H&C Holdings PTE Ltd v Pengrowth Energy Corporation, 2019 ABQB 956

Court of Queen’s Bench of Alberta Citation: H&C Holdings PTE Ltd v Pengrowth Energy Corporation, 2019 ABQB 956 Date: 20191217 Docket: 1701 11927 Registry: Calgary Between: H&C Holdings PTE. Ltd. and Grand Valley Resources Corp. Applicant - and - Pengrowth Energy Corporation, Hardie & Kelly Inc., as Receiver of certain Assets of Grand Valley Resources Corp, Daniel Jalbert, Harold Oppelt, Paul Weevers, and Guy Jones Respondent _______________________________________________________ Reasons for Decision of the Honourable Mr. Justice R.A. Neufeld _______________________________________________________ I.

Overview [ 1 ] In 2017, Pengrowth Energy Corporation agreed to sell a substantial portion of its assets in the Swan Hills area of Alberta. [ 2 ] After months of due diligence and negotiation, a lengthy purchase and sale agreement (“the Agreement”) was signed. The purchase price was $180,000,000, including a deposit of approximately $18,000,000. [ 3 ] The Agreement specified the date by which closing was to occur. It specified what would happen if closing did not take place as scheduled, including the options available to the party injured by the other party’s failure to close.

One option was to take the deposit that was placed in escrow. The other was to treat the agreement as subsisting and carry on, subject to maintaining a right of action for the breach. In either case, the election was to be made by way of written notice. [ 4 ] The purchaser of the assets was Grand Valley Resources Corp. (“GVR” or “Grand Valley”). Despite two extensions of the closing date, GVR was unable to close the transaction due to the failure to obtain funding sufficient to provide the purchase price – something that it had promised to do on or before the closing date.

As a result of the failure to obtain funding, GVR was unable to

provide the purchase price as required by the Agreement. [ 5 ] Pengrowth and GVR both seek return of the deposit monies. [ 6 ] To determine this dispute, I must decide whether to apply the language of the contract as written pertaining to the consequences of a failure to close, or to imply into the contract certain principles of equity as enunciated in the case law dealing with timeliness of performance, and the failure to comply with contractual deadlines. [ 7 ] I have decided that the plain language of the contract is to be applied in determining both the obligations of the parties in respect of closing and the consequences of the failure to close.

To the extent that the principles of equity apply, they do not assist GVR in any event. In the circumstances of this case, Pengrowth acted in good faith throughout and was entitled to rely on the terms of the contract in respect of the right to terminate the agreement and keep the deposit. A. The Business Deal [ 8 ] The Swan Hills area has a long history of oil and natural gas production. In 2017, Pengrowth was one of the primary operators in the area. However, it was in a divestiture mode. It assembled two packages of land, producing properties and facilities.

One of these packages (the “Assets”) was producing over 5000 barrels per day of oil (equivalent) and had proved and probable reserves exceeding 30 million barrels of oil (equivalent). [ 9 ] A group of four experienced oil executives (the Respondents Jalbert, Oppelt, Weevers, and Jones) were interested in the opportunity to acquire the Assets. They decided to pursue a purchase of the Assets through their start-up company, Grand Valley. [ 10 ] Due diligence was undertaken, including an expert evaluation of environmental liabilities by Summit Liability Solutions Inc. (“Summit”).

This was an important step, because the Assets were to be sold on an “as is where is” basis, in addition to further contractual provisions that ensured that environmental liabilities would not affect the Agreement. [ 11 ] GVR needed financial backing in order to purchase the Assets. It sought equity financing, again with expert assistance. GVR successfully secured equity investment from H&C S Holdings PTE Ltd (“H&C S”), a Singapore-based entity owned by Mr. William Sun. [ 12 ] GVR entered into a Letter of Intent (“LOI”) with Pengrowth, which described the essential terms of the deal.

Under the LOI, the purchase price was $200,000,000. The Assets were to be sold on an “as is where is” basis. [ 13 ] Pengrowth and GVR negotiated the definitive Agreement. It was to be signed on March 17, 2017. According to Mr. Jalbert, GVR’s President, at the “11 th hour and 59 th minute” he was instructed by Mr. Sun to demand a $20,000,000 purchase price reduction, in part to reflect the environmental liability findings of Summit. Pengrowth granted the request. [ 14 ] The Agreement was executed — at the reduced purchase price — on March 17, 2017.

Among other things, it provided for a May 31, 2017, closing date and promised that each side would be ready willing and able to close on that date, subject to satisfaction or waiver of certain conditions precedent (none of which are relevant to the matters to be decided in this case). B. Failure to Close [ 15 ] As the closing date of May 31, 2017 approached, it became apparent that GVR would not have funding in place.

In addition, the parties were awaiting a determination by the Alberta Energy Regulator (“AER”) as to its estimate of the potential liabilities associated with certain problem sites identified by Summit. While not a condition of closing, the AER determination might have resulted in a need to post security with the regulator as a condition of license transfers. [ 16 ] The parties agreed to extend the closing date to June 2, 2017, doing so by way of a formal letter agreement to amend.

Under that agreement to amend, the closing date was extended, with the remainder of the Agreement left unchanged. [ 17 ] A second written extension agreement was executed on June 2, 2017. GVR still did not have financing, and the AER had not yet issued its determination regarding the assets. The date for closing was extended to June 16, 2017. The second agreement to amend had the same wording as the first, other than a new closing date. [ 18 ] The AER issued its determination on June 5, 2017.

It estimated Abandonment and Reclamation liabilities for the sites in question at approximately $24 million (which was approximately $6 million more than that estimated by Summit) but no security was required for licence transfers to occur. [ 19 ] On the day before the June 16, 2017, the closing date, Pengrowth wrote to GVR. Pengrowth confirmed that it was ready, willing and able to close the transaction and inquired as to GVR’s intentions. No written response was given, but a meeting was arranged for June 16, 2017, between Mr. Jalbert, President of GVR, and Mr.

Evans, Chief Executive Officer of Pengrowth. [ 20 ] The evidence of Mr. Jalbert and Mr. Evans regarding the June 16, 2017 meeting was essentially the same. At the meeting, Mr. Jalbert advised Mr. Evans that GVR did not have the money necessary to close. On Mr. Sun’s instruction, he made three requests. [ 21 ] First, he requested a further extension of the closing date to June 30, 2017. Second, he requested a further reduction of the purchase price. Third, he requested vendor take-back financing from Pengrowth.

Although the evidence was not entirely clear on the point, the request was for a price reduction of at least $18,000,000 plus vendor take-back financing of at least $22,000,000. [ 22 ] On behalf of Pengrowth, Mr. Evans responded that the deal was dead, and Pengrowth would be coming after the deposit.

[ 23 ] The evidence of Mr. Jalbert was that he believed that Pengrowth had lived up to all of its obligations in the Agreement and was entitled to keep the deposit. This included $400,000 that Mr. Jalbert and the other founders of GVR had personally contributed toward the deposit, at the insistence of HC&S. [ 24 ] Mr. Jalbert also advised that Pengrowth would be receiving a separate letter from GVR. Later that day it did. [ 25 ] Under the signature of Mr. Sun, (who was by now a Director of GVR), the letter dated June 16, 2017 stated as follows: Purchaser hereby notifies Vendor that the conditions precedent to Closing set out in

Section 12.2 of the Sale Agreement have not been satisfied and are not waived by Purchaser. Specially, but without limiting the foregoing, Purchaser notifies Vendor of the non-satisfaction of the following conditions: i.

Section 12.2(a)- Between the Execution Date and the Closing Date, there has been “damage to, alteration of, or change in respect of” the Assets that foes “materially and adversely affect the value of the Assets”, and ii.

Section 12.2(c) – not all representations and warranties of the Vendor were and are “true and correct in all material respects when made and as of the Execution Date and the Closing Date” As you are aware, between the Execution Date and the Closing Date the AER has determined that Environmental Liabilities associated with the Assets are substantially greater than had previously been disclosed and reported by Pengrowth. The AER has re-determined such liabilities to be approximately $18 million higher than previously reported and recorded.

In addition, the LMR that relates to these assets has materially changed from a rating of 1.79 to a rating of 1.36. The circumstances and consequences of such undisclosed liabilities and representations and warranties of Pengrowth, including without limitation Sections 7.1 (h), (1), (

p) and (cc), not true in all material respects. Notwithstanding the foregoing concerns, Grand Valley would like to continue to work with Pengrowth towards Closing and is willing to agree to extend the Closing Date to June 30, 2017 with a view to resolving these issues. [ 26 ] The letter was signed by Mr. Sun because Mr. Jalbert refused to sign the request, believing that Pengrowth had complied with its obligations under the Agreement. [ 27 ] The letter is noteworthy in a number of respects. It is clearly designed to lay a foundation for seeking return of the deposit. Mr.

Sun alleges that it was Pengrowth, not GVR, that had breached the agreement, causing the transaction not to close. [ 28 ] However, the letter makes no reference to

Article 14 of the Agreement (to be discussed later in these reasons), presumably leaving it open for GVR to make a subsequent election under that provision to either terminate the agreement and have the deposit paid out to it, or to maintain the agreement and bring an action on it. [ 29 ] The letter closes by indicating a willingness to continue to close the transaction and asks for an extension to June 30, 2017. It makes no reference to the purchase price reduction and vendor take-back financing sought by Mr.

Jalbert earlier in the day, however, making it unclear as to exactly what “transaction” was contemplated by Mr. Sun. [ 30 ] The letter was forwarded to Pengrowth under an email from Mr. Sun’s counsel stating that despite the notice, Mr. Sun did wish to complete the transaction and that “we are hopeful that Pengrowth is willing to continue to work forward that goal”. [ 31 ] There followed an exchange of emails between Pengrowth’s general counsel and counsel for Mr. Sun. [ 32 ] Mr. Grasby, on behalf of Pengrowth stated: We are pleased to see that Mr. Sun and Grand Valley desire to complete the transaction.

Would a meeting of the parties and counsel to discuss the concerns raised in your note and, more importantly, the path to closing, be the logical next step? Can you please propose a time that works for Grand Valley? [ 33 ] Mr. Spurn responds: Thank you Andrew, Tentatively, let’s book a time for 2:00 on Monday afternoon. Please note that the representatives of our PE are travelling back to Singapore today, arriving Sunday and intend to have a face to face meeting with the shareholders at that time to develop a response. [ 34 ] These entreaties came to nothing.

GVR continued to seek financing but was unsuccessful in doing so. The proposed June 30, 2017 extension date came and passed, with no further written communications. A number of meetings were held in which the parameters of a potential transaction were discussed, but, according to Mr. Evans, the original deal was dead, and any new deal would have been the subject of a new contract. [ 35 ] On July 6, 2017, Pengrowth issued a press release advising the investment community that it had completed the sale of one of its two Swan Hills asset packages.

It went on to say that Pengrowth was continuing its efforts to work on finalizing the previously announced sale of the remainder of its Swan Hills assets (those involved in this lawsuit). [ 36 ] On July 10, 2017, Pengrowth delivered to GVR its notice of election pursuant to

Article 14 of the Agreement, wherein it advised GVR that it was terminating the Agreement and requested GVR to jointly authorize release of the deposit to Pengrowth under the escrow agreement.

[ 37 ] On July 11, 2017 Pengrowth announced this development to the investing public: On July 5, 2017 Pengrowth announced the closing of the sale of one of its two previously announced Swan Hill sales packages for $185 million. At that time it also announced that it was continuing to work to close the second Swan Hills sales package with a separate purchaser.

The purchaser of the second Swan Hills sales package has now indicated that it is unable to complete its financing for the acquisition and, as such, Pengrowth has given notice of termination of the sale agreement announced on March 20, 2017 and has requested that the $18 million deposit, currently being held in escrow be released to Pengrowth. Pengrowth will recommence its efforts to sell these assets. [ 38 ] GVR refused to authorize release of the deposit, maintaining its entitlement to those funds. [ 39 ] Pengrowth proceeded to remarket the Assets.

It entered a purchase and sale agreement in September 2017 with a third party. The purchase price was $150,000,000. C. Entitlement to the Deposit [ 40 ] The parties agree that because closing did not occur, one of them is entitled to recover the deposit being held in escrow, with the entitlement to be determined under

section 2.11 of the PSA, which states: If Closing does not occur for any reason other than the sole and direct result of the failure of Purchaser to satisfy its obligations under this Agreement, then the Deposit and any interest thereon will be returned, in a timely fashion, to Purchaser.

If this Agreement is terminated by Vendor due to the sole and direct result of the failure of Purchaser to satisfy its obligations under this Agreement, and Vendor has satisfied its obligations under this Agreement and is otherwise ready, willing and able to close the Transaction, the Deposit and any interest thereon will be forfeited to Vendor for Vendor’s own account absolutely as a genuine pre-estimate of liquidated damages and not as a penalty as a result of Closing not occurring, which forfeiture and payment of the Deposit and the interest earned thereon constitutes Vendor’s sole remedy in such instance, with no right of Vendor to any claim (or to make any claim) for further damages or other remedies from Purchaser.

Conversely, if this Agreement is terminated by Purchaser due to the sole and direct result of the failure of Vendor to satisfy its obligations under this Agreement, and Purchaser has satisfied its obligations under this Agreement and is otherwise ready, willing, and able to close the Transaction, then the Deposit and any interest thereon will be returned, in a timely fashion, by the Escrow Agent to Purchaser, with any interest earned thereon, and Purchaser will be entitled to and Vendor shall pay Purchaser a break fee equal to the Deposit converted into Canadian dollars as of the date of such entitlement (the “Compensation Fee”), which constitutes Purchaser’s sole remedy in such instance, with no right of Purchaser to make any claim for further damages or other remedies from Vendor.

It is further agreed that the Deposit and the Compensation Fee are a genuine pre-estimate of the damages for lost opportunity, it being the intention of the Parties to establish the damages that can be foreseen from lost opportunity at the time of make this Agreement. [ 41 ]

Section 2.11 establishes three possible outcomes regarding the deposit if closing does not occur. The first and second outcomes are at issue in this proceeding. GVR is entitled to the entire deposit if the failure to close was not solely the result of GVR’s failure to satisfy its obligations. Pengrowth is entitled to the entire deposit if they terminate the agreement because of GVR’s sole and direct failure to close, and if Pengrowth also satisfied their own obligations and was otherwise ready, willing, and able to close. [ 42 ] The procedure for invoking

section 2.11 is set out in

Article

Section 14.1 provides that: 14.1 If a Party (the “Defaulting Party”) fails to comply with and is in breach of any of the terms of this Agreement such that Closing does not occur, the other Party (the “Injured party”) may, by notice to the Defaulting Party, elect to:

a) treat this Agreement as terminated by reason of the non-fulfillment of the Defaulting Party’s obligations, in which case the provisions of Clauses 2.11 above will apply; or

b) continue to treat the Agreement as binding and enforceable, pending resolution of the default by agreement of the Parties or by a court of competent jurisdiction. However, the Injured Party will be deemed to be treating this Agreement as in effect and enforceable, unless and until it specifically elects in writing to pursue the alternative in paragraph (

a) of this

Article 14. [ 43 ]

Section 19.1 requires that all notices required or permitted under the agreement must be given in writing. D. Position of Pengrowth [ 44 ] Pengrowth’s position regarding entitlement to the deposit is straightforward. It says that GVR represented and warranted in clause 7.2(

f) that as of the Closing Date, it “will have sufficient cash, available lines of credit, or other sources of immediately available funds to enable it to make payment of the Purchase Price at Closing...”. [ 45 ] Pengrowth says that the failure to close the transaction on or before June 16, 2017 was caused solely by GVR’s failure to pay the purchase price on that date as required under clause 12.3(

b) of the Agreement. [ 46 ] Pengrowth says that because of GVR’s breach, Pengrowth was entitled to elect by notice under

Article 14 to either terminate the agreement and take the deposit as a genuine pre-estimate of damages, or continue to treat the agreement as binding and enforceable pending resolution of the default by agreement of the parties or by a Court of competent jurisdiction. It says it elected the former option by giving written notice to that effect on July 10, 2017. [ 47 ] Pengrowth says that, based on the plain language of the Agreement, it is entitled to the deposit in accordance with

section 2.11

of the Agreement. E. Position of GVR [48] GVR’s position is more nuanced. [49] It does not dispute that as of June 16, 2017, it did not have funding in place. It also does not dispute that as of June 16, 2017,Pengrowth was ready, willing and able to close the transaction. [50] GVR argues that it met its obligations under the agreement by continuing to work in good faith toward closing the transaction.Further, GVR states that Pengrowth breached its obligations and was not willing to close the transaction. [51] Specifically, GVR says that Pengrowth was not entitled to terminate the PSA under

Article 14 without first giving GVR noticeof its intent to do so and reasonable time to come up with the purchase price. GVR’s arguments centre on whether “time is of theessence” in the circumstances of the Agreement, because the Agreement does not include a time is of the essence provision.

GVR saysthat time was not of the essence, and if it was, that requirement was waived when the parties continued to negotiate following the failureto close on June 16, 2017. [52] GVR argues that in the circumstances, Pengrowth was obliged to provide reasonable notice of its intention to terminate, andthat by terminating the agreement without such notice, Pengrowth’s conduct was the cause (or one of the causes) of the purchase notclosing. GVR says that, pursuant to

section 2.11, it is therefore entitled to return of the deposit. II. Findings A. Did GVR breach the Agreement? [53] I find that the reason closing did not occur on the date and at the price set out in the Agreement was the failure of GVR tohave funds in place at closing. [54] The closing date, as agreed upon in writing by the parties, was June 16, 2017.

In failing to close the sale on June 16, 2017,GVR breached a basic and important representation and warranty that, as of the closing date, it would have sufficient funds in place topay the purchase price of $180,000,000. [55] The fundamental nature of this representation and warranty in the circumstances is underscored by the fact that GVR itselfhas no assets or operating history and, more importantly, that the Agreement did not include financing as a condition precedent. [56] Not only did GVR fail to uphold its warranty and representation to secure funds to close by the closing date, but itcompounded the breach by seeking to renegotiate the purchase price on the Agreement’s date of closing.

It then made the situation evenworse by sending a letter notifying Pengrowth that GVR considered Pengrowth be in breach of the Agreement by virtue of the AER’sdetermination of environmental liabilities—a position that had no merit, considering the “as is where is” aspect of the Agreement, andwhich GVR’s President properly refused to advance. B.

Did Pengrowth satisfy its obligations under the Agreement, and was it otherwiseready willing and able to close the transaction? [57] GVR does not dispute that Pengrowth was ready willing and able to close the transaction on June 16, 2017. [58] It says, however, that because time was not stated to be of the essence, or was waived, the Agreement obligated Pengrowth tocontinue to endeavour to close the transaction thereafter.

It argues that if Pengrowth wanted to bring the Agreement to an end, it wascompelled to provide a new closing date and reasonable notice that failure to close on that new date would result in termination and theloss of GVR’s deposit. I will discuss those issues next. 1.

Was Time of the Essence? [59] At common law, time was considered to be of the essence in all contracts, although certain exceptions to that principledeveloped over time: Sail Labrador Limited v Navimar Corp (1998), (SCC), [1999] 1 SCR 265 at para 51, [1998] SCJNo 69 [“Sail”], citing United Scientific Holdings Ltd v Burnley Borough Council (1977), [1978] A.C. 904 (U.K. H.L.) at pp 927-28 andpp 940-41. [60] At equity, however, time was not considered to be of the essence unless by direct stipulation or necessary implication.

Withthe inception of the Judicature Acts (including in Alberta), the common law presumption that time is of the essence no longer applies.The question in any given case therefore becomes whether the parties have expressly made time of the essence, and, if not, whether sucha finding can be made anyway due to the nature of the property involved or because the circumstances surrounding the contract wouldmake it inequitable for the Court to presume that time was not of the essence: Sail at paras 54, 62 and 63; 1159465 Alberta Ltd.

V.Adwood Manufacturing Ltd, 2011 ABCA 259 at para 16 [“Adwood”]. [61] The agreement here does not contain an express “time is of the essence” provision, but that is not necessary if the subjectmatter of the contract or the surrounding circumstances show that that was the parties’ intent. The question to be determined in casessuch as this is not whether time was of the essence for the whole contract, but rather whether timeliness was essential to the particular

term that was breached—in this case, the promise by GVR to have funding in place at closing: Adwood at paras 16, 18. [62] I must therefore first determine whether there was something in the nature of the property or the surrounding circumstancesthat show that the parties intended time to be of the essence in the particular term that was broken. In my view, there was. [63] To begin with, the parties themselves treated the timing of closing as being essential.

The Agreement specifies a “closingdate”, and an “outside closing date”, and contains specific criteria to be used in determining the consequences of failure to close on orbefore the closing date. Those provisions, which are tied to the remedies available in the event of a failure to close, served to incentivisethe parties to get the deal done in a timely manner and to allow them to exit the relationship should the transaction fail to close.

The closeattention paid to these matters demonstrates that as of the date of the Agreement (March 17, 2017) both parties considered timeliness ofperformance as essential. [64] Following execution of the Agreement, the parties had over ten weeks to satisfy or waive conditions precedent to closing andto otherwise prepare for closing. In GVR’s case, that meant it had ten weeks to put funding into place.

It knew or ought to have knownthat if it failed to do so, its business opportunity and deposit was at risk. [65] When it became apparent that financing would not be in place by May 31, 2017, a formal extension agreement was requestedby GVR and agreed to by Pengrowth. When that date also could not be met, a second extension was sought and agreed to — againthrough a formal written agreement, as contractually required.

When GVR still did not have financing on June 16, 2017, a furtherextension to June 30, 2017, among other things, was requested. [66] The wording of the Agreement and the conduct of GVR in repeatedly seeking (and of Pengrowth in twice granting) writtenextension agreements demonstrate an intention to treat timeliness as essential. [67] As for the subject matter of the transaction, it cannot be said that oil and gas assets are by their nature such that timeliness isalways essential to their sale.

In this case, however, the Assets were comprised of operating wells, gathering infrastructure, and facilitiesthe value of which was subject to rapid change. Pengrowth was in a clear divestiture mode, and the founders of GVR were looking totake advantage of the opportunity created so as to acquire and assume operation of the Assets. These factors also support the inferencethat time was of the essence in respect of the obligation to secure funding and to close the sale. 2.

Was Pengrowth required to extend the date for closing prior to terminating the Agreement? [68] GVR argues that regardless of whether time was of the essence under the contract, Pengrowth was not entitled to terminate thecontract without first providing sufficient notice to GVR.

It says that to be sufficient, the notice would need to set a new and reasonablyachievable closing date, and would need to “bring home” that a failure to close on that date would result in termination: B&J PetroleumLtd v Rhim 2015 ABQB 1; CIBC Mortgage Corporation v 1279375 Alberta Ltd 2011 ABQB 352 at paras 65-66; Woels v Mashinter,[1976] 5.W.W.R 79 (Alta T.D.) at para 29, (ABQB). [69] I do not accept this argument. With respect, it has a number of flaws. [70] To begin with, it is not supported by or consistent with the wording of the Agreement.

The modern approach to contractualinterpretation requires the contract to be read as a whole, based on the ordinary and grammatical meaning of the words, in a manner thatis consistent with the surrounding circumstances known to the parties at the time of formation: Sattva Capital Corp v Creston MolyCorp, 2014 SCC 53 at para 47; Manulife Bank of Canada v Conlin, (SCC), [1996] 3 SCR 415, [1996] SCJ No 101. [71] In this case, the parties committed to a significant commercial transaction.

They promised each other that the purchase andsale of assets valued at $180,000,000 would close on or before a specific date, subject to certain conditions precedent, which did notinclude financing. [72] The parties secured that promise by way of a deposit that would be lost if the purchase failed to close on that date as a soleand direct result of the Purchaser’s default, and a “break fee” of the same amount that Pengrowth would pay if the purchase failed toclose as a sole and direct result of its default. [73] The parties also promised each other that in the event that the purchase failed to close on the closing date, the “injured party”would be entitled give written notice that it was treating the agreement as terminated, and invoke its right to the deposit (and, if available,the break fee).

It was agreed that upon making that election, the injured party could not thereafter bring an action for damages. [74] The contract does not state that any prior notice or further indication of a future intention to terminate (written or otherwise)was to be given. Nor does it provide an opportunity for the defaulting party to cure the default by closing the transaction at a later date. [75] Had the parties intended that such additional notice and an opportunity to cure the default was to be provided, they couldeasily have said so.

They did not. [76] Further, it is not at all clear on the evidence that there was an agreement between the parties as of June 16, 2017, that wascapable of being closed on a new date. The Agreement provides that until a notice of termination is delivered under

Article 14, theagreement is deemed to be subsisting. Nonetheless, it is apparent that as of the closing date, GVR was seeking a much lower purchaseprice, substantial vendor take-back financing, and was alleging non-compliance by Pengrowth in respect of environmental liability issues,notwithstanding the clear language of the Agreement to the contrary. The founders of GVR acted in an honourable manner throughoutand tried to salvage a deal after June 16, 2017. However, I accept the evidence of Mr. Evans that even if a new business deal had beenreached, a new contract would have been necessary, and that by July 10, 2017, Pengrowth was not prepared to continue dealing withGVR.

[ 77 ] Having reached that point, Pengrowth was entitled to give notice of its election to terminate the Agreement, as required under

Article 14. Pengrowth was not required to provide additional notice of an intention to terminate prior to terminating the Agreement. [ 78 ] Nonetheless, GVR argues that equity requires the contract to be read in this fashion, with the result that it was Pengrowth, not GVR, that was in breach of the agreement, and that it is GVR, not Pengrowth, that is entitled to rely on the contract to obtain return of the deposit. [ 79 ] In Bowlen v Digger Excavating

(1983) Ltd, 2001 ABCA 214 , the Alberta Court of Appeal discussed when an equitable remedy should be available to a prospective purchaser who failed to meet a closing date. The purchaser in Bowlen sought a remedy of specific performance, and the agreement contained a “time clause”. [ 80 ] The Court of Appeal noted that, historically, two different approaches were used to justify equitable intervention where a breach of a condition as to time was committed. The first justifies intervention as being necessary to give effect to the intentions of the parties.

The second justifies intervention on the basis that it would be unfair in the circumstances for the defendant to rely on its legal rights: Bowlen at para 14 . [ 81 ] Where time is found to be of the essence, a litigant was historically only allowed to rely on that if he: (

a) has shown himself to be ready, willing and able to carry out the agreement; (

b) was not himself the cause of the delay or in default; and (

c) has not subsequently recognized the agreement as subsisting. More recently, these specific criteria have given way to a more general requirement that the party relying on time being of the essence must have acted in good faith: Bowlen at paras 18, 19 . [ 82 ] Moreover, equity does not simply refuse to look at time limits in contracts. Even where time is not of the essence, a failure to meet a time limit is only relieved by a court of equity if that would do justice between the parties. In providing such equitable relief, the court is not engaged in an exercise of contractual

interpretation based on equitable principles, but in determining an equitable remedy after a breach has been found: Adwood at para 19 . [ 83 ] GVR argues that whether time was of the essence or not, Pengrowth was not, under the principles of equity, entitled to terminate the contract without prior notice and an opportunity to close the transaction on a subsequent date. It says that it is therefore entitled to return of its deposit under

section 2.11 of the Agreement. [ 84 ] With respect, I must disagree. [ 85 ] In my view, GVR’s argument conflates the issue of breach with that of remedies. The issue here is one of contractual

interpretation, specifically whether GVR or Pengrowth breached the agreement. Both parties acknowledge that entitlement to the Deposit is determined by the contract. GVR does not seek equitable relief in place of the remedy stipulated in

section 2.11 of the contract. Rather, GVR suggests that equitable principles that function to provide a fair remedy where there has been a breach of an agreement should be used to alter the

interpretation of that agreement in the first instance, while leaving the contractual remedy in place. I cannot accept such a proposition. [ 86 ] Further, even if equitable remedy principles were applicable in the circumstances, it would not do justice to the parties to relieve GVR of its obligation to have funding in place by the date of closing, regardless of the effect on Pengrowth.

GVR knew or should have known that both its deposit and its opportunity to purchase the Assets were at risk when it failed to have financing in place on June 16, 2017, as explicitly required by the Agreement. [ 87 ] By virtue of GVR’s failure to provide payment as required, Pengrowth incurred a substantial loss on remarketing the Assets. That loss was only partially offset by the deposit, and by electing to terminate and retain the deposit Pengrowth forfeited its right to bring action for the entirety of its loss. It cannot be said that Pengrowth acted other than in good faith. [ 88 ] In

summary, Pengrowth was not required under the Agreement to provide advance notice of its intention to terminate the Agreement, or a new date of closing, and Pengrowth did not breach its obligations under the Agreement by giving notice in the manner it did. There is also no basis in equity to read such requirements into the Agreement in order to allow GVR to seek return of the deposit. 3.

Was Pengrowth ready, willing and able to close? [ 89 ] Finally, GVR argues that Pengrowth was not ready, willing and able to close the transaction from the date of closing on June 16, 2017, until Pengrowth terminated the Agreement on July 10 2017, or after that termination. [ 90 ] At the time of closing, Pengrowth stated to GVR that it was ready, willing and able to close the transaction.

Pengrowth even participated in further discussions with GVR as its founders tried to salvage a deal after it had failed to close. [ 91 ] However, as discussed earlier, Pengrowth was not under an obligation to extend the date of closing beyond June 16, 2017 nor to renegotiate any other terms of the sale such as purchase price, financing, or environmental obligations. It was entitled to consider its position in light of the circumstances, and then make its formal election under

Article 14, including formal termination of the agreement and recourse to the deposit. [ 92 ] I find, therefore, that Pengrowth was ready, willing and able to close at all necessary times during the course of the Agreement. [ 93 ] As there was no other contributing cause to the Agreement’s failure to close, other than GVR’s failure to meet its obligations, Pengrowth is accordingly entitled to the deposit. C. Is GVR entitled to relief from forfeiture?

[94] Although its argument before me was based on the terms of the Agreement, in its brief of law, GVR also alluded to relief fromforfeiture as an alternative remedy, if this Court finds that the Agreement was validly terminated. I will therefore briefly discuss this issuenext. [95] The party seeking relief from forfeiture has the onus of establishing the criteria necessary to support relief from forfeiture:Carrington Holdings Ltd v Schonsee Property Development Corp, 2005 ABCA 51 at para 8, leave to appeal to SCC refused, 30790 (30June 2005).

GVR chose not to argue the law on relief from forfeiture on the basis that it did not breach the Agreement. It therefore hasfailed to establish entitlement to relief from forfeiture. [96] In any event, GVR is not entitled to such relief. [97] The discretionary power to grant the equitable remedy of relief against forfeiture arises under

section 10 of the Judicature Act,RSA 2000, c J-2.

When exercising its discretion, the Court should consider the conduct of the applicant, gravity of the breach, anddisparity between the value of the property forfeited and the damage caused by the breach: Saskatchewan River Bungalows Ltd vMaritime Life Assurance Co, (SCC), [1994] 2 SCR 490 at para 32, [1994] SCJ No 59. [98] As discussed, the breach in this case prevented the transaction from closing and arose solely as a result of the actions of GVR.The deposit in these circumstances is approximately 10% of the purchase price and it fell well short of fully compensating Pengrowth forits damages due to GVR’s breach of contract.

It does not go beyond a reasonable and genuine pre-estimate of damages such that itbecame a penalty or a prepayment of the purchase price: Bowlen at paras 31, 36. [99] There is no reason to exercise my discretion to provide GVR with relief from forfeiture in these circumstances. III. Conclusion [100] Pengrowth’s application is granted. Pengrowth is entitled to receive the deposit, in accordance with the terms of the escrowagreement entered into between the parties. [101] GVR and HC & S are not entitled to receive the deposit.

Their application is dismissed. [102] If the parties cannot agree on costs within thirty days of this decision, that matter may be referred to be for a determination byway of letters not to exceed 5 pages, exclusive of authorities. [103] At the conclusion of oral argument, I was advised by counsel to GVR that Pengrowth is in the midst of CCAA proceedings.GVR (which is itself subject to a Receivership order granted on application by HC &

S) submitted that, if Pengrowth was successful, astay should be issued preserving the deposit pending appeal of my decision. Pengrowth took no position on that new matter. If theparties cannot agree on GVR’s request within thirty days of this decision, that matter can also be referred to me for determination by wayof letters not to exceed 10 pages in length, exclusive of authorities. Upon resolution of that issue, an Order will issue in respect of thedeclaration sought by Pengrowth in its application and, if appropriate, any stay pending appeal. Heard on the 21st day of November, 2019.

Dated at the City of Calgary, Alberta this 16th day of December, 2019. R.A. Neufeld J.C.Q.B.A. Appearances: Christa Nicholson and William Katz for the Plaintiffs Kenneth J. Warren, Q.C. and Alison J. Gray

for the Defendants