Energy Fundamentals Group Inc. v. Veresen Inc., (2015) 336 O.A.C. 230 (CA)

• Judge: Simmons, Epstein and Pardu, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: May 27, 2015
• Jurisdiction: Ontario
• Citations: (2015), 336 O.A.C. 230 (CA);2015 ONCA 514

Energy Fundamentals v. Veresen Inc. (2015), 336 O.A.C. 230 (CA)

MLB headnote and full text

Temp. Cite: [2015] O.A.C. TBEd. JL.009

Energy Fundamentals Group Inc. (applicant/respondent) v. Veresen Inc. (respondent/appellant)

(C60196; 2015 ONCA 514)

Indexed As: Energy Fundamentals Group Inc. v. Veresen Inc.

Ontario Court of Appeal

Simmons, Epstein and Pardu, JJ.A.

July 8, 2015.

Summary:

An application judge implied terms into a commercial contract between Energy Fundamentals Group Inc. (EFG) and Veresen Inc., putting an obligation on Veresen to disclose information to enable EFG to determine whether to exercise an option to acquire up to 20% of a limited partnership (a project to develop a liquid natural gas terminal) (see 2015 ONSC 692). Veresen appealed.

The Ontario Court of Appeal dismissed the appeal.

Contracts - Topic 2065

Terms - Implied terms - To achieve business efficacy - An application judge implied terms into a commercial contract between Energy Fundamentals Group Inc. (EFG) and Veresen Inc., putting an obligation on Veresen to disclose information to enable EFG to determine whether to exercise an option to acquire up to 20% of a limited partnership (a project to develop a liquid natural gas terminal) - Veresen appealed - The Ontario Court of Appeal stated that the application judge's largely factual conclusion that the right to value and price disclosure was necessary to give business efficacy to the agreement was owed deference - The implication of contractual terms raised questions of mixed law and fact and was reviewable for palpable and overriding error unless extricable errors of law were evident - The judge's conclusions were reasonably available to him on the evidence - It was apparent that the contract, a letter agreement, was not intended to comprehensively define the parties' relationship - The subjective evidence of the Veresen executive that Veresen would not have agreed to the implied terms was of little value - The analysis of whether to imply a term had to be done on an objective basis, but having regard to the specific parties and specific contractual context - The conclusion that the option was illusory unless a right to disclosure was implied, and that the implied terms were necessary to give business efficacy to the agreement were not tainted by reviewable error - The implication of the terms was not rendered unnecessary because EFG could have blindly exercised the option without knowing whether it would make economic sense to do so - Such an interpretation would frustrate the agreement's business purpose - See paragraphs 28 to 40.

Contracts - Topic 2065

Terms - Implied terms - To achieve business efficacy - An application judge implied terms into a commercial contract between Energy Fundamentals Group Inc. (EFG) and Veresen Inc., putting an obligation on Veresen to disclose information to enable EFG to determine whether to exercise an option to acquire up to 20% of a limited partnership (a project to develop a liquid natural gas terminal) - Veresen appealed, asserting that although the judge correctly articulated the legal test for implying a term to give the agreement business efficacy, he refashioned it to imply a term to which reasonable parties in general would have agreed, without regard for the parties' actual intentions - The assertion was based on paragraph 85 of the judge's reasons - The Ontario Court of Appeal rejected the assertion, stating that "... the application judge did not depart from the proper test cited by him in the immediately preceding paragraph of his reasons. His analysis is in no way abstracted from an analysis of the specific relationship between these parties. ... The finding that no reasonable person would have embarked on an exercise of the option without disclosure, supports a finding of the necessity of the implied term for purposes of business efficacy." - See paragraphs to 41 to 46.

Contracts - Topic 2065

Terms - Implied terms - To achieve business efficacy - An application judge implied terms into a commercial contract between Energy Fundamentals Group Inc. (EFG) and Veresen Inc., putting an obligation on Veresen to disclose information to enable EFG to determine whether to exercise an option to acquire up to 20% of a limited partnership (a project to develop a liquid natural gas terminal) - Veresen appealed, asserting that the judge erred by confounding the requirement of good faith performance of a contract with the test for implying contractual terms - The Ontario Court of Appeal rejected the argument - The application judge's reference to good faith did not undermine his earlier factual conclusions as to necessity and business efficacy - Given Veresen's agreement before the application judge that it would provide the pricing information, there was no basis to revisit that conclusion - In any event, the same analysis would compel implication of a term requiring disclosure of pricing information - No one could have reasonably contemplated that EFG would have to blindly accept Veresen's calculation of the option price - See paragraphs 47 to 50.

Contracts - Topic 3502

Performance or breach - Obligation to perform - Good faith - Exercise of - [See third Contracts - Topic 2065 ].

Contracts - Topic 7415.1

Interpretation - General principles - Good faith - [See third Contracts - Topic 2065 ].

Practice - Topic 8800.1

Appeals - General principles - Duty of appellate court regarding findings of mixed law and fact by a trial judge - [See first Contracts - Topic 2065 ].

Practice - Topic 8807

Appeals - General principles - Duty of appellate court regarding inferences and inferences from truthful evidence - [See first Contracts - Topic 2065 ].

Practice - Topic 8808

Appeals - General principles - Duty of appellate court respecting conclusions of interpretation of trial judge - Contractual interpretation - [See first Contracts - Topic 2065 ].

Cases Noticed:

M.J.B. Enterprises Ltd. v. Defence Construction (1951) Co. et al., [1999] 1 S.C.R. 619; 237 N.R. 334; 232 A.R. 360; 195 W.A.C. 360, refd to. [para. 17].

Bhasin v. Hrynew et al., [2014] 3 S.C.R. 495; 464 N.R. 254; 584 A.R. 6; 623 W.A.C. 6; 2014 SCC 71, refd to. [para. 21].

Olympic Industries Inc. v. McNeill (1993), 38 B.C.A.C. 254; 62 W.A.C. 254; 86 B.C.L.R.(2d) 273 (C.A.), refd to. [para. 28].

Moulton Contracting Ltd. v. British Columbia et al. (2015), 368 B.C.A.C. 127; 633 W.A.C. 127; 381 D.L.R.(4th) 263; 2015 BCCA 89, refd to. [para. 28].

Creston Moly Corp. v. Sattva Capital Corp., [2014] 2 S.C.R. 633; 461 N.R. 335; 2014 SCC 53, refd to. [para. 29].

Shirlaw v. Southern Foundries et al., [1939] 2 K.B. 206; [1939] 2 All E.R. 113 (C.A.), refd to. [para. 31].

The Moorcock, [1886-1890] All E.R. Rep. 530; 58 L.J.P. 73; 14 P.D. 64, refd to. [para. 32].

Attorney General of Belize v. Belize Telecom Ltd., [2009] 2 All E.R. 1127; [2009] UKPC 10, refd to. [para. 34].

Ford (G.) Homes Ltd. v. Draft Masonry (York) Co. (1983), 2 O.A.C. 231; 43 O.R.(2d) 401 (C.A.), refd to. [para. 36].

Authors and Works Noticed:

Chitty on Contracts (31st Ed. 2012), vol. 1, p. 13-002 [para. 37].

McCamus, John D., The Law of Contracts (2nd Ed. 2012), p. 781 [para. 43].

Swan, Angela, and Adamsky, Jakub, Canadian Contract Law (3rd Ed. 2012), p. 113 [para. 49].

Counsel:

Mark A. Gelowitz and Eric Morgan, for the appellant;

Orestes Pasparakis, Rahool P. Agarwal and Stephen Taylor, for the respondent.

This appeal was heard on May 27, 2015, by Simmons, Epstein and Pardu, JJ.A., of the Ontario Court of Appeal. Pardu, J.A., released the following judgment for the court on July 8, 2015.