Rare CCAA and Novation Decision

The BC Court of Appeal recently considered a case involving a rare intersection of CCAA proceedings and novation.  Barafield Realty Ltd. v. Just Energy (B.C.) Limited Partnership,2015 BCCA 421.

Barafield entered five-year fixed rate contracts with CEG Energy Options for the provision of natural gas, for Barafield’s apartment buildings. The contracts gave Barafield the right to terminate in the event of default, including the insolvency of CEG, which went bankrupt. Just Energy purchased a portion of the contracts, which was approved by the Alberta Companies’ Creditors Arrangement Act (CCAA) court. When Barafield got notice of the purchase, it tried to terminate the contracts. Just Energy said the termination clause did not apply because the CCAA sale was permitted without Barafield’s consent. Barafield kept paying for natural gas while asserting its right to terminate. When the contracts’ term ended Barafield sued. The trial judge found Just Energy breached the contracts when it failed to get consent for their assignment. She did not address Barafield’s claim that it was entitled to succeed based on the doctrine of money had and received.

The Court of Appeal agreed with Just Energy that there was no privity of contract between it and Barafield, given that Barafield refused to consent to the assignment of the contracts, and there was no novation through the CCAA proceedings. The Court remitted the matter to the trial judge on the question of money had and received, as deciding this issue required factual findings on issues that the parties did not argue at trial.

The case affirms the principle that vesting orders and various orders issued by a court in a CCAA (and arguably any security enforcement proceeding) hearing does not create contractual obligations or other enforceable common law obligations between parties.  If parties intend for a court to impose such obligations in such a hearing, then parties should incorporate those terms into the court orders directly.

We are somewhat surprised in this case that the court remitted the “monies had and received argument”.  In our view, Barafield acted quite reasonably when it chose to continue paying for the natural gas while continuing to protest the obligation.  The result, in our view, would have caused the parties unnecessary commercial uncertainty.  That said, the result illustrates the importance of decisions by litigation counsel to advance certain claims over others within an action.

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