



COURT OF APPEAL FOR ONTARIO

CITATION: Hutchingame Growth Capital
    Corporation v. Independent Electricity System Operator, 2020 ONCA 430

DATE: 20200702

DOCKET: C66553

Lauwers, Hourigan and Thorburn
    JJ.A.

BETWEEN

Hutchingame Growth Capital Corporation

Plaintiff (Appellant)

and

Independent Electricity System
    Operator

Defendant
    (Respondent)

Michael S. Hebert
    and Cheryl Gerhardt McLuckie, for the appellant

Thomas G.
    Conway and Benjamin Grant, for the respondent

Heard: February 25,
    2020

On appeal from the judgment of Justice Pierre E. Roger of the Superior
    Court of Justice, dated January 10, 2019, with reasons reported at 2019 ONSC
    259.

Lauwers J.A.:

[1]

This appeal arises from a contract dispute over
    a failed renewable energy project that was to be built and operated by a
    numbered company carrying on business as Greenview Power.

A.

Overview

[2]

In 2007, Greenview Power entered into a
    Renewable Energy Standard Offer Program Contract (RESOP Contract) to build a
    biomass renewable energy facility to generate and supply electricity to the
    Ontario Power Authority. The respondent, the Independent Electricity System
    Operator (IESO), is the Authoritys successor.

[3]

Greenview Powers obligations under the RESOP
    Contract were to build a renewable energy facility and supply electricity for a
    period of 20 years beginning on November 8, 2010, the Commercial Operation
    Date. Greenview Power could not meet this deadline and the IESO amended the
    RESOP Contract twice, extending the Commercial Operation Date to January 15,
    2013. According to the appellant, Hutchingame Growth Capital Corporation
    (HGC), the RESOP Contract had a potential revenue stream of $80 million over
    its 20-year term.

[4]

Greenview Power could not meet the original or
    revised deadlines in the RESOP Contract for reaching commercial operation. To
    save the project, in the fall of 2012, HGC, led by its principal Eric
    Hutchingame, purchased some of Greenview Powers secured debt and assumed its effective
    control. Another Hutchingame investment vehicle
,
Sea to Sky Pollution Solutions Corporation (Sea to Sky), played a
    supporting role.

[5]

In 2013, HGC entered into the Waiver and
    Amending Agreement with Greenview Power, the IESO, and Greenview Powers other
    secured creditors. The Agreement waived specified events of default under the
    RESOP Contract and amended various targets under it, setting November 8, 2015
    as the new Commercial Operation Date. However, Greenview Power went bankrupt on
    February 24, 2014 and the RESOP Contract terminated.

[6]

HGC could have revived the RESOP Contract under
    s. 9.2(3), a provision in the Contract that permitted it, as a secured creditor,
    to step into the bankrupts shoes. Instead of invoking this provision, HGC tried
    to assign its rights under the RESOP Contract to Truestar Investments Ltd.,
    including the RESOP Contract, using s. 9.2(2). The trustee obtained a vesting
    order from the bankruptcy court that approved Truestars purchase of Greenview
    Powers assets.

[7]

The trial judge found that the RESOP Contract
    clearly stated that it would terminate on bankruptcy, that HGCs efforts to
    assign the Contract to Truestar failed, and that HGC had failed to prove that
    it was entitled to damages for breach of contract or negligence. He dismissed HGCs
    action.

[8]

I would dismiss the appeal for the reasons that
    follow.

B.

The Issues

[9]

HGC raised several issues that distill into five
    questions for determination:

1.

Did the RESOP Contract terminate automatically when
    Greenview Power made an assignment in bankruptcy?

2.

Was the vesting order effective in vesting the
    RESOP Contract in Truestar?

3.

Did the IESO breach its contractual obligations?

4.

Did the IESO owe HGC a duty of care in
    negligence?

5.

Was HGC entitled to damages?

Before analyzing these questions, I
    set out the factual context.

C.

The Factual Context

[10]

The root of the case lies in the standard form
    2007 RESOP Contract. Section 7 expressly stipulates the acts of default by
    a generator like Greenview Power that could result in the Contracts termination.
    Some of the defaults could be cured within 30 days after the generator received
    written notice from the IESO. However, the RESOP Contract provided that when a
    generator files a proposal under the
Bankruptcy and Insolvency Act
,
    R.S.C. 1985, c. B-3, or makes an assignment in bankruptcy, then the Contract
    terminates automatically without the need for the IESO to provide notice.

[11]

Section 9.2 of the RESOP Contract, which is
    reproduced in the Appendix to this decision, gave HGC certain rights as a
    secured creditor. Section 9.2(2) allowed HGC to enforce its security by
    acquiring Greenview Powers interest, defined as the right, title and interest
    of the Generator in or to the Contract Facility and this Agreement or any
    benefit or advantage of any of the foregoing, and then selling or assigning
    the interest to a third party. The s. 9.2(2) right to assign was subject to s.
    13.4 of the RESOP Contract, which added two relevant stipulations. First, under
    s. 13.4(1), the Generator (Greenview Power and subsequently HGC, which stepped
    into Greenview Powers shoes under the RESOP Contract) was obliged to provide
    prior written notice of any assignment to the IESO. Second, s. 13.4(4) provided
    that: 
No assignment of this Agreement shall be valid
    or effective and no change of Control shall be permitted if the assigning Party
    is in default at the time of the assignment or change of Control.
Upon
    taking control of Greenview Power earlier, under s. 9.2(2), HGC, standing in
    Greenview Powers shoes, became bound by all of the Generators rights and
    obligations hereunder so long as it is the owner or is in control or possession
    of the Generators Interest.

[12]

Section 9.2(3) provided that if an identified
    Generator Event of Default terminated the RESOP Contract before the end of
    its term, then a secured creditor like HGC could revive it by assuming Greenview
    Powers position. To do so, s. 9.2(3) required HGC to send a written request
    to the IESO within 90 days of the default that led to the Contracts
    termination, pay the outstanding amounts, including fees owing to the IESO, and
    cure any outstanding defaults under the Contract.

(1)

Greenview Power defaults and enters into the
    2013 Waiver and Amending Agreement

[13]

Greenview Power defaulted under the RESOP Contract
    by filing a notice of intention to make a proposal under the
Bankruptcy and Insolvency
    Act
in November 2012. It also missed several targeted dates by which commercial
    operation was to begin.

[14]

On May 15, 2013, Greenview Power entered into
    the Waiver and Amending Agreement with the IESO, HGC, and its other secured
    creditors. The Agreement waived the effect of Greenview Powers proposal under
    the
Bankruptcy and Insolvency Act
and its other defaults. It also
    amended certain provisions of the RESOP Contract.

[15]

Sea to Sky also signed in its capacity as
    interim funder under the proposal. Sea to Sky provided interim financing through
    a loan made by Truestar to Sea to Sky. Under the loan agreement, Sea to Sky
    agreed to assign to Truestar all of its interest in the loan being made to
    Greenview Power and the security that it took over the Greenview assets. As
    interim funder, Sea to Sky was granted priority for advances that it made to
    Greenview Power.

[16]

It is worth noting that the IESO could have
    relied on Greenview Powers proposal under the
Bankruptcy and Insolvency Act
as a terminating event. But the IESO wanted the project to succeed. The
    IESOs counsel, Harry Fogul, testified that the IESO was prepared to allow the project
    to proceed because: 
the
    proposal was accepted and Greenview was going to complete the project in
    accordance with the terms of the proposal and in accordance with the terms of
    the RESOP contract, that was what [was] understood and thats what the
    intention was. He added: technically speaking the contract would have
    terminated but for the fact that the [IESO] was prepared to waive it, which is
    why the agreement was called a waiver and amending agreement. It was waiving
    the default.

[17]

The trial judge found that after the parties
    entered into the Waiver and Amending Agreement, HGC took no immediate real
    action to meet Greenview Powers new obligations and to put the project back
    on track to meet the revised Commercial Operation Date: at para. 27.

(2)

Greenview Power goes bankrupt

[18]

On February 24, 2014, Greenview Power made an
    assignment in bankruptcy, which had the effect of automatically terminating the
    RESOP Contract. The trial judge found that HGC did not engage the process required
    by s. 9.2(3) to revive the Contract, despite making representations to the IESO
    that it was doing so: at para. 55.

(3)

HGC tries to assign its interest to Truestar

[19]

HGC took a different tack. On May 15, 2014, several
    months after Greenview Powers bankruptcy, HGC and Sea to Sky advised the IESO
    that they wanted to exercise their rights under s. 9.2(2) of the RESOP Contract.
    On the same day, and without advising the IESO, HGC alone entered into an
    assignment agreement with Truestar in which it purported to assign its interest
    in the RESOP Contract and in the Waiver and Amending Agreement, along with its
    security interest in Greenview Power, to Truestar for $4.7 million. The
    assignment was prepared without legal assistance. The principals of HGC, Mr.
    Hutchingame, and Truestar, William Baker, are longstanding acquaintances.

[20]

Mr. Hutchingame admitted that the assignment was
    not disclosed to the OPA/IESO, or to the secured creditors until after this
    action was started. He testified that only he and Mr. Baker were aware of the
    Assignment to Truestar. Mr. Hutchingame said that: he had no obligation to
    tell anyone. However, the trial judge disagreed, noting that s. 13.4(1) of the
    RESOP Contract required written notice to be given to the IESO prior to the assignment:
    at para. 50.

[21]

On May 23, 2014, the IESO responded to Mr.
    Hutchingames request to proceed by assignment under s. 9.2(2) of the RESOP Contract.
    The IESO stated that it considered that the Contract had terminated
    automatically under s. 7.1(20) on February 24, 2014 when Greenview Power made
    the assignment in bankruptcy, and that it assumed that HGCs May 15, 2014
    communication meant that HGC was exercising its rights under s. 9.2(3) of the Contract.

[22]

HGC explained that, rather than pursue its
    rights under s. 9.2(3) of the RESOP Contract, i
n July
    2014, Sea to Sky, in its capacity as interim funder under the terms of Greenview
    Powers proposal, exercised its rights as a secured creditor and entered into
    an Agreement of Purchase and Sale to sell all of Greenview

Powers assets, including all real estate,
    land, equipment, building, intellectual-property, and
all of the contracts
    with the [IESO]
 to Truestar for $500,000 (emphasis added).

[23]

On July 29, 2014, the trustee in bankruptcy of
    Greenview Power, moved for an order in bankruptcy court to vest in Truestar all
    of Greenview Powers assets, including its interest in the RESOP Contract, for
    $500,000. Mr. Hutchingame did not advise the IESO that this step was being
    taken. The court made the vesting order on August 21, 2014 and Mr. Hutchingame
    gave a copy of the order to the IESO that day.

[24]

By letter dated September 4, 2014, the IESO
    reiterated its position that the RESOP Contract had terminated on February 24,
    2014 upon Greenview Powers bankruptcy and that HGC could only assign its
    interest under s. 9.2(2) after following the process mandated by s. 9.2(3) of
    the RESOP Contract. HGC did not comply with this direction.

[25]

Truestar did not pay HGC for Greenview Powers
    assigned assets. HGC brought this action. It claimed that by taking the
    position that the RESOP Contract was terminated, the IESO: had thwarted the
    assignment agreement between HGC and Truestar; had breached the Waiver and
    Amendment Agreement; and had acted negligently. HGC claimed $4.7 million in
    damages  the value of the Truestar assignment agreement. The trial judge
    dismissed the action.

D.

Analysis

[26]

In this appeal, the interpretation of the
Bankruptcy
    and Insolvency Act
and the applicable common law are questions of law
    subject to the correctness standard of review:
Progressive Homes Ltd. v.
    Lombard General Insurance Co. of Canada
, 2010 SCC 33, [2010] 2 S.C.R. 245,
    at para. 23. This standard would also apply to the interpretation of the RESOP Contract
    as a standard form contract, standing alone:
Ledcor Construction Ltd. v.
    Northbridge Indemnity Insurance Co.
, 2016 SCC 37, [2016] 2 S.C.R. 23, at
    para. 46;
MacDonald v. Chicago Title Insurance Co. of Canada
, 2015 ONCA
    842, 127 O.R. (3d) 663, leave to appeal refused, [2016] S.C.C.A. No. 39. The
    Waiver and Amending Agreement was a negotiated contract that amended the RESOP
    Contract. Accordingly, the interpretation of both contracts together with the
    remaining issues engage questions of mixed fact and law and are subject to the
    standard of palpable and overriding error, except for any extricable errors of
    law, which are subject to the correctness standard:
Canada (Minister of
    Citizenship and Immigration) v. Vavilov
, 2019 SCC 65, at para. 37;
Housen
    v. Nikolaisen
, 2002 SCC 33, [2002] 2 S.C.R. 235, at paras. 8, 10.

(1)

Issue One: Did the trial judge err in holding
    that the RESOP Contract terminated automatically upon Greenview Powers
    bankruptcy?

[27]

HGC argues that the RESOP Contract was not
    terminated by Greenview Powers bankruptcy, for three reasons. First, the Waiver
    and Amending Agreement superseded the provision that automatically terminated the
    RESOP Contract on Greenview Powers bankruptcy. Second, the termination
    provision in the RESOP Contract was invalid because it violated the stay
    imposed by s. 69.3 of the
Bankruptcy and Insolvency Act.
Third,
the termination provision was
    invalid because it contravened the common law doctrine of fraud upon the
    bankruptcy law, also known as the anti-deprivation rule. I address each
    argument in turn.

(a)

The Waiver and Amendment Agreement did not supersede
    the termination provisions in the RESOP Contract

[28]

The trial judge rejected HGCs argument that s.
    10(b) of the Waiver and Amending Agreement superseded the termination clause in
    the RESOP Contract. It provides:

10(b)
In this
    Agreement
:

(i)  breach of
    any covenant or other provision
hereof
by the Generator; or

(ii) a
    representation or warranty that is incorrect or untrue in any material respect,

shall be deemed to be a Generator Event of
    Default under the RESOP Contract, provided that a thirty (30) calendar day cure
    period shall be applicable thereto, and pursuant to which the [IESO] may
inter
    alia
pursue any remedy available to it under section 7.2 of the RESOP
    Contract, including (but not limited to) the termination of the RESOP Contract.
    [Emphasis added.]

[29]

The trial judge found that s. 10(b) only
    provides that a default of any new obligations contained in this Agreement,
    being the Waiver and Amending Agreement itself, could be cured within 30 days:
    at para. 112. He rejected HGCs core argument, repeated on appeal, for the
    following reasons: 
I also disagree with [HGC] that
    section 10(b) of the Waiver and Amending Agreement eliminates any automatic
    terminations of the RESOP Contract and provides a thirty-day cure period for
    any breach of both the Waiver and Amending Agreement or the underlying RESOP
    Contract: at para. 112.
He added that, in reaching the
Waiver and Amending Agreement,
the parties had not
    discussed what would happen if Greenview Power went bankrupt. Instead, he noted
    that the focus of the secured lenders, of Greenview Power, and of the [IESO]
    was on the success of the proposal, not on its failure: at para. 116.

[30]

The trial judge found that the text of the
    RESOP Contract is unambiguous  an assignment into bankruptcy automatically
    terminates the RESOP Contract without [any obligation on the part of the IESO
    to provide] notice: at para. 103. He found that the RESOP Contract therefore
    automatically terminated on Greenview Powers bankruptcy: at paras. 104, 124. Accordingly,
    the IESO did not breach the RESOP Contract by taking the position that the
    bankruptcy had terminated it.

[31]

I do not discern any error in the trial judges
    interpretation of either the RESOP Contract or the Waiver and Amending
    Agreement. I agree with him that the Waiver and Amending Agreement did not
    supersede the termination provisions of the RESOP Contract and that the
    termination was effective on February 24, 2014 when Greenview Power went
    bankrupt.

(b)

The termination provision in the RESOP Contract
    was not invalid under s. 69.3 of the
Bankruptcy and Insolvency Act

[32]

Section 69.3 of the
Bankruptcy and
    Insolvency Act
provides:

69.3(1) Subject to subsections (1.1) and (2)
    and sections 69.4 and 69.5, on the bankruptcy of any debtor, no creditor has
    any remedy against the debtor or the debtors property, or shall commence or
    continue any action, execution or other proceedings, for the recovery of a
    claim provable in bankruptcy.

[33]

The trial judge rejected HGCs argument that the
    automatic termination in the RESOP Contract violated the automatic stay imposed
    by s. 69.3 of the
Bankruptcy and Insolvency Act
.
He noted that
    the stay only prevents creditors from pursuing claims against the insolvent
    person: at para. 105.

[34]

HGC argues that because the
IESO was a creditor of Greenview Power,
s.
69.3(1) stayed any remedial action by [the] IESO to terminate the
    RESOP Contract. On this argument, once the stay was in place, the IESO was
    required to
move in bankruptcy court to lift the stay
    and to provide the written notice to commence the 30-day cure period that it
    was required to provide under the Waiver and Amendment Agreement; or,
    alternatively, to move in bankruptcy court to appeal or amend the vesting order.
    But the true reason for HGCs approach to the stay issue is found in its assertion:
    Had [the] IESO taken any of these steps, the matter could have been put before
    a bankruptcy court and the anti-deprivation rule considered.

[35]

Professor Roderick J. Wood explains: 
the automatic stay of proceedings in bankruptcy has never been
    interpreted as preventing the exercise of [the] right of a contracting party [to]
    terminat[e] an agreement between it and the debtor:
Bankruptcy and
    Insolvency Law
, 2nd ed.

(Toronto: Irwin Law Inc., 2015)

at p.
    167. He notes that the presence of express provisions having that effect in proceedings
    under the
Companies Creditors Arrangement Act
, R.S.C. 1985, c. C-36 and
    in the restructuring provisions of the
Bankruptcy and Insolvency Act
supports the view that the automatic stay of proceedings was not intended to
    extend to the termination of executory contracts, since the provision would not
    be needed otherwise: at p. 167.

[36]

Professor Woods logic is persuasive, especially
    in the absence of any contrary authority. I agree with the trial judge that s.
    69.3 of the
Bankruptcy and Insolvency Act
did not invalidate the
    termination provision in the RESOP Contract. I have already noted that there is
    no basis for HGCs assertion that
under the Waiver and
    Amendment Agreement
the IESO was required to give 30
    days written notice of termination when the event of default was bankruptcy.

[37]

While HGC anchors its approach to s. 69.3 on the
Bankruptcy and Insolvency Act
itself, it also relies on
Garmeco
    Canada International Consulting Engineers Ltd. v. International Hi-Tech
    Industries Inc.
for its submission that, in general, the
Bankruptcy and
    Insolvency Act
allows secured creditors to realize on their security
    despite the stay of proceedings, and that the Acts intention is not to
    interfere with the rights of secured creditors: 2011 BCCA 292, 20 B.C.L.R.
    (5th) 1, at para. 16. HGC seems to argue that, as a secured creditor, it should
    have been free to exercise its security over Greenview Powers assets without
    any impediment arising under the RESOP Contract.

[38]

I would reject this argument. While the court
    affirmed the position of secured creditors in the event of bankruptcy in
Garmeco
,
    it ultimately concluded that a stay of proceedings did not apply in that case:
    at paras. 16, 18 and 23. HGCs reliance on
Garmeco
is misplaced; the
    case does nothing to support its argument on the effectiveness of the stay of
    proceedings in this case.

[39]

HGC seeks to use
s. 69.3
    of the
Bankruptcy and Insolvency Act
as a springboard
    to the common law anti-deprivation rule, to which I now turn.

(c)

T
he termination provision in the RESOP Contract did not violate the
    common law anti-deprivation rule

[40]

HGC submits that contractual provisions, like ss.
    7.2(2) and 7.1(20), which terminated the RESOP Contract automatically on the
    bankruptcy of Greenview Power, are void as being contrary to public policy
    under the common law doctrine of fraud on the bankruptcy law, particularly
    the component of the doctrine known as the anti-deprivation rule. HGC argues
    that the automatic termination had the effect of removing value from Greenview
    Powers insolvent estate and prevented secured creditors from exercising their
    rights over the secured assets.

[41]

Professor Wood explains that the
    anti-deprivation rule invalidates contractual provisions that remove assets
    otherwise available to creditors in the event of insolvency. He discusses the
fraud on the bankruptcy law
doctrine in
Bankruptcy
    and Insolvency Law
at p. 88:

Canadian courts have recognized that a
    contractual provision that is designed to remove value from the reach of an
    insolvent persons creditors is void on the basis that it violates the public
    policy of equitable and fair distribution on bankruptcy.

This is referred to
    as the

fraud on the bankruptcy law
    principle
.
 The principle can be usefully broken
    down into two distinct components: the anti-deprivation rule and the
pari passu
rule.
    The anti-deprivation rule operates by invalidating provisions that withdraw an
    asset that would otherwise be available to satisfy the claims of creditors upon
    the insolvency of the party or the commencement of insolvency proceedings
.
[Internal citations
    omitted.]

[42]

The common law anti-deprivation rule applies in
    commercial bankruptcies, including Greenview Powers bankruptcy:
Aircell
    Communications Inc. (Trustee of) v. Bell Mobility Cellular Inc.,
2013 ONCA
    95, at para. 12, citing
Canadian Imperial Bank of Commerce v.
    Bramalea Inc
. (1995), 33 O.R. (3d) 692, 1995 CanLII 7420 (C.J.);
Capital Steel Inc. v. Chandos Construction Ltd.
, 2019 ABCA 32, 438 D.L.R. (4th) 195, at paras. 21 and 32, leave to
    appeal granted, [2019] S.C.C.A. No. 109.

[43]

In each of these cases, the bankruptcy had the
    effect of depriving creditors of a valuable asset. In
Aircell
, a dealer
    of telecommunications products deprived the estate of earned commissions on
    sales: at paras. 1-2. In
Bramalea
, a clause in a partnership agreement
    permitted a partner to acquire an insolvent partners interest in a shopping
    mall venture at book value rather than at the substantially higher fair market
    value: at paras. 3, 10. In
Capital Steel
, the contract reduced the
    amount owing to the bankrupt by ten percent: at paras. 1, 16 and 32.

[44]

By contrast, in this case, the IESO received no financial
    benefit from the automatic termination of the
RESOP Contract
    and removed no value from the reach of Greenview Powers creditors to its
    benefit. As Mr. Fogul testified at trial, his client had no skin in the game
    or an economic interest in the project; its interest as a regulator was
    ensuring the rules, regulations and the contracts are covered.

[45]

The trial judge rejected HGCs argument that the
    termination clause in the RESOP Contract violated the anti-deprivation rule,
    noting that the termination clause in this case does not offend the public
    policy expressed in [
Bramalea
and
Aircell
], because the
    contractual provision did not cause an inequity among creditors: at para. 109.

[46]

I would reject HGCs argument that its rights as
    a secured creditor under the
Bankruptcy and Insolvency Act
were prejudiced
    by the automatic termination of the RESOP Contract on bankruptcy. The trial
    judge noted that the Contract as a whole preserves the rights of secured
    creditors, like HGC: at paras. 119, 124. Section 9.2(3) of the RESOP Contract was
    designed to protect a secured creditor, such as HGC, against automatic
    termination resulting from the generators bankruptcy; HGC had the right to
    revive the terminated agreement within 90 days of the bankruptcy if it paid
    outstanding amounts owing to the IESO and cured existing defaults. Had HGC
    availed itself of the revival right, it could have exercised its rights as a
    secured creditor against the Greenview assets.

[47]

I see no legal error in the trial judges
    determination. I also note that the RESOP Contract is an executory contract. As
    the IESO points out, [the] IESOs obligation to buy electricity [did] not
    arise until Greenview began supplying electricity in accordance with the contracts
    terms. In
Capital Steel
, the majority noted that clauses that operate
    to terminate executory agreements  [and therefore] eliminat[e] a debtors opportunity
    to perform a contract [do] not necessarily result in a deprivation of value
    that would prejudice creditors (citations omitted): at para. 34; see also
Belmont
    Park Investments Pty Ltd. v. BNY Corporate Trustee Services Ltd. & Anor
,
    [2011] UKSC 38, [2012] 1 A.C. 383.

(d)

HGC could not assign its interest in the RESOP
    Contract to Truestar under s. 9.2(2) without curing the outstanding defaults
    and reviving the Contract under s. 9.2(3)

[48]

Why did Mr. Hutchingame pursue the assignment
    approach under s. 9.2(2), rather than revive the RESOP Contract under s. 9.2(3)?
    As noted, revival required payment of outstanding amounts and the curing of
    existing defaults. The trial judge recounted Mr. Hutchingames testimony that
    HGC had the funds to assume Greenview Powers obligations under the RESOP Contract
    but simply chose not to because doing so would have been a bad business
    decision: at para. 87. Perhaps the desire to avoid the minimal expense of
    complying with s. 9.2(3) explains Mr. Hutchingames effort to engage s. 9.2(2),
    rather than s. 9.2(3).

[49]

The trial judge found that it would have been
    impossible for HGC to assign its interest in the RESOP Contract to Truestar
    under s. 9.2(2) without first curing the outstanding defaults: at para. 132. He
    noted that an assignment is only permitted in accordance with s. 13.4, which
    states that No assignment of this Agreement shall be valid or effective and no
    change of Control shall be permitted if the assigning Party is in default at
    the time of the assignment or change of Control: at para. 133. The trial judge
    held that, since Greenview Power, in whose shoes HGC effectively stood, was in
    default at the time of the purported assignment, HGC could not assign its interests
    in the RESOP Contract or the Waiver and Amending Agreement. The trial judge
    reasoned that a secured creditor could not have greater rights to assume and
    assign Greenview Powers obligations under the RESOP Contract than Greenview
    Power itself would have had: at para. 136.

[50]

I agree with the trial judges interpretation of
    s. 9.2 of the RESOP Contract. Once the Contract was automatically terminated, HGCs
    sole avenue to wring value out of it was to pursue its rights under s. 9.2(3).
    If it wanted to assign its interest to Truestar under s. 9.2(2), it could only
    do that after reviving the Contract under s. 9.2(3). But, as Mr. Hutchingames
    trial evidence suggests, he might have avoided this course of action, in part,
    because he did not want to incur the expense.

(2)

Issue Two: Was the vesting order effective in
    vesting the RESOP Contract in Truestar?

[51]

HGC argues that the trial judge erred in
    ignoring the effect of the vesting order, which was to vest the RESOP Contract
    in Truestar. The vesting order stated:

All of the Bankrupts and Trustees right,
    title and interest in and to the Property and the Purchased Assets [defined to
    include the RESOP Contract] shall vest absolutely in the Purchaser [defined as
    Truestar], free and clear of and from any and all security interests (whether
    contractual, statutory, or otherwise)...[.]

[52]

The trial judge observed that the IESO was
    clear in its communications with the trustee and Mr. Hutchingame that [its]
    position was that the RESOP Contract had not been transferred under the vesting
    order, that Greenview Powers bankruptcy terminated the Contract, and that the
    Contract could only be assigned by following the process mandated by section
    9.2(3) of the RESOP Contract: at para. 63. He said: the evidence shows that
    this was understood by Mr. Hutchingame and Mr. Baker: at para. 63.

[53]

The trial judge accepted the IESOs position and
    found that Mr. Hutchingames conduct was the probable cause of the
    projects failure and of the failed Assignment to Truestar: at para. 152. In
    arriving at this conclusion, he canvassed the evidence on the vesting order: at
    paras. 60-64 and 142-154. The trial judge was attentive to the unusual
    circumstances surrounding the vesting order, particularly that the IESO was not
    served with motion materials and the motion was made without notice to the IESO,
    that both the trustee and the court were unaware of the $4.7 million assignment
    to Truestar, and that Mr. Hutchingames dealings were secretive, and he
    delayed directly addressing the [IESOs] position until  it was too late: at
    paras. 144-145, 151-152.

[54]

When the vesting order came to the IESOs
    attention, Mr. Fogul went into problem-solving mode. While the IESO wanted the
    project to succeed, it was not prepared to permit the vesting order to be the
    vehicle for that success. That was communicated to HGC. Mr. Fogul testified:
My solution was, go and get an amendment to the vesting order, take
    the RESOP contract out of it and proceed under 9.2(3).

[55]

When asked whether he got instructions from the [IESO]
    to challenge the vesting order, Mr. Fogul explained that he did not because at
    that point he understood that the trustee [would] bring a motion to amend the
    order[,] change the purchaser, and remove the RESOP contract from the assets
    to be vested. This understanding arose from a conference call between Mr.
    Fogul, counsel for the trustee, counsel for HGC, and Mr. Hutchingame, to which the
    trial judge referred at para. 148.

[56]

At trial, Mr. Fogul explained that the IESO did
    not bring a motion in bankruptcy court because of this agreement in principle,
    which never materialized:

Q.  Did you get instructions from the [IESO]
    to bring any - any motion to amend the vesting order?

A.  No, because at that point I had understood
    that there was an agreement in principle that the trustee was going to bring a
    motion to amend the order and change the purchaser and remove the RESOP contract,
    so we were waiting for him to do that, which never happened.

Q.  How did - where did you get that
    understanding from?

A.  Well, from the last call we had on the
    24th where
they said we now have to go to court because we have a new
    purchaser. Were going to move to amend the approval and vesting order and so I
    assumed that they were going to do it, but apparently they never did.
[Emphasis added.]

[57]

On appeal, HGC argues that
the vesting order, by its terms, vested the RESOP Contract in
    Truestar, free and clear of all encumbrances, leaving to creditors the proceeds
    generated by the sale transaction. In support of its argument, HGC relies on
Third Eye Capital Corporation v. Ressources
    Dianor Inc./Dianor Resources Inc.,
2019 ONCA 508, 435 D.L.R. (4th) 416, at paras. 25 and
139. HGC adds that it was up to the IESO
    to appeal the vesting order, or apply to vary it or have it set aside; having
    failed to do so, the vesting order binds the IESO.

[58]

I would reject HGCs argument that
the effect of the vesting order was to vest the RESOP Contract in
    Truestar
. The premise of this argument is that the
    RESOP Contract had not terminated automatically on the date of Greenview
    Powers bankruptcy, a premise that has already been rejected. There was, in
    short, nothing left of the RESOP Contract to vest in Truestar. There is also merit
    in the IESOs argument that i
f the order effectively had
    vested the RESOP Contract in Truestar, then only Truestar could bring an action
    seeking to enforce the IESOs obligations under the RESOP Contract, not HGC.

(3)

Issue Three: Did the trial judge err in finding
    that the IESO did not breach its contractual obligations?

[59]

On the facts, the IESO did not give HGC notice of
    the automatic termination of the RESOP Contract. HGCs argument, that the IESO
    was required to give at least 30 days written notice of termination as the
    result of the Waiver and Amending Agreement, has been rejected. However, the
    trial judge observed that: 
The [IESO] might have
    acted more transparently upon learning that Greenview had filed for bankruptcy,
    rather than waiting silently for the 90-day period to expire: at para. 127.

[60]

At trial, HGC argued that good faith contractual
    performance and the common law duty to act honestly in the performance of
    contractual obligations imposed a duty on the IESO to advise HGC that the RESOP
    Contract would terminate automatically if Greenview Power went bankrupt. In
    support of this argument,
HGC invoked the duty of
    good faith in contractual performance stemming from
Bhasin v. Hrynew
,
    2014 SCC 71, [2014] 3 S.C.R. 494.

[61]

The trial judge rejected this argument. In his
    view, this consequence should have been quite obvious to [HGC] from the clear
    language of the RESOP Contract: at para. 126. He took the view that: The duty
    of honesty in contractual performance does not impose a duty of loyalty or of
    disclosure or require a party to forgo advantages flowing from the contract:
    at para. 126, citing
Bhasin
, at para. 73.

[62]

As for the effect of the IESO staying silent
    during the 90-day period in which HGC could have asked to revive the RESOP Contract,
    the trial judge found that the IESOs actions did not constitute bad faith or a
    breach of the general duty of honesty in contractual performance. He stated, at
    para. 127:

I do not find that this constituted bad faith
    or acting in breach of the general duty of honesty in contractual performance
    because the [IESO] did not lie or otherwise mislead [HGC], and the [IESOs]
    understanding of section 9.2(3) of the RESOP Contract was straightforward and
    correct. I also find that thereafter the [IESO] acted honestly and in good
    faith, and made all reasonable efforts to facilitate [HGCs] obtaining a new
    agreement under section 9.2(3) of the RESOP Contract; this is quite apparent
    from the evidence[.]

The IESOs efforts to help revive the
    RESOP Contract continued well after the end of the 90-day period.

[63]

HGC made much of Mr. Hutchingames testimony
    that he was gob-smacked by the IESOs position that the RESOP Contract had automatically
    terminated. The trial judge quoted this evidence, noting that Mr. Hutchingame
    considered it to be a declaration of war: at para. 54. But the trial judge
    then pointed out some 11 actions that belied Mr. Hutchingames asserted
    position, noting that his communications made no mention
of his alleged shock and dismay at [the IESOs] position:
    at paras. 54-55, 67. He did not find Mr. Hutchingame to be credible, remarking
    that his
evidence is often contradicted by the documents: at para. 78.
    The documents prepared by Mr. Hutchingame often contain exaggerations and
    misstatements, and they are also often unsupported by the evidence: at para.
    78.

[64]

I make this observation about HGCs argument. Assuming
    that HGC was not fully aware of the automatic termination provision, the IESOs
    silence during the 90-day period did not prejudice HGC. This is because the
    IESO effectively waived HGCs obligation to give written notice within the
    90-day period of its intention to trigger the revival of the RESOP Contract
    under s. 9.2(3) by working with HGC to get the vesting order amended, an effort
    that HGC itself abandoned. There was no basis for HGCs argument that the IESO
    breached any duty of good faith contractual performance or the common law duty
    to act honestly in the performance of its contractual obligations.

[65]

The trial judge properly instructed himself on
    the law and made no palpable and overriding error on the facts. I would dismiss
    this ground of appeal. The IESO did not breach the terms of the RESOP Contract
    nor did it fail in its duty of good faith contractual performance.

(4)

Issue Four: Did the trial judge err in finding
    that the IESO was not negligent?

[66]

HGCs claim for negligent misrepresentation
    rests on the foundation that the IESO misrepresented that the Waiver and
    Amending Agreement would extend the RESOP Contract even if Greenview Power went
    bankrupt. The trial judge dismissed this claim: [HGC] failed to prove that the
    [IESO] made any statement that was untrue, inaccurate, or misleading, that [HGC]
    relied on such a statement to its detriment, or that such reliance led to [HGCs]
    damages: at para. 128.

[67]

HGC has not shown that the trial judge made a palpable
    and overriding error in this factual finding. I would dismiss this ground of
    appeal.

(5)

Issue Five: Did the trial judge err in his
    approach to damages?

[68]

Because HGC has not established a legal
    entitlement to damages for breach of contract or negligence on the IESOs part,
    there is no need to address the issue of damages.

E.

DISPOSITION

[69]

For the reasons given, I would dismiss the
    appeal and award the IESO costs for the appeal in the agreed amount of
$25,000
    plus disbursements and applicable taxes.

Released: P.L. July 2, 2020

P.
    Lauwers J.A.

I
    agree. C.W. Hourigan J.A.

I
    agree. Thorburn J.A.


APPENDIX

9.2(2) A Secured Lender may, subject to the
    provisions of this Agreement, enforce any Secured Lenders Security Agreement
    and acquire the Generators Interest in any lawful way and, without limitation,
    may sell or assign the Generators Interest provided such sale or assignment
    complies with the requirements of Section 13.4 and provided further that if the
    Secured Lender is the owner or is in control or possession of the Generators
    Interest, then it shall be entitled to and bound by all of the Generators
    rights and obligations hereunder so long as it is the owner or is in control or
    possession of the Generators Interest. Despite anything else contained in this
    Agreement, any Person to whom the Generators Interest is transferred shall
    take the Generators Interest subject to the Generators obligations under this
    Agreement.

(3) In the event of the termination of this
    Agreement prior to the end of the Term due to a Generator Event of Default, the
    [IESO] shall enter into a New Agreement, which New Agreement shall be effective
    as of the Termination Date and shall be for the then-remainder of the original
    Term of this Agreement and otherwise upon the terms contained in this
    Agreement, provided that the Secured Lender delivers to the [IESO] a written
    request thereof within ninety (90) days after the Termination Date; and
    provided further that the [IESOs] obligation to enter into a New Agreement is
    conditional upon the Secured Lender (a) paying all sums that would, at the time
    of the execution and delivery thereof, be due to the [IESO] under this
    Agreement but for such termination, (b) otherwise fully curing any defaults
    under this Agreement existing immediately prior to termination of this
    Agreement that are capable of being cured, (c) paying all reasonable costs and
    expenses, including legal fees, incurred by the [IESO] in connection with such
    default and termination, and the preparation, execution and delivery of such
    New Agreement and related agreements and documents, provided, however, that
    with respect to any default that could not be cured by the Secured Lender until
    it obtains possession, such Secured Lender shall have the applicable cure period
    commencing on the date that it obtains possession to cure such default, and (d)
    if there is more than one Secured Lender's Security Agreement outstanding in
    respect of which the [IESO] has received the notice described in Section
    9.2(1), delivering to the [IESO] the written consent of all other Secured
    Lenders with respect to such New Agreement.


