In Barafield, CEG Energy Options Inc. (CEG) entered
into contracts to provide natural gas to apartment buildings owned
by the respondents (Barafield). The contracts were for a fixed
five-year term at a fixed rate. During this period, CEG entered
into bankruptcy and CCAA proceedings. The contracts were
sold to the appellants (Just Energy) and approved by an Alberta
CCAA court (the Vesting Order). Barafield had no notice of
The contracts included a provision that allowed Barafield to
terminate in the event CEG became insolvent. Once notice of the
sale was provided by Just Energy, Barafield exercised its right to
terminate the contracts, since the fixed price under the contracts
had become higher than the market price of gas. Just Energy
disputed the termination, and Barafield continue to pay for the
natural gas while asserting termination. After the contracts
expired, Barafield sued.
The trial judge found that Just Energy was in breach of contract
by failing to get Barafield's consent to the assignment of the
contracts, and awarded damages. On appeal, the BC Court of Appeal
overturned this award. The appellate court held that the result of
the trial judge's findings that the contracts required
Barafield's consent to assignment, that Barafield refused to
provide consent, and that there was no novation under the Vesting
Order, was that there was no privity of contract between Barafield
and Just Energy. As such, Just Energy could not be liable for
breach of contract.
Just Energy also asserted, as an alternative defence, that the
Vesting Order resulted in a novation, such that Just Energy stood
in CEG's place, Barafield was not required to provide consent,
and no breach of contract resulted. The Court reviewed the
contracts, the purchase agreement by which Just Energy acquired the
contracts from CEG, and the terms of the Vesting Order, and found
there was no novation. The terms of the purchase agreement required
CEG to obtain consents to the transfer of the purchased contracts,
failing which Just Energy could either waive this requirement or
rescind the agreement. CEG did not provide the consents, and Just
Energy did not rescind. Further, the Vesting Order did not
expressly or impliedly waive the necessity of obtaining
Barafield's consent, as it said nothing about the rights of the
counterparty to the contracts. Rather, Just Energy took a
calculated risk in proceeding without the consents.
The Court also specifically addressed the issue of whether
notice of proceedings is necessary before a CCAA court may
make an order affecting the rights of third parties. It reviewed
authority that suggested that "the best practice is to serve
all counterparties to particular contracts that are sought to be
assigned." Such authority was inconsistent with the assertion
that the Vesting Order should be read expansively to nullify the
rights of third parties. The Court concluded:
While this matter is ancillary to a
CCAA proceeding, the matter we are considering is one
where a third party purchases contracts of the debtor corporation,
without notice to the counterparty of the contracts, knowing of and
therefore assuming the risk of not obtaining consent to an
assignment. There is no CCAA purpose that enures to the
benefit of the interpretation of Just Energy in these
circumstances. The terms of the Vesting Order and [purchase
agreement] must be considered based on the meaning of the language
employed. In my opinion, neither supports the proposition that a
novation was intended or achieved.
Barafield thus serves to underscore that, generally
speaking, a purported assignment of a contract that requires
consent is not effective. Nor is a CCAA proceeding a
cure-all for assignment or novation without consent – all of
the circumstances, and in particular, the terms of a relevant court
order, must be scrutinized. If it is desired to affect the rights
of third party counterparties by way of an assignment or novation,
notice of the CCAA proceedings should be given to
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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