COURT OF APPEAL FOR ONTARIO
CITATION: Grasshopper Solar Corporation v. Independent Electricity System Operator, 2020 ONCA 769
DATE: 2020-12-02
DOCKET: M51845 (C67794 & C67795)
Trotter J.A. (Motion Judge)
BETWEEN
Grasshopper Solar Corporation, GSC Solar Fund I Inc., One Point Twenty One Gigawatts Inc., Egerton Solar Power LP, and MPI GM Solar 1 LP
Applicants (Appellants/Moving Parties)
and
Independent Electricity System Operator
Respondent (Respondent/Responding Party)
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/Moving Parties)
and
Independent Electricity System Operator
Respondent (Respondent/Responding Party)
Sarit E. Batner and Brandon Kain, for the moving parties
Alan H. Mark and Melanie Ouanounou, for the responding party
Heard: November 27, 2020 by videoconference
REASONS FOR DECISION
[1] This is a motion to stay two orders of this court pending an application for leave to appeal to the Supreme Court of Canada and, if leave is granted, pending the final disposition of that appeal. For the reasons that follow, I would grant a stay of this court’s orders pending the applications for leave to appeal.
Background
[2] This case involves the decision of the respondent, the Independent Electricity System Operator (“IESO”), to terminate 36 standard-form contracts with the applicants, renewable energy companies who construct and operate solar power facilities. Under these contracts, called Feed-in Tariff Contracts (“FIT Contracts”), the applicants were to construct solar facilities and provide clean energy to Ontario’s electricity grid for a typical term of 20 years, at enhanced rates (i.e., above market rates). The contracts required the applicants to achieve commercial operation of their facilities by a certain date – the Milestone Date for Commercial Operation (“MDCO”) – failing which, the IESO may be able to terminate the contracts without paying damages. The applicants failed to meet the applicable MDCO. The respondent eventually gave notice that it would terminate their contracts. The termination of these agreements would mean that any energy that the applicants supply to the IESO will be at the lower market rates.
[3] The applicants applied for declarations that their failure to achieve commercial operation by the MDCO did not constitute a default of the contracts. Hainey J. of the Superior Court of Justice dismissed their applications: Grasshopper Solar Corporation v. Independent Electricity System Operator, 2019 ONSC 6397; and KL Solar Projects LP v. Independent Electricity System Operator, 2019 ONSC 6501.
[4] A panel of this court dismissed the applicants’ appeal: Grasshopper Solar Corporation v. Independent Electricity System Operator, 2020 ONCA 499. Writing for the court, Huscroft J.A. confirmed the application judge’s conclusion that the respondent was entitled to terminate the contracts: see paras. 36-44. Further, at paras. 53-78, he rejected the applicants’ submission that the respondent was estopped from terminating the contracts, either on the basis of estoppel by convention or promissory estoppel.
[5] The applicants seek leave to appeal that decision to the Supreme Court of Canada on various strands of contractual interpretation, using Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 663 as their starting point. In their Memoranda of Argument, all applicants raise the following questions:
(1) Does reading a contract “as a whole” require giving effect to all of its terms?
(2) How do “surrounding circumstances” that are not specific to the parties affect the interpretation of standard form contracts?
(3) Can courts imply terms to cure “commercially unreasonable” interpretations of contracts?
The KL Solar applicants also seek leave to appeal on further issues concerning estoppel and waiver.
[6] Under the Rules of the Supreme Court of Canada, the respondent’s materials are not yet due.
[7] In the course of the litigation leading up to the determination of the appeal in this court, the respondents agreed not to terminate the contracts. They have continued to make FIT payments. This arrangement is reflected in a Forbearance Agreement between the parties, entered into in July of 2019. Hainey J. incorporated the terms agreed upon into two interlocutory orders. The issue was also addressed in a Security Agreement entered into on April 1, 2020.
[8] The applicants take the position that, in both instances, the parties contemplated that these arrangements would remain in place until matters are finally determined in the Supreme Court of Canada. They submit that the respondents should be “held to their word” and that this application should be treated as an extension of a pre-existing stay. The respondent contends that the previous agreements were intended to expire upon the conclusion of proceedings in this court.
[9] I need not resolve this issue. These motions can be determined through the application of principles that govern the availability of stays pending appeal.
The Test for Granting a Stay
[10] The applicants apply under s. 65.1 of the Supreme Court Act, R.S.C. 1985, c. S-26. That section empowers the Supreme Court, the court of appeal, or a judge of either court, to stay proceedings with respect to the judgment from which leave to appeal is sought “on terms deemed appropriate.” The power is broad. In RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311, Sopinka and Cory JJ. held, at p. 329:
We are of the view that the Court is empowered, pursuant to both s. 65.1 and r. 27, not only to grant a stay of execution and of proceedings in the traditional sense, but also to make any order that preserves matters between the parties in a state that will prevent prejudice as far as possible pending resolution by the Court of the controversy, so as to enable the Court to render a meaningful and effective judgment.
[11] In Livent Inc. v. Deloitte & Touche, 2016 ONCA 395, 131 O.R. (3d) 784, at paras. 4-5, Strathy C.J.O. set out the test for a stay of proceedings pending an application for leave to the Supreme Court. In deciding this kind of motion, the court must consider the following factors: (1) whether there is a serious question to be determined on the proposed appeal; (2) whether the moving party will suffer irreparable harm if the stay is not granted; and (3) whether the balance of convenience favours a stay. These factors are not to be treated as silos; strength on one factor may compensate for weakness on another: Livent Inc., at para. 5. The “overriding question is whether the moving party has shown that it is in the interests of justice to grant a stay”: BTR Global Opportunity Trading Limited v. RBC Dexia Investor Services Trust, 2011 ONCA 620, 283 O.A.C. 321, at para. 16. See also Donovan v. Sherman Estate, 2019 ONCA 465, at para. 8.
[12] The respondent resists this motion on all three factors.
Application
[13] Applying these factors, the interests of justice warrant granting a stay of this court’s orders pending the applications for leave to appeal.
Serious Question to be Determined
[14] Deciding whether there is a serious issue to be determined requires a preliminary assessment of the proposed merits of the appeal, as well as the proposed merits of the application for leave to appeal. The threshold at this stage is “low”: Livent Inc., at paras. 7-8; Donovan, at para. 9.
[15] The applicants were unsuccessful before Hainey J., and a panel of this court unanimously dismissed the applicants’ appeals. The applicants submit that the decisions of both courts are wrong; whereas, the respondents claim that both decisions are undoubtedly correct, based in part on the judicial consensus to date.
[16] I do not see it as my role to pass judgment on the correctness of my colleagues’ decision. Although I was greatly assisted by the submissions of counsel on this motion, I did not share in the benefit of the arguments on appeal, or the collegial deliberative process that culminated in the reasons of Huscroft J.A.
[17] My focus is on whether there is arguable merit in the application for leave to appeal to the Supreme Court of Canada. While this task is somewhat different, it is no easier. It is challenging to predict how another court will react to the presentation of legal issues. This is especially the case in the broader framework set out under s. 40(1) of the Supreme Court Act, which requires the proposed appeal to raise an issue of public or national importance. And as my colleague van Rensburg J.A. observed in Donovan, at para. 13, leave to appeal would appear to be granted “sparingly” in civil matters.
[18] Nonetheless, the applicants have carefully developed a number of issues, as set out in para. 5, above. During oral argument on the motion, counsel for the respondent submitted that the applicants do not assert errors of law; instead, they raise questions about the application of settled law to the facts of this case. The respondent also submits that the applicants do not raise issues of national or public importance.
[19] I have concluded that the applicants have met the “low” threshold required to satisfy the first part of the test. The applicants have raised issues that could “go beyond the simple application of a known test to given facts and would transcend the facts of this particular case”: Donovan, at para. 16. There may be merit in the respondent’s assertion that some of the issues pursued by the applicants do not appear to raise questions of law. But that will be for the Supreme Court of Canada to decide. And although this is a civil case, the foundation of this contractual dispute – between an energy regulator and clean energy suppliers – is atypical and may engage public interests.
[20] In my view, the applicants have satisfied the “low threshold” required at this stage.
Irreparable Harm
[21] The applicants submit that, if the orders of this court are not stayed, they will suffer irreparable prejudice that cannot be compensated with damages. If this court does not grant a stay and the respondent is entitled to terminate the FIT Contracts, the applicants will be driven out of business, causing “significant irreparable harm to third parties, since as many as 63 direct employees and hundreds of other individuals employed by contractors, subcontractors, and suppliers in Ontario will lose their livelihoods.”
[22] The respondent submits that any harm the applicants might suffer from being deprived of FIT payments during proceedings in the Supreme Court can be remediated by reimbursing withheld FIT payments if the applicants are ultimately successful in the Supreme Court.
[23] To a large degree, this issue turns on the applicants’ credit arrangements. Both parties relied on extensive evidence concerning the corporate structure of the applicants, and their complex credit arrangements. Their arguments involved competing predictions of how the applicant’s main creditor will respond if FIT payments are terminated and the applicants are unable to service their debt. The applicants submit that their creditor will call their loan, which will trigger financial turmoil, resulting in the human consequences referred to in paragraph 21, above. The respondent submits that it would make no commercial sense for the applicant’s creditor to behave in such a fashion while the leave application is outstanding; the creditor’s only hope of recovering the considerable funds it has already advanced is dependent upon the applicants’ success in the Supreme Court of Canada.
[24] Based on the evidence and submissions before me, I am satisfied that a failure to preserve the status quo could well result in the consequences the applicants envisage. Whether or not the subsequent payment of withheld FIT payments could repair the purely commercial repercussions the applicants fear, I am satisfied that the human cost would be irreparable.
[25] The applicants have demonstrated irreparable harm.
The Balance of Convenience
[26] In addressing this factor in Livent Inc., Strathy C.J.O. said, at para. 12: “The balance of convenience is just that – a balancing of which party will suffer the greater harm from the stay being granted or refused.”
[27] In the previous section, I have outlined my findings about the impact on the applicants if the respondent were permitted to immediately enforce its contractual rights and terminate FIT payments. On the other side of the equation, the respondent submits that a stay of proceedings order that requires the respondent to continue making FIT payments risks exposing Ontario ratepayers/taxpayers to irremediable economic consequences. The concern is that the respondent will be unable to recover the FIT payments it advances while the case is in the Supreme Court of Canada. The respondent asserts that the security it currently holds in the applicants’ assets is insufficient to cover this exposure. The applicants submit that their pledge of security is in the range of $13 million and adequately protects the respondent’s interests; the respondent submits that the pledged assets (i.e., solar power equipment) are worth far less. If a stay is granted, the respondent requests that the applicants be required to post additional security.
[28] I accept the respondent’s submission that the evidence supporting the value of the applicants’ assets is rather thin, based on an undated internal memo on “Grasshopper” stationary, which is short on detail. On the other hand, during his cross-examination, the respondent’s affiant acknowledged that the applicants had greater expertise when it came to selling this specialized equipment.
[29] On balance, I am satisfied that the security held by the respondent is sufficient to protect it against the risk of non-recovery of continued FIT payments, at least in the short run.
[30] The balance of convenience favours the applicants.
Conclusion
[31] Considering all three factors discussed above, I am satisfied that the interests of justice require that the orders of this court be stayed pending the applications for leave to appeal. However, I am not prepared to order a stay that potentially extends further into the future. That is, the stay extends to the point in time when the Supreme Court of Canada determines the applications for leave to appeal. If it dismisses the applications, that will end the matter. If the Supreme Court allows the applications, the applicants may apply for further orders, if so advised, in that Court.
Disposition
[32] I allow the motion and order a stay of this court’s orders until the applications for leave to appeal have been determined. For clarity, the contracts in dispute will be performed by both parties in accordance with their terms, including the continuation of FIT payments. In other words, and in the spirit of RJR-MacDonald, the status quo is preserved for the time-being.
[33] At the conclusion of the hearing, counsel advised that, in all likelihood, they would be able to agree on the costs of this motion. If they are unable to do so, they may make submissions in writing. The applicants shall file written submissions of no more than three pages in length within 10 days of the release of these reasons. The respondent will have 10 days from the receipt of the applicant’s submissions to file its submissions of similar length. No reply is permitted. Both parties shall submit a Bill of Costs.
“Gary Trotter J.A.”