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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.

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