SUPERIOR COURT OF JUSTICE - ONTARIO

COMEMRCIAL LIST

COURT FILE NO.: CV-12-9861-00CL
DATE: 20121126

RE: CANADIAN SOLAR SOLUTIONS INC., Applicant

And

RA SOLAR LEASING INC., Respondent

BEFORE: Justice Newbould

COUNSEL:
Paul D. Guy, for the Applicant
Brian Morris, for the Respondent

DATE HEARD: November 20, 2012

E N D O R S E M E N T

[ 1 ] Canadian Solar moves for the appointment of a receiver over the assets of RA Solar under its general security agreement that permits it to apply to court for the appointment of a receiver.

[ 2 ] Canadian Solar is in the solar power business. It concentrates on the solar photovoltaic market providing turnkey solar solutions for residential, commercial and farm markets in Canada.

[ 3 ] RA Solar is in the business of leasing rooftops from homeowners for the purpose of developing solar power generating facilities that comply with the requirements of the Ontario microFIT Program.

[ 4 ] The parties entered into a Master Purchase Agreement dated November 10, 2011 and amended on February 27, 2012. The term of the MPA was for 6 months expiring on May 10, 2012. The MPA provided, provided, among other things:

• RA Solar was to source residential rooftop projects for development and construction of Rooftop Solar Photovoltaic Electricity Generation Facilities (section 4(a)).

• Canadian Solar was required to fund the acquisition, development and construction of the projects, initially up to a maximum amount of $5 million (section 6(a)).

• Canadian Solar was to do all of the work on the projects, including providing the required engineering services, equipment procurement, labour, materials, equipment and tools and services and construct and install all equiment necessry to complete the projects (Sections 2.1 and 2.5 of EPC Terms and Conditions)

• The parties would work to find a third party buyer for the portfolio of projects constructed and share in the net proceeds of such sale (section 7(b)).

[ 5 ] Canadian Solar was to be paid Up Front Fees and EPC Fees, being

• “Up Front Fees”: amounts paid up front by Canadian Solar to cover the local distribution company fee (“LDC fee”), building permit fee and engineering fee in connection with each Project, and origination fees for Projects that are terminated after payment was made by Canadian Solar. (section 4(g)).

• “EPC Fees”: amounts payable to Canadian Solar upon substantial completion of each Project (which has occurred for numerous projects) to compensate Canadian Solar for all of its work in connection with the actual engineering, procurement and construction of that particular Project (section 6(a) and (b)).

[ 6 ] The MPA provided for a grid promissory note to which amounts to be paid to Canadian Solar by RA Solar were to be added as the amounts became due. The MPA as amended provided:

4.(g) For the purpose of advancing such Projects, [Canadian Solar] shall advance to [RA Solar] the sums necessary for [RA Solar] to pay LDC interconnection fees and municipal building permit fees with respect to a Project, at the time of payment thereof by [RA Solar]. Such amounts shall be added to the Master Note balance. …

6.(b) [Canadian Solar] will establish a Master Note … and secured by a general security agreement securing all of the assets and undertakings of [RA Solar]….The Master note will be a grid note and all amounts funded by [Canadian Solar] pursuant to this paragraph 6 and paragraph 4 shall be added to the note from time to time. Amounts outstanding under the Master Note may not exceed $5,000,000.

6.(f) Upon Substantial Completion of a Project;

(ii) there shall become due and owing in respect of such Project the EPC Price, which EPC Price shall be added to the cumulating balance of the Master Note.

[ 7 ] RA Solar contends that the GSA secures only the Up Front Fees and not the EPC Fees. This is not correct. It is based on an incorrect interpretation of the MPA.

[ 8 ] Section 3 of the GSA describes the secured obligations as all obligations of RA Solar to Canadian Solar, including the obligations in the grid promissory note. It states:

3. Secured Obligations

The security interests, mortgages and charges granted hereby secure all of the following (collectively, the “Obligations): both the performance and the payment to [Canadian Solar] of all obligations, debts and liabilities (including, without limitation, on account of damages) of [RA Solar] to [Canadian Solar], present or future, direct or indirect, absolute or contingent, liquidate or unliquidated, matured or not, wheresoever and howsoever incurred pursuant to the [MPA], the [Note] and any other document or instrument pursuant thereto or contemplated thereby…

[ 9 ] Sections 4(g) and 6(b) and (f) of the MPA as set out above make clear that the grid note is to include all EPC fees.

[ 10 ] RA Solar points to paragraph 5 of the GSA, which deals with partial discharge of security. It provides that each advance of funds by Canadian Solar shall be allocated to each specific project being financed by Canadian Solar. It further provides that as the amounts being repaid by RA Solar to Canadian Solar are sufficient to satisfy the obligations in connection with each specific project, the security for that project will be released. This is of no assistance to RA Solar for at least two reasons. First, it says nothing about whether all debts owing by RA Solar to Canadian Solar are secured by the grid note and the GSA. Second, RA Solar admittedly has paid nothing to Canadian Solar and would not be entitled to any discharge for any project.

[ 11 ] RA Solar contends that Canadian Solar was obligated to fund $5 million under S. 6(a) of the MPA and that because of its failure to fund that amount, the EPC Fees are not due and payable. I do not agree. The EPC Fees by the terms of section 6(f) of the MPA are to be due and owing for each project upon substantial completion on the project, and added to the grid note. The substantial completion dates for each project ran from December 16, 2011 to July 20, 2012 according to the affidavit evidence of Mr. Marshall of RA Solar. The EPC Fees for each of them became due and owing on each of those dates. Moreover I do not read section 6 of the MPA as requiring $5 million to be funded by Canadian Solar. Section 6(a) provides that the projects will be funded by Canadian Solar. Section 6(b) provides that amounts funded by Canadian Solar will be added to the grid note from time to time and that the amounts outstanding under the grid note shall not exceed $5 million. Canadian Solar would not be required to fund a project it did not take on and Mr. Morris conceded that there is no evidence that the projects that Canadian Solar agreed to take on have not been completed and paid for by Canadian Solar.

[ 12 ] The amounts added to the grid note under the terms of the MPA were $1,232,327.81 in Up Front Fees and $3,220,903.38 (HST included) in EPC Fees.

[ 13 ] The grid note by its terms became due and payable in full on November 10, 2012. Because this date fell on a Saturday, the due date by the terms of the note was extended to November 12, 2012. RA Solar takes the position that it had a further 30 days to cure the default and that this 30 day period has not yet passed. I do not agree. It is based on a misreading of section 9(e)(iii). That section states:

(e) This Agreement shall terminate on the earlier of:

(iii) the date that either Party violates, in any material respect, any of the provisions of this Agreement, which violation remains uncured or the process for curing same has not commenced or is not continuing, in each case, for 30 days following such Party’s written notice thereof from the other Party…

[ 14 ] This provision does not deal with when an obligation is due under the grid note. It gives a defaulting party who has been served with a notice to terminate the MPA 30 days to cure the default in order to prevent the termination of the MPA.

[ 15 ] RA Solar also contends that the MPA extends the repayment of the grid note to 60 days following the termination of the MPA. It relies on section 10(c) of the MPA. I do not see that section having anything to do with the due date of the grid note. It provides that upon the termination of the MPA, the parties will make bona fide efforts to sell the then remaining projects, including completed and in progress projects, as soon as practicable. It goes on to state:

In the event that the Parties are unable to enter into a binding agreement for the sale of such Projects to a third party within 60 days from the date of termination of this Agreement, [Canadian Solar] may, at its option, require [RA Solar] to carry out a Purchase Transfer.

[ 16 ] A Purchase Transfer is a transfer of the projects by RA Solar to Canadian Solar. The section merely states that Canadian Solar would have the option of requiring all of the projects to be transferred to it if they could not be sold to a third party purchaser. It does not extend the date for payment of the grid note.

[ 17 ] The only possible provision providing for the extension for the time to pay the grid note would be section 41 of the Bills of Exchange Act which provides:

41. Where a bill is not payable on demand, three days, called days of grace, are, in every case, where the bill itself does not otherwise provide, added to the time of payment as fixed by the bill, and the bill is due and payable on the last day of grace, but whenever the last day of grace falls on a legal holiday or non-juridical day in the province where any such bill is payable, the day next following, not being a legal holiday or non-juridical day in that province, is the last day of grace.

[ 18 ] Whether this section is applicable is not worth debating. If the 3 day grace period is applicable, that means that the due date for the grid note was extended to November 15, 2012, a date that has expired.

[ 19 ] Thus there is no question that the amounts of $1,232,327.81 and $3,220,903.38 are due and payable and secured by the GSA.

[ 20 ] I should note that the MPA was terminated by Canadian Solar on April 30, 2012 as a result of various alleged defaults by RA Solar of its obligations under the MPA. Under section 10(b) of the MPA, all amounts due under the grid note become immediately due and owing on a termination of the MPA caused by the default of RA Solar. This termination occurred a week-and-a-half prior to May 10, 2012, the date the MPA would terminate in any event upon the expiry its 6 month term.

[ 21 ] On May 25, 2012, Canadian Solar issued a demand letter to RA Solar and formal notice of its intention to enforce its security under section 244 of the BIA. The letter stated that RA Solar owed Canadian Solar $4,329,877.50 as of May 30, 2012 and that Canadian Solar intended to enforce its security. The statutory 10-day notice period under the BIA has long since expired.

[ 22 ] Canadian Solar commenced this application on October 2, 2012 for the appointment of BDO as receiver based on the defaults alleged by Canadian Solar. These defaults are contested by RA Solar. For that reason, Canadian Solar has based its motion on the termination of the MPA by its terms and the terms of the MPA and the grid note. It has not sought to argue the termination caused by the alleged defaults of RA Solar was justified.

[ 23 ] The principles governing the appointment of a receiver under a security agreement are fully set out in Bank of Montreal v. Carnival National Leasing Ltd. (2011), 2011 ONSC 1007, 74 C.B.R. (5th) 300 at paras. 24 to 29.

[ 24 ] In my view it is appropriate to order the appointment of a receiver. The outstanding amounts owing by RA Solar to Canadian Solar are past due. The security held by Canadian Solar permits it to apply to have a receiver appointed by the Court.

[ 25 ] The projects under the MPA carried out by Canadian Solar are to be sold in accordance with section 10(e) of the MPA. There are homeowners involved who may have an interest in any sale, as does the power authority in Ontario. A sale undertaken by a court appointed receiver will provide safeguards that all appropriate steps are taken, and permit a vesting order that will likely be required.

[ 26 ] By a general security agreement dated as of October 2, 2012, the date this application was commenced, Hybrid Partners Ltd took security from RA Solar over all of RA Solar’s assets. Mr. Stevenson, the president of RA Solar swore that he through Hybrid Partners Ltd. had invested in excess of $2,375,000, and that the only way he shall have his investment returned is by finding a third party purchaser. A dispute over this security or who should have the right to sell the projects would obviously not be helpful, and a court appointed receiver with the power to conduct the sale would obviate that.

[ 27 ] It is also the case that under section 10(c) of the MPA, Canadian Solar has the right now to require RA Solar to transfer to it the projects carried out by Canadian Solar. That would give Canadian Solar complete control over those projects. By applying to court to have a receiver appointed, Canadian Solar is giving up that right by having put in place a court ordered process that will protect the rights of all stakeholders. Under section 7(a) of the MPA, Canadian Solar has a right in any asset sale to be paid 80% of any net amounts received beyond the payment of amounts advanced by it under section 6(a). It is in the interest of Canadian Solar therefore to obtain the maximum amounts that can be achieved on any sale. A receiver can exercise the rights to sell provided for in section 10(c).

[ 28 ] In the circumstances an order shall go appointing BDO Canada Limited as receiver under section 243(1) of the BIA and section 101 of the Courts of Justice Act. The form of the order shall be a contained at tab 13 of the motion record of Canadian Solar.

Newbould J.

DATE: November 26, 2012