2019 ONSC 6501

COURT FILE NO.: CV-19-622166-00CL

DATE: 20191115

SUPERIOR COURT OF JUSTICE – ONTARIO

• COMMERCIAL LIST

RE: 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 SUBSTAINABLE OTTAWA PROJECTS LP

Applicants

AND:

INDEPENDENT ELECTRICITY SYSTEM OPERATOR

Respondent

BEFORE: HAINEY J.

COUNSEL: Marie Henein, Alex Smith, and David Postel for the Applicants

Alan Mark and Melanie Ouanounou for the Respondent

HEARD: October 7 and 8, 2019

ENDORSEMENT

background

[1] The applicants in this application (“KL Application”), like the applicants in the related application, Grasshopper Solar Corporation v. Independent Electricity System Operator 2019 ONSC 6397 (“Grasshopper Application”) are in the process of constructing solar power projects pursuant to contracts with the respondent (“FIT Contracts”). They seek declaratory relief with respect to the respondent’s assertion of a right to terminate their FIT Contracts.

[2] I heard this application and the Grasshopper Application together. Both applications raise the following issue:

• Does the IESO have the right to terminate the FIT Contracts for the applicants’ failure to achieve commercial operation by the Milestone Date for Commercial Operation (“MCOD”)?

[3] In the Grasshopper Application I concluded that the IESO has the right to terminate the FIT Contracts for failure to achieve commercial operation by the MCOD.

[4] My conclusion was based upon my interpretation of the contractual provisions in the FIT Contracts. It is equally applicable to the KL Application as the terms of the FIT Contracts are identical.

[5] However, the KL Application raises a second issue of whether the court should prevent the IESO from terminating the FIT Contracts for failure to achieve commercial operation by the MCOD on the basis of estoppel by convention.

[6] I will address this issue in this endorsement.

facts

[7] All relevant facts are set out in my endorsement in the Grasshopper Application.

issue

[8] The sole issue that I must decide is whether estoppel by convention precludes the IESO from exercising its right to terminate the FIT Contracts for failure to achieve commercial operation by the MCOD?

positions of the parties

[9] The applicants submit that the IESO should be estopped from terminating the FIT Contracts for failure to achieve commercial operation by the MCOD because there has been an assumption in place for years that the IESO would not do so until eighteen months after the MCOD. The applicants relied upon this assumption and will now suffer harm if their FIT Contracts are terminated eighteen months earlier than they had expected.

[10] The IESO submits that estoppel by convention is not available to the applicants because of the following:

(a) There was no shared assumption between the IESO and the applicants that the IESO would not terminate the FIT Contracts for failure to achieve commercial operation by the MCOD;

(b) The applicants have not established that they relied upon a shared assumption that their FIT Contracts would not be terminated if they failed to achieve commercial operation by the MCOD;

(c) The applicants should not be granted equitable relief because they omitted material facts from their affidavit evidence and have therefore not come to court with “clean hands”; and

(d) The entire agreement (s.1.9) and waiver amendment (s. 1.10) clauses in the FIT Contracts prevent the applicants from relying upon the IESO’s past practices or waivers.

anaylsis

[11] Since I have concluded, based upon my contractual interpretation of the FIT Contracts, that the IESO may terminate these contracts for failure to achieve commercial operation by the MCOD, I must determine whether the equitable remedy of estoppel by convention prevents the IESO from doing so.

[12] Estoppel by convention was defined by Bastarache J. in the Supreme Court of Canada’s decision in Ryan v. Moore, 2005 SCC 38, [2005] 2 SCR 53 at para. 58 as follows:

… I am of the view that the following criteria form the basis of the doctrine of estoppel by convention:

(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.

[13] I will consider the three criteria below.

Shared Assumption

[14] According to the applicants there has been an assumption in place for years that the IESO would not terminate the FIT Contracts for failure to achieve commercial operation by the MCOD and that the IESO would give the suppliers an additional eighteen months to achieve commercial operation before it would terminate the contracts for this reason.

[15] In Ryan v. Moore, Bastarache J described the shared assumption required for estoppel by convention as follows at paras. 61 and 62:

61. The crucial requirement for estoppel by convention, which distinguishes it from the other types of estoppel, is that at the material time both parties must be of “a like mind” … The court must determine what state of affairs the parties have accepted, and decide whether there is sufficient certainty and clarity in the terms of the convention to give rise to any enforceable equity …

62. While it may not be necessary that the assumption by the party raising estoppel be created or encouraged by the estopped party, it must be shared in the sense that each is aware of the assumption of the other … Mutual assent is what distinguishes the estoppel by convention from other types of estoppel …

[16] I have concluded, based upon this definition, that the assumption relied upon by the applicants was not a shared assumption within the meaning of the Supreme Court’s definition for the following reasons.

[17] The parties were not of “a like mind”. The IESO never advised the applicants or any other suppliers that it did not have a valid termination right under the FIT Contracts for failure to achieve commercial operation by the MCOD, or that it had waived the exercise of its termination right for all future contracts. The Bulletin stated explicitly as follows:

(a) The OPA still considered that it had a right to terminate the FIT Contracts under Section 9.2(a) for failure to reach commercial operation by the MCOD;

(b) The information provided in the notice “is meant for informational purposes only and shall not be relied upon by suppliers”; and

(c) The information provided in the notice “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 applicants have failed to establish that there was a common understanding between them and the OPA or the IESO that the FIT Contracts would never be terminated for failure to achieve commercial operation by the MCOD. The Bulletin simply set out the OPA’s “approach” to project delays and potential events of default at the time. It made it clear that the information contained in the Bulletin did not amend the FIT Contracts to remove the OPA’s right to terminate them for failure to achieve commercial operation by the MCOD.

[19] The Bulletin is, therefore, not evidence of a shared assumption of fact or law between the OPA and the applicants. It is simply an announcement by the OPA as to 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. It did not constitute a shared assumption that the IESO would never terminate FIT Contracts for failure to achieve commercial operation by the MCOD.

[20] In my view, the IESO was free to change its approach to breaches of the FIT Contracts provided it gave reasonable notice of its intention to do so. The Warning Letter, which was six months before the applicants’ MCOD was, in my view, reasonable notice. The applicants in the Grasshopper Application considered it to be ample notice since they acquired the applicants in the KL Application’ss FIT Contracts in the belief that they could meet the deadlines for MCOD without the additional eighteen months.

[21] Although the applicants may have believed that the IESO would not terminate the FIT Contracts for failure to achieve commercial operation by the MCOD, and the IESO may have been aware of their belief, this is still insufficient to establish a shared assumption for the purpose of estoppel by convention because there was no “manifest representation” either orally or in writing from the IESO confirming that the IESO shared the applicants’ belief in this regard.

[22] I agree with Belobaba J who concluded that a “manifest representation” is necessary to establish a shared assumption for the purpose of estoppel by convention in Macourtice Developments Inc. v. Clarington (Municipality) 2005 CarswellOnt 7239 at para. 89 and 90 as follows:

89. Was there a shared assumption? The Town was certainly aware of the Developer’s preferred method of valuation. This was apparent from the ReMax appraisal and from other correspondence which had been sent to the Town by the Developer’s engineering consultant.

90. But did the Town share this assumption? There was no “manifest representation” such as a written or oral communication clearly stating that the Town shared the Developer’s assumption as to how the Pond Land would be appraised.

[23] My conclusion that the applicants have failed to establish a shared assumption that the IESO could not terminate the FIT Contracts for failure to achieve commercial operation by the MCOD is also supported by Geoff Hall’s following description of the strict requirements for the common understanding required for estoppel by convention in his text Canadian Contractual Interpretation Law, supra at s. 6.3:

The strictness of the requirement for a common understanding is unsurprising. The evidence of a party in support of an alleged common understanding will be self-serving, so a court is apt to be skeptical of it. More importantly, the effect of estoppel by convention may well be to depart from the words of a contract as agreed by the parties […] This departure is justified only if there is a clear basis for concluding that the parties did share a common understanding and demonstrated it in the way that they performed their contractual obligations.

[24] The applicants have not met this strict requirement of establishing a common understanding.

Detrimental Reliance

[25] The second criterion necessary to establish estoppel by convention is detrimental reliance. In view of my conclusion that the applicants have not established that there was a shared assumption regarding the IESO’s termination rights under the FIT Contracts, the applicants cannot establish that they relied to their detriment on a shared assumption. They did, however appear to rely upon the IESO’s practice of not terminating any FIT Contracts for failure to achieve commercial operation by the MCOD.

[26] Michael Kendon testified on behalf of the applicants. In his affidavit evidence he stated that the applicants would not have entered into the FIT Contracts if they had known that the IESO could terminate the contracts for failure to achieve commercial operation by the MCOD. He further testified that based upon the IESO’s representations and past practices he understood that “the IESO would not terminate the Contract for failure to achieve Commercial Operation within 18 months of the MCOD”. He could not say whether he had seen the Bulletin before entering into the FIT Contracts but believed he may have been briefed on it by one of his employees. According to him this understanding had, until March 2019, been widespread in the industry.

[27] Under cross-examination he gave evidence that appeared to contradict his affidavit evidence on this issue. He later clarified his evidence and acknowledged that s. 2.5(b) of the FIT Contracts, when read in isolation, provides for a right of termination for failure to achieve commercial operation by the MCOD. However, he indicated that the Bulletin and the IESO’s past practice “means that they ought not to be entitled to enforce” any right to terminate for failure to achieve commercial operation by the MCOD.

[28] As indicated above, the applicants cannot establish that they relied to their detriment on a shared assumption because there was none. However, I find on a balance of probabilities, based upon Mr. Kendon’s evidence, that the applicants relied to their detriment upon the IESO’s practice of not terminating any FIT Contracts for failure to achieve commercial operation by the MCOD when they entered into the FIT Contracts in 2016.

Unfairness

[29] The third criterion required to establish estoppel by convention is that it must be unjust or unfair to allow one of the parties to depart from the common assumption. Since I have concluded that there was not a common assumption between the IESO and the applicants this criterion cannot be satisfied. However, the departure by the IESO from its stated position in the Bulletin and its past practice with respect to every FIT Contract up to March 2019, not to terminate the contracts for failure to achieve commercial operation by the MCOD, does seem unfair to me. The applicants, and others, have invested millions of dollars in their solar power projects which will be lost if their FIT Contracts are terminated for failure to achieve commercial operation by the MCOD. If I had concluded that there was a common assumption between the IESO and the applicants that the IESO would not terminate any FIT Contracts for failure to achieve commercial operation by the MCOD, I would conclude that this third criterion of unfairness had been met.

Clean Hands

[30] I do not agree with the IESO’s submission that Mr. Kendon gave evidence with the intention of misleading the court. I am satisfied that his evidence was truthful, albeit at times somewhat confusing.

[31] This would not be a basis for denying the applicants the equitable remedy of estoppel by convention if it were otherwise available to them.

Entire Agreement and Waiver Clauses

[32] Section 1.9 of the FIT Contracts provides as follows:

1.9 Entire Agreement

(a) This Agreement constitutes the entire agreement between the Parties pertaining to the subject matter of this Agreement. There are no warranties, conditions or representations (including any that may be implied by statute) and there are no agreements in connection with the subject matter of this Agreement, except as specifically set forth or referred to in this Agreement. No reliance is placed on any warranty, representation, opinion, advice or assertion of fact made by a Party to this Agreement, or its Representatives, to the other Party to this Agreement, or its Representatives, except to the extent that the same has been reduced to writing and included as a term of this Agreement.

(b) Where this Agreement explicitly incorporates by reference any definitions set out in the FIT Rules, such reference shall be to the FIT Rules in effect on the Contract Date.

[33] Courts routinely give effect to entire agreement clauses, such as Section 1.9, to exclude reliance on historical representations or conduct which existed at the time of the formation of the contract but was not included as an express term of the contract. This is true even in the context of standard form contracts drafted by one party.

[34] I am of the view that the following words of the Court of Appeal for Ontario in Soboczynski v. Beauchamp 2015 ONCA 282 at para. 59, apply to the entire agreement clause in this case:

59. The entire agreement clause in this case is saying, “These are the terms of our agreement and nothing that was said beforehand is relevant. You have no basis for relying on anything other than the terms of the agreement. The agreement stands on its own”.

[35] Based upon the Court of Appeal’s decision in this case, the Bulletin and the IESO’s past practice cannot amend the terms of the FIT Contracts.

[36] Section 1.10 of the FIT Contracts provides as follows:

1.10 Waiver Amendment

Except as expressly provided in this Agreement, no waiver of any provision of this Agreement shall be binding unless executed in writing by the Party to be bound thereby and in the case of a waiver issued by the Sponsor, such waiver shall not be binding on the Sponsor unless it has been executed by an individual identified in such waiver as “Contract Management”. No waiver of any provision of this Agreement shall constitute a waiver of any other provision nor shall any waiver of any provision of this Agreement constitute a continuing waiver or operate as a waiver of, or estoppel with respect to, any subsequent failure to comply, unless otherwise expressly provided. Except as expressly provided in this Agreement, no amendment of any provision of this Agreement shall be binding unless executed in writing by both Parties to this Agreement, and no such amendment shall be binding on the Sponsor unless it has been executed by an individual identified in such amendment as “Contract Management”.

[37] In my view, this clause in the FIT Contracts prevents the applicants from relying upon estoppel by convention arising solely from previous waivers of provisions in the FIT Contracts by the IESO.

conclusion

[38] For the reasons outlined above this application for an order that the IESO is estopped from terminating the FIT Contracts for failure to achieve commercial operation by the MCOD is dismissed. Since the MCOD has already passed my order will not take effect for thirty days from the date of this endorsement so that the applicants may seek appellate review before the FIT Contracts are terminated.

costs

[39] If the parities cannot settle costs they may schedule a 9:30 a.m. attendance with me.

[40] I thank counsel for their helpful submissions.

HAINEY J.

Date: November 15, 2019