Right of first refusal not 'eviscerated' by discouraging rights holder: Ontario Court of Appeal

The attempts of a seller and prospective buyer of three wind farms to discourage the holders of rights of first refusal (ROFR) from exercising those rights were competitive and not a breach of contract, the Ontario Court of Appeal has ruled.

Calgary-based natural gas company Veresen wanted to sell a series of assets, including the following wind farms:

• Grand Valley 1 wind farm (GV1), which was owned by Grand Valley 1 LP (GV1LP), of which Veresen was a 75-percent owner and Greta Energy Inc. was a 25-percent owner
• Grand Valley 2 wind farm (GV2), which was owned by Grand Valley 2 Limited Partnership (GV2LP), of which Veresen was a 75-percent owner and Great Grand Valley 2 Limited Partnership (GG2) was a 25-percent owner
• St. Columban, of which Veresen was a 90-percent owner and 2177958 Ontario Inc. was a 10-percent owner

In January 2017, Veresen advised BluEarth Renewables Inc. that its bid for the three wind farms succeeded and invited it to negotiate a purchase and sale agreement. They signed a final agreement, which conditioned BluEarth’s acquisition of Veresen’s interest in GV1 on a corporate reorganization.

Greta held an ROFR relating to Veresen’s interest in GV1, while GG2 held an identical ROFR for Veresen’s interest in GV2. In February 2017, Greta and GG2 received ROFR notices and, one month later, Greta told Veresen that it would exercise the ROFR on GV2 and waive the ROFR on GV1.

Greta refused to agree to the reorganization unless BluEarth paid its legal fees and showed that the purchase price allocation was not “gamed.” Due to this, BluEarth’s acquisition of GV1 was not completed.

Greta and GG2 – the appellants in this case – sued Veresen – now Pembina Pipeline Corporation – and BluEarth. The appellants sought damages for conspiracy against both respondents, for an ad hoc breach of fiduciary duty against Veresen, and for inducement of contractual breach against BluEarth.

The motion judge dismissed the appellants’ summary judgment motion and granted the respondents’ summary judgment motions. The judge found:

• Veresen did not breach its duty of good faith toward the ROFR holders
• Veresen did not owe a fiduciary duty to the appellants
• Veresen set up a legitimate process to sell its assets, and BluEarth participated in that process
• BluEarth’s conduct did not amount to inducement of contractual breach
• The respondents did not conspire against the appellants
• The respondents properly acted in their self-interest.

Appeal court sees no breach

In Greta Energy Inc. v. Pembina Pipeline Corporation, 2022 ONCA 783, the Ontario Court of Appeal dismissed the appeal upon finding no palpable and overriding errors in the motion judge’s findings and no basis to intervene.

First, the appellate court ruled that there was no breach of the duty of honest performance. The judge found that Veresen gave all the documents that the appellants requested and that the appellants had enough information to decide whether to waive the ROFR. The judge was entitled to conclude that the appellants were not misled, the appellate court said.

Second, the Court of Appeal held that BluEarth did not induce a breach of contract. The judge found that BluEarth did not intend to cause and did not cause a contractual breach. The judge noted that, while BluEarth might have wanted to discourage the appellants’ exercise of the ROFRs, the dynamic between the ROFR holder and the third party was competitive. The judge could make the findings she did, the appellate court said.

Third, the Court of Appeal concluded that the respondents did not conspire to avoid the ROFRs. The judge said that BluEarth was entitled to price its assets in a manner that could discourage the exercise of the ROFR. The judge found no evidence that BluEarth deliberately manipulated the price to harm the appellants. The appellate court said that the judge carefully reviewed the evidence to reach this conclusion.