In Churchill Falls (Labrador) Corporation Ltd c
Hydro-Québec, 2016 QCCA 1229 (English translation
here), the Quebec Court of Appeal seemed to
contemplate that there may exist a duty to renegotiate a long-term
contract where unforeseen circumstances arise which amount to
hardship; however, the Court found the facts of the case did not
give rise to such a situation so there could be no obligation to
renegotiate the contract at issue.
The dispute related to a power contract signed in 1969 between
Hydro-Québec and the Churchill Falls (Labrador) Corporation
Limited ("CFLCo") whereby CFLCo agreed
to supply, and Hydro-Québec agreed to purchase,
substantially all of the power produced by the Churchill Falls
Generating Station for a total term of 65 years. Following the
execution of the contract, the price paid by Hydro-Québec
turned out to be markedly lower than the commercial value of the
power generated, as a result of increases in energy prices and the
emergence of competitive energy markets in North America, although
the contract remained marginally profitable for CFLCo.
The Court of Appeal affirmed the first instance judgment which
denied CFLCo's request for the renegotiation and modification
of the contract to provide for payment of a more equitable price
(i.e., indexation of the price to the average sales and export
prices of Hydro-Québec). The Court of Appeal also denied
CFLCo's alternative request for termination of the contract.
Given the factual conclusions of the lower court that the parties
knew that future prices were a 'known unknown' and that
CFLCo assumed the risk of price increases, the Court of Appeal
ruled that Hydro-Québec did not have a duty, based in
contractual good faith, to renegotiate the power contract.
The Court of Appeal, however, did examine how the duty of good
faith might apply in cases of hardship
(imprévision), where unforeseeable events
fundamentally alter the equilibrium of a contract, either because
the cost of a party's performance has increased or because the
value of the performance a party receives has diminished. The
refusal to include in the Civil Code of Québec a
provision allowing courts to revise or terminate contracts in cases
of hardship, as the Civil Code Revision Office had proposed, does
not prevent a party from invoking the duty of good faith to resolve
a contractual imbalance in cases of hardship. Citing Bhasin v Hrynew, 2014 SCC 71 for the
proposition that the development of rules underpinned by good faith
occurs incrementally, the Court indicated that the general
principles codified in the Civil Code of Québec
remain at the disposal of ingenious litigators to argue that a
remedy similar to the one sought by CFLCo in this case could be
appropriate in other circumstances.
Certain components of the duty of good faith, which has been
developing as a general contract principle in Québec since
the 1980s, were also clarified by the Court of Appeal. The first
component of the duty of good faith is a duty of cooperation, which
requires a party to safeguard the interests of the other party.
However, the duty of cooperation does not oblige a party to
sacrifice that to which it is entitled during the performance of
the contract in order to best serve the interests of the other
party. This is especially true in a relationship between
sophisticated, well–advised parties that intensively
negotiated a high–stakes and complex contract.
The second component of the duty of good faith analysed by the
Court is a bundle of prohibitive rules regrouped under the notion
of a duty of loyalty—distinct from the fiduciary duties
recognized at common law. At issue was the prohibition to engage in
excessive and unreasonable conduct, including by taking advantage
of a situation to gain an unfair advantage. The Court of Appeal
held that, in circumstances of hardship, this prohibition on
excessive and unreasonable conduct only prohibits the advantaged
party from refusing an objectively reasonable and non-prejudicial
concession to the disadvantaged party.
The cases dismissing ambitious arguments are sometimes,
paradoxically, the most innovative. Despite refusing to revise the
high–stakes contract in Churchill Falls (Labrador)
Corporation Ltd c Hydro-Québec, the Québec Court
of Appeal may still have sowed the seeds of a duty to renegotiate a
contract in cases of hardship.
It's not often that our little blog intersects with such titanic struggles as the U.S. presidential race – and by using the term "titanic" I certainly don't mean to suggest that anything disastrous is in the future.
J.J. v. C.C., is an interesting case in which the court held that an automotive garage owes a duty to minor children to secure the vehicles on the premises by locking the cars and safely storing the car keys...
In Irwin v. Alberta Veterinary Medical Association, 2015 ABCA 396, the Alberta Court of Appeal found that the "ABVMA" failed to afford procedural fairness to a veterinarian undergoing an incapacity assessment.
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