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TERMS - Express terms - Time of the essence - Term and termination 

Friday, September 18, 2020 @ 6:16 AM  


Lexis Advance® Quicklaw®
Appeal by renewable energy suppliers from a decision of an application judge concluding that the respondent could terminate their contracts if they failed to achieve commercial operation by the Milestone Date and that the respondent was not estopped from doing so. In 2016, the appellants entered into Feed in Tariff (FIT) contracts with the respondent Independent Electricity System Operator 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. The contracts required the appellants to achieve commercial operation for the facilities they were building by the specified Milestone Date for commercial operation in 2019. The appellants acknowledged their obligation to achieve commercial operation by the Milestone Date but argued that if the respondent wanted to terminate the FIT contracts based on their failure to do so, it had to terminate pursuant to s. 9.6 of the contract, which required the respondent to compensate them for their construction costs. The appellants argued the FIT contracts did not permit termination based on a Supplier Event of Default without compensation until and unless more than 18 months had passed since the Milestone Date COD. The appellants acknowledged that the contract established that time was of the essence but argued that the remedy for breach was a shortening of the supplier’s guaranteed revenue period. The appellants also argued the respondent communicated the shared assumption that it would not terminate the FIT contracts for failure to achieve commercial operation by the Milestone Date without providing reasonable notice of its intention to do so and 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 Milestone Date.

HELD: Appeal dismissed. The application judge did not err in finding that the respondent had the right to terminate the contracts without paying damages. The respondent was entitled to terminate the FIT contracts because of the appellants’ failure to achieve commercial operation by the Milestone Date. The fatal flaw in the appellants’ interpretation of the contract lay in its failure to give effect to a key provision in the contract which made plain not only that the parties agreed that commercial operation was to be achieved in a timely manner, and in any event by the Milestone Date, but also that time was of the essence. Strict compliance with the Milestone Date was required. The failure of a supplier to establish commercial operation by the Milestone Date gave rise to the respondent’s right to terminate the contract. Breach of the time was of the essence provision constituted a Supplier Event of Default under the contract which allowed for termination on written notice. The respondent was not estopped from terminating the contract as neither estoppel by convention nor promissory estoppel applied. The application judge’s conclusion that the assumption that the respondent would not terminate the FIT contracts for failure to achieve commercial operation by the Milestone Date without providing reasonable notice was not an assumption shared by the respondent was amply supported by the record. The respondent’s bulletin clearly informed suppliers not to make the very assumption the appellants made and sought to attribute to the respondent as well. In the absence of a shared assumption, the claim of estoppel by convention failed and neither the question of detrimental reliance on the bulletin nor any question of fairness arose. As there was no shared assumption capable of supporting estoppel by convention, there was also no promise capable of supporting a claim of promissory estoppel.

Grasshopper Solar Corp. v. Independent Electricity System Operator, [2020] O.J. No. 3356, Ontario Court of Appeal, K.N. Feldman, P.D. Lauwers and G. Huscroft JJ.A., August 7, 2020. Digest No. TLD-September142020009