Summaries Sunday: OnPoint Legal Research

One Sunday each month OnPoint Legal Research provides Slaw with an extended summary of, and counsel’s commentary on, an important case from the British Columbia, Alberta, or Ontario court of appeal.

Barafield Realty Ltd. v. Just Energy (B.C.) Limited Partnership, 2015 BCCA 421

AREAS OF LAW: Privity of contract; Novation; New issues on appeal; Money had and received

~Where a party seeks to enter into an agreement which is dependent on it making a payment that it disputes, and the party has time to seek a determination of the validity of the payment but chooses not to do so, then the party is not practically compelled to make the payment.~

BACKGROUND: The Respondent, Barafield Realty Ltd., owns residential apartment buildings in the Greater Vancouver area. In 2006 the Respondent entered into contracts with CEG Energy Options Inc., to provide natural gas at a fixed rate for 5 years from May 1, 2006 to April 30, 2011. CEG subsequently entered into bankruptcy and Companies’ Creditors Arrangement Act (CCAA) proceedings. The Appellant Just Energy purchased a portion of CEB’s contracts, including its contracts with the Respondent, and this purchase was approved by the Alberta CCAA court. The contracts contained a clause giving the Respondent the right to terminate in the event of a default, including the insolvency of CEG. When the Respondent received notice of the Appellant’s purchase of the contracts, it terminated them based on the contractual terms. The Respondent took the position that the Appellant was aware of these terms and took a calculated risk in purchasing the contracts anyway. The Appellant took the position that the assignment of the contracts, approved by a vesting order, was permitted without the Respondent’s consent. The Respondent continued to assert its right to terminate the contracts, but paid for the natural gas based on invoicing from Terasen, and at the end of the contracts’ term it sued. At trial, the judge found that the Appellant was in breach of the contract when it failed to get the Respondent’s consent to the assignment. The Respondent was awarded $824,888.13 in damages, being the difference between what it paid the Appellant and what it would have had to pay a third party.

APPELLATE DECISION: The appeal was allowed. The Appellant argued that the trial judge erred in concluding it was liable to the Respondent for breach of contract, because there was no privity of contract between the parties. The Appellant further argued that the trial judge erred in failing to find that the vesting order provided for novation of the contracts without the Respondent’s consent. The Respondent took the position that the question of privity should not be considered, as it raised a new issue on appeal. The Court of Appeal considered the test for entertaining argument on a new issue, as set out in Suen v. Suen. For an appeal court to hear the new issue, all evidence relevant to the issue must be in the record before the court, and there must be no prejudice by failing to raise the issue at trial. The Court of Appeal found that this test was met in the present case. The Court of Appeal found no privity of contract, as the logical consequence of the trial judge’s reasoning with respect to the Respondent’s refusal to consent to the assignment of the contracts. Therefore, there was no contract and damages for breach of contract were not available. With respect to the vesting order and novation, the Court substantially agreed with the trial judge’s reasoning. There was nothing in the express terms of the vesting order that created a novation, and the vesting order contemplated the assignments requiring the Respondent’s consent. The Respondent sought to support the trial judgment based on the doctrine of money had and received. This was pleaded at trial but was not addressed in the trial reasons because the trial judge found that the Appellant had breached the contract. Under the doctrine of money had and received, a party that pays money which it is not bound to pay, “under the compulsion of urgent and pressing necessity”, can recover the payment. The Appellant argued that the Respondent voluntarily elected to pay for its natural gas, and that there was no practical compulsion. The Court noted jurisprudence to the effect that this doctrine applies where other courses of action available to the payor are time consuming and impractical. Where a party seeks to enter into an agreement which is dependent on it making a payment it disputes, and the party has time to seek a determination of the validity of the payment but chooses not to do so, then the party is not practically compelled to make the payment. However, on the facts of this case it was not clear that the Respondent was not practically compelled to continue making payments. The Court remitted the matter to the trial judge on this question.

Counsel Comments provided by Jonathan McLean and Joseph Ensom, Stikeman Elliott, Counsel for the Appellant:

“This case raised an interesting procedural question for the Court of Appeal and for counsel on the appeal: would the Court consider upholding the Trial Judge’s order on an alternative ground, if that ground was pleaded, but had not been considered by the Trial Judge in the written reasons for judgment?

The question arose on appeal where the Respondent argued that the Trial Judge’s order – based exclusively on liability for breach of contract, which was overturned – was justified in any event by the doctrine of money had and received (specifically, money paid under a practical compulsion). In turn, the Appellant argued that on the evidence in the record, the Respondent had failed to prove a practical compulsion and, in the alternative, if there was a practical compulsion the appropriate remedy was disgorgement of profits, a significantly lower amount than damages for breach of contract.

The issue of money had and received was live on the pleadings. However, the Trial Judge’s lengthy and detailed reasons for judgment did not address the issue.

On appeal, both parties sought the Court of Appeal’s ruling on the issue of money had and received. The Respondent argued that the necessary factual determinations had, in fact, been made by the Trial Judge and could be found in the reasons for judgment. The Appellant, while contesting that the Trial Judge had made such factual determinations, directed the Court of Appeal to the evidence in the record in support of its position that there had been no practical compulsion. Neither the Appellant nor the Respondent requested that the issue of money had and received be remitted to the Trial Judge. The Court of Appeal requested and received post-hearing correspondence setting out the uncontested evidence as to the gross profit earned by the Appellant on the contracts in issue.

In Savage J.A.’s reasons for judgment for the Court, the doctrine of money had and received is discussed in some detail, including the law regarding the appropriate remedy. In addition, Savage J.A. identifies specific evidence relevant to the issue that was not apparently considered by the Trial Judge.

However, the Court of Appeal declined to decide the issue. To do so would require making findings of fact not made in the first instance:

[56] This Court is not in a position to determine if Barafield should recover on the alternative ground, money had and received, including the issue of whether the standard of practical compulsion was met, as that would require making factual findings on matters at issue which were not considered and decided in the first instance. Likewise, the appropriate remedy, if any, is a matter for the trial judge.

VIII. Order

[57] In the result, I would allow the appeal and remit the matter to the trial judge to consider the alternative arguments which were not addressed.

What this decision illustrates is the Court of Appeal’s high degree of reluctance in deciding an issue that was not addressed by the Trial Judge and would require making findings of fact. Even here, where the complete evidentiary record was before the Court of Appeal and where both parties submitted that the Court could, and should, decide the issue, the Court decided, on its own initiative, to remit the matter to the Trial Judge for further determination.”