Tied-Up in a Fixed Term Electricity Supply Contract? Commercial and Industrial Parties Beware


Commercial and industrial businesses in Ontario and elsewhere in Canada would be well advised to ensure that the terms of their energy contract has been carefully and properly read and understood. Unlike contracts involving individual consumers, where the imbalance in bargaining power and information asymmetry might offer a window of opportunity to let the weaker party out of a contract under the doctrine of unconscionability, the same cannot be said where both parties to a transaction are experienced and sophisticated commercial or industrial businesses. This is precisely what lead the Ontario Court of Appeal in Tender Choice Foods Inc. v. Planet Energy (Ontario) Corp. not to give weight to the plaintiff/appellant's argument that they were "completely ignorant" about the terms of the 5-year fixed term contract they signed with the defendant/appellant. The facts were as follows. 

The appellant, Tender Choice Foods Inc., was a family-owned meat processing company which relied heavily on the supply of electricity to conduct its business and operations. The defendant/respondent Planet Energy was a retailer of electricity and natural gas supply.  In hopes of containing, controlling, and reducing what were then constantly fluctuating and volatile electricity costs, the plaintiff/appellant negotiated with, and entered into a 5 year term contract for the supply of electricity at a fixed rate with Planet Energy for a fixed electricity rate.

Sometime during the negotiations that lead up to the parties' contractual agreement for the supply of electricity at a fixed rate, Planet Energy had opined that electricity rates in Ontario would likely continue to increase over the five-year term of the proposed fixed-term fixed-rate electricity supply agreement.  When the market price for electricity in Ontario dipped below the fixed rate contained in the 5-year term electricity supply contract, plaintiff/appellant turned to the court to for an exit door by requesting a judicial declaration that "the contract between the parties [be] rescinded"; they also sought damages for negligence and negligent misrepresentation. 

The respondent's representative stated that the terms of the fixed-term fixed-rate electricity supply contract had been fully discussed and explained prior to execution, and that the appellant had ample opportunities to address any questions or concerns with the respondent. This was later confirmed and supported evidence in the form of a telephone conversation that had been recorded on consent of both parties. The electricity supply agreement also contained a "whole agreement clause" to the effect that no representations, other than those inked directly into the electricity supply contract, had been made; it also specifically stated that the price could go up or down over the course of the electricity supply agreement.  What did the Courts decide, and what was their reasoning?

The trial judge concluded that the plaintiff had executed the electricity supply agreement because they felt it was a "good bet".  No evidence was adduced to the effect that either party was acting dishonestly or in bad faith or had mislead the other party into executing the electricity supply agreement. More importantly for our purposes, both the trial and appellate court found that both parties were experienced and sophisticated commercial parties, i.e. that no party was in a weaker or disadvantaged bargaining position during the negotiations leading up to the electricity supply contract. Also relevant for our purposes is the fact that the trial and appellate judges rejected the plaintiff/appellant's argument that they were "totally ignorant" of the fixed-term electricity supply contract. 

Both parties had even discussed and contemplated the risk of electricity rates dipping during the term of their fixed rate 5-year term contract.  The appellate judge also pointed out to the fact that few were those that were forecasting a significant downturn in the economy that occurred in the fall of 2008 that results in the decline in energy prices. The plaintiff/appellant's argument that the defendant/respondent had stated that their energy savings would be "a sure thing" was also rejected by the appellate judge.  Based on these and other reasons, the trial and appellate judges refused to rescind the fixed term and fixed rate electricity supply contract between the parties. 

Aside from the old adage that ignorance to the law is no excuse, the Tender Choice Foods Inc. v. Planet Energy (Ontario) Corp is a perfect illustration and careful reminder of how Courts in Ontario (and Canada) will not intervene or interfere in a contractual relationship between the parties when both are experienced and sophisticated businesses of similar or equal bargaining power. On that basis, Ontario courts refused to accept the plaintiff/appellant's argument that they were "completely ignorant" of the fixed rate 5-year term electricity contract they signed with the defendant/respondent. 

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