.14.

[56] As Bastarache J. explained in Moore, 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. But 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: Moore, at para. 61, and this will not be so if the nature of the assumption is in doubt. Thus, English authorities describe a requirement that the shared assumption be “unambiguous and unequivocal”: G.H. Treitel, The Law of Contract, 11th ed. (London UK: Sweet & Maxwell, 2003), at s. 3-094; see also H.G. Beale, ed., Chitty on Contracts, 31st ed. (London UK: Sweet & Maxwell, 2015) vol. 1, at 3-107. 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. See N. Seddon, R. Bigwood, & M. Ellinghaus, Cheshire and Fifoot Law of Contract, 10th Australian ed. (Chatswood, Australia: LexisNexis Australia, 2012) at s. 2.14.

[57] The appellants argue that two of the three elements of estoppel by convention are satisfied in this case and that the application judge found that only “the remaining element” was not. This submission puts 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.

[58] 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 is unusual in that it includes elements of both past practice as well as existing and future circumstances. Moreover, the assumption arises 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 MCOD.

[59] The application judge found that this was not an assumption shared by the respondent. This was the judge’s call to make, and I see no basis to interfere with it on appeal.

[60] The application judge’s conclusion is amply supported by the record. The June 2013 Bulletin said to give rise to the shared assumption is qualified by language that can only be understood as designed to preclude reliance on it. This is plain from the first line in the bulletin, which emphasized that it was for “informational purposes only and shall not be relied on by Suppliers”. In short, the respondent’s bulletin clearly informed suppliers not to make the very assumption the appellants made and seek to attribute to the respondent as well.

[61] I accept that the bulletin contains information that appears to be contradictory. It states that a failure to achieve commercial operation by the MCOD would result in a letter advising that the respondent would not act on its termination right under s. 9.2(a), suggesting that the time is of the essence clause would not be enforced. This is the portion of the bulletin the appellants say demonstrates the shared assumption. However, it is qualified by the subsequent passage, which is categorical in reserving the respondent’s rights under the FIT Contracts:

This information does not constitute a waiver of any actual or potential default, nor does it amend the FIT Contract. The FIT Contract remains in full force and effect.

[62] This passage makes plain that the respondent was neither waiving any defaults nor varying the terms of the FIT Contracts; the contracts remained “in full force and effect”.

[63] Putting the appellant’s case at its highest, the bulletin stated that suppliers who failed to achieve commercial operation by the MCOD would be informed that the respondent would not act on its termination right under the FIT Contracts. If that were all the bulletin said, it might be some evidence of a shared assumption. But the bulletin says more – much more – and the additional information in the bulletin precludes a conclusion that there was a shared assumption – still less an assumption the appellants could reasonably rely on – for it makes plain that the respondent was maintaining its rights under the contract.

[64] The appellants argue that the application judge erred in requiring a manifest representation “either orally or in writing” from the respondent demonstrating that the assumption was shared. The passage would be unobjectionable if the application judge had added the words “such as”, but in my view the argument comes to nothing. The application judge well understood the requirement from Moore that an assumption be shared. He found that the key feature of the 2013 bulletin was the respondent’s insistence on reserving its rights under the contract, regardless of its past or current practice. The parties simply could not be said to have shared an unambiguous and unequivocal assumption – the “manifest representation” necessary to establish an estoppel by convention.

[65] This analysis is not affected by the different manner in which the appellants framed the alleged shared assumption on appeal – that the respondent would not terminate the contract for failure to meet the MCOD without first providing reasonable notice that it was changing its position. As I explain below, if the respondent would otherwise have been estopped from terminating the contract in accordance with s. 9.2, it could have brought an end to the estoppel with reasonable notice in any event.

[66] In the absence of a shared assumption, the claim of estoppel by convention fails and neither the question of detrimental reliance on the bulletin nor any question of fairness arises. The same result follows if the appellants’ claim is analyzed under the promissory estoppel doctrine. Although this claim was not advanced at trial, it is appropriate to deal with it given that arguments concerning the June 13 bulletin apply equally to its characterization as an assumption or a promise.

Promissory estoppel

[67] 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.

[68] 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.

[69] In the absence of a shared assumption, is 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 my view, just as there is no shared assumption capable of supporting estoppel by convention, there is also no promise capable of supporting a claim of promissory estoppel.

[70] On any objective analysis, it certainly cannot be said that the respondent intended the June bulletin to be relied on as though it were a promise; as I have noted, by its terms the bulletin counsels the opposite. At the very least, the bulletin is insufficiently clear as to constitute a promise. But even assuming that it could constitute a promise, it was not a promise made to the appellants: it was directed to suppliers holding FIT Contracts in 2013, prior to the appellants entering into their FIT Contracts. Nor can the respondent’s past practice with other suppliers be taken to be a promise made to the appellants. Thus, the claim fails whether it is styled as estoppel by convention or promissory estoppel.

[71] 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 does not arise, as there is neither a shared assumption nor a promise on which the appellants could have relied on to their detriment. The application judge’s statement that withdrawal of the bulletin and the respondent’s break with its past practice “does seem unfair” is inappropriate, in my view, for 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 is no basis for this court not to give effect to their choice and the consequence it entails: the respondent’s right to terminate the contracts under s. 9.2.

The irrelevance of notice

[72] Conventional and promissory estoppel may operate to extinguish rights under a contract, but more commonly the doctrines operate to suspend them. Thus, a party is entitled to bring an estoppel to an end and so return to the terms of the contract, by providing reasonable notice either ending the assumption or withdrawing the relevant promise. Once this occurs, the estoppel no longer applies to future dealings under the contract, but the party who brings the estoppel to an end remains responsible for losses caused by reliance on the assumption or promise before it was withdrawn, and such losses may extend into the future.

[73] The reasonableness of the notice required to bring an estoppel to an end reflects what is necessary to restore a party to its position under the contract. In this case, once the application judge concluded that the appellants could not establish a shared assumption that the respondent would not terminate the FIT Contracts, their claim of estoppel necessarily failed. As a result, there was no need to determine whether the respondent provided reasonable notice of its decision to withdraw the June 2013 bulletin and to alter its practice, as there was no estoppel to bring to an end. Thus, the appellants’ arguments that the notice period was inadequate have no basis.

[74] But given the argument of the parties, I would add this. Even assuming that there was a shared assumption or a promise capable of supporting an estoppel, the application judge’s conclusion that the respondent provided reasonable notice of its change of position was in my view reasonable and entitled to deference in this court. In other words, the respondent would have been entitled to return to the strict terms of the contract, pursuant to which time was of the essence, in any event.

Waiver

[75] The appellants say that, despite the terms of the bulletin expressly stating that it was not a waiver of actual or potential default, it was understood as such by the respondent, the appellants, and the industry as a whole. For several years, until the bulletin was withdrawn by the March 2019 warning letter, the respondent followed the practice set out in its 2013 bulletin, sending letters to suppliers who failed to achieve commercial operation by the MCOD and informing them that their contracts would not be terminated.

[76] The short answer to these submissions is that either the entire agreement clause or the waiver clause in the FIT Contract would operate to prevent the appellants from relying on the respondent’s past practices.

[77] In Soboczynski v. Beauchamp, 2015 ONCA 282, 125 O.R. (3d) 241, at paras. 43-53, this court reviewed the purpose and effect of entire agreement clauses and noted that, in general, such clauses are retrospective rather than prospective in nature; they operate to exclude from the contract interpretation process statements made before the contract came into existence. Accordingly, the appellants cannot rely on either the 2013 bulletin or the respondent’s practice of waiving breaches by other suppliers that occurred before the execution of the appellants’ FIT Contracts, as the terms of the entire agreement clause preclude reliance on such representations or conduct.

[78] The appellants’ argument that a waiver was triggered by the respondent’s practice of waiving breaches by other suppliers in the 2.5-year period that occurred after the execution of the appellants’ FIT Contracts must also be rejected. There was never a clear representation to the appellants that the respondent waived its contractual rights, and the respondent’s actions toward third party suppliers cannot be construed as a waiver of a term in the appellants’ FIT Contracts. Moreover, if the time is of the essence provision in the appellants’ contracts was to be waived, it had to be waived in writing, in accordance with the requirements of s. 1.10. It was not.

CONCLUSION

[79] I would dismiss the appeal. The parties informed the court that they had agreed on costs, regardless of the outcome of the appeal. Accordingly, I would make no order as to costs.

Released: August 7, 2020 (“K.F.”)

“Grant Huscroft J.A.”

“I agree. K. Feldman J.A.”

“I agree. P. Lauwers J.A.”