North American Polypropylene ULC v Williams Canada Propylene ULC, 2023 ABKB 673

Court of King’s Bench of Alberta Citation: North American Polypropylene ULC v Williams Canada Propylene ULC, 2023 ABKB 673 Date: 20231128 Docket: 1601 10614 Registry: Calgary Between: North American Polypropylene ULC Plaintiff - and - Williams Canada Propylene ULC, Williams Energy Canada ULC, the Williams Companies, Inc. and InterPipeline Ltd. Defendants _______________________________________________________ Reasons for Decision of the Honourable Justice R.A. Neufeld _______________________________________________________ I.

Overview [ 1 ] North American Polypropylene ULC (“NAPP”) was incorporated for the purpose of developing a polypropylene plant (“PP”) at Redwater, Alberta. The PP facility was to be located beside a propylene (sometimes referred to in this case as PDH or PGP) plant that was under development by a predecessor of Williams Canada Propylene ULC (“Williams Canada” or “Williams Propylene”)

when the two organizations were introduced in 2013. [ 2 ] NAPP now sues Williams Canada (and two of its one-time affiliates). It claims that Williams Canada breached the terms of a Propylene Sales Agreement (“PSA”) between the parties dated August 19, 2015, by failing to cooperate with NAPP’s efforts to finance construction of the PP plant.

It also claims that Williams Canada breached its duty of confidentiality by using information provided by NAPP during its project development activities in the sale of Williams Canada’s shares to InterPipeline Limited (“IPL”), and thereafter building both plants on its own. [ 3 ] Williams Canada denies any breach of contract, or misuse of confidential information. It says that NAPP improperly repudiated the PSA when it became clear that NAPP could not meet its deadline for financing construction of the PP plant and denies that it failed to cooperate in such financing efforts.

It also says that if a breach of the PSA occurred, damages for that breach are limited to those that were negotiated and agreed upon by the parties when the contract was entered into. [ 4 ] To decide this matter, I must make several determinations. The first is whether NAPP’s failure to obtain financing for the PP plant was due to a breach of contract by Williams Canada.

The second is whether the Defendants misused NAPP’s confidential information in the sale of Williams Canada’s shares or the subsequent construction of the PP by Williams Canada (now renamed IP Propylene Ltd). [ 5 ] The third is the measure of damages payable if a breach of contract or other actionable duty has been found. [ 6 ] I have decided that the action must fail. NAPP’s failure to obtain financing was not due to a lack of cooperation by Williams Canada.

Both projects were subjected to uncertainty in early 2016 by a financial crisis at Williams Inc, which was Williams Canada’s ultimate parent and source of financing. That uncertainty was compounded by a subsequent decision by Williams Inc to place its Canadian operation up for sale. Although the decisions by Williams Inc were a setback to the timing of both projects, they did not constitute a breach of contract by Williams Canada. [ 7 ] I have also determined that Williams Canada acted honestly and in good faith. NAPP was informed promptly of the decision to slow down spending on the PDH plant.

It was advised at a very early stage of the decision of Williams Inc to put its Canadian operations up for sale. Williams Canada also agreed to provide an extension of NAPP’s deadline for obtaining financing to June 2017. Rather than acting on that agreement, NAPP chose to move into litigation mode by characterizing the decisions as being a failure to cooperate with NAPP in obtaining financing, giving notice of termination based on such an alleged failure, and then commencing actions in Alberta and Texas.

Each of these steps was taken prior to either party reaching a final decision to either proceed with construction or exit the arrangement, as was their right under the PSA. II. Factual Matrix [ 8 ] In interpreting a contract, the Court is tasked with determining the objective intentions of the parties.

First and foremost, such intentions are to be discerned based on the language of the agreement, as an objective observer would ordinarily presume that the words used in the contract reflect the intentions of the parties. [ 9 ] It is nonetheless recognized that words alone do not have an immutable or absolute meaning.

Context matters: Sattva Capital Corp v Creston Moly Corp , 2014 SCC 53 at para 47 [ Sattva ]; R v Secretary of State for the Home Department , ex parte Daly, [2001] UKHL 26 at para 286 . [ 10 ] Consequently, even in the absence of ambiguity, the Court must consider the relevant surrounding circumstances leading up to a written agreement: IFP Technologies (Canada) Inc v EnCana Midstream and Marketing , 2017 ABCA 157 at para 82 [ IFP ].

This can include evidence bearing on the purpose of the agreement; the relative experience and bargaining position of the parties, and antecedent agreements such as a memorandum of understanding, letter of intent or term sheet: IFP at paras 83-85 . Recitals to an agreement can also provide useful context, even though they have no independent contractual force: see NOV Enerflow ULC (NOV Pressure Pumping ULC) v Enerflow Industries Inc , 2020 ABQB 347 at paras 389-391 and McCamus, The Law of Contracts , 3rd ed (Toronto: Irwin Law Inc, 2020) at 814. A.

The Parties [ 11 ] To contextualize the PSA and the circumstances surrounding its finalization, it is appropriate to begin with the parties themselves, as well as their affiliates. 1. The Williams Group [ 12 ] In the context of this case, the Williams group of companies was comprised of The Williams Companies Inc (“Williams Inc”), its wholly owned subsidiary Williams Energy Canada ULC (WEC”), and its wholly owned subsidiary Williams Canada Propylene ULC, which was the sole Williams group counterparty to the PSA. [ 13 ] WEC operated for many years in Alberta in the mid-streaming business.

Its primary activities centered on extraction of natural gas liquids at natural gas processing plants and oil sands plants, transportation and fractionation of those NGLs into component products such as propane, and marketing of those products. [ 14 ] In 2012, WEC began to assess the feasibility of capturing added value to its propane production by upgrading it to propylene. Propylene is a building block for petrochemicals, as it can be used as a feedstock for propylene-based derivatives such as polypropylene and propylene oxide.

It can be transported by rail if not immediately upgraded at a nearby polypropylene or other derivative plant.

[ 15 ] WEC had no experience in the development, construction and operation of petrochemical plants, including propylene plants. It nonetheless sought and received approval from Williams Inc to evaluate and develop a propylene plant at Redwater, Alberta, which is within the “heartland” of Alberta’s existing ethane-based petrochemical industry. Various alternative configurations were considered. Ultimately, WEC opted to focus on development of a propylene plant only, with production being railed to the US Gulf Coast for sale to derivatives manufacturers.

However, the potential for development of an adjacent polypropylene plant was to be considered in project planning. [ 16 ] Several prospective developers or marketers of polypropylene were identified at an early stage, including Vinmar International (“Vinmar”). [ 17 ] The Chief Executive Officer of Williams Inc at the time was Alan Armstrong. Mr.

Armstrong testified at trial that the entry into the propane-based petrochemical industry in Canada was viewed as a transformational opportunity for his company, whose core business was pipeline transportation and midstream extraction of natural gas liquids. [ 18 ] Up to the execution of the PSA with NAPP, Williams Canada had invested approximately $97 million (USD) in project development costs.

Among other things, this had funded site acquisition, engineering and design, a Class III cost estimate for the PDH project, preparation of regulatory applications and commercial/legal negotiations. [ 19 ] All of these, and any future construction costs, were to be financed by Williams Inc.

As one of the USA’s largest pipeline and midstream companies, Williams Inc was publicly traded, and financed its capital programs based on corporate equity and debt (ie, on the strength of its balance sheet) with no need for project financing from external sources. [ 20 ] As a large organization, the processes for evaluation of new projects and approval of ongoing capital spending or significant agreements within the Williams group involved various layers of review and authorization. 2. The Goradia Group [ 21 ] The Goradia group of companies is family owned.

In the context of this action, its relevant affiliates are comprised of Goradia Capital, Vinmar and North American Polypropylene ULC. The latter is a single purpose company incorporated in British Columbia for the sole purpose of developing construction and owning the proposed propylene plant at Redwater. It is the sole counterparty to the PSA with Williams Canada. [ 22 ] The founder of the Goradia group of companies is Vijay Goradia. He started the enterprise “from scratch” in 1978. He was joined by his brother Hemant Goradia in 1982. [ 23 ] Through Vinmar, the Goradia group has operations around the world.

Its primary business has been the marketing and distribution of petrochemical derivatives, including polypropylene. Polypropylene is used in various manufacturing applications, including automobile mouldings, toys, containers and packaging. It ordinarily takes the form of pellets and is safe and convenient to ship by rail or sea. [ 24 ] Prior to becoming involved in the Redwater project, the Goradia group had made a few equity investments in polypropylene plants, but had never undertaken development, construction and operation of such a facility on its own.

This project was therefore considered transformative. [ 25 ] The Goradia group was intrigued by the Redwater opportunity. After learning of it through industry sources, Hemant Goradia sought out Alan Armstrong, who was a fellow member of the board of the School of Engineering at the University of Oklahoma. Mr. Armstrong put him in touch with the CEO of Williams Energy Canada, David Chappell, in late 2012. An introductory meeting was held in January 2013. [ 26 ] The Goradia group of companies are privately owned.

Vinmar’s plan was to project finance construction of the polypropylene plant, preferably at a debt/equity ratio of 70/30. If, for example, the cost of the polypropylene plant was $600 million; non-recourse debt financing would fund $420 million; and equity financing (from the Goradia group or others brought into the opportunity as equity participants) would fund the remaining $180 million.

Thus, unlike Williams Canada, NAPP would be relying on debt financing obtained on the strength of the polypropylene plant’s economics rather than its parent company’s balance sheet and corporate resources. [ 27 ] From a governance perspective, the Goradia group also stood in sharp contrast to the Williams group. Its “board meetings” typically consisted of discussions over lunch between the Goradia brothers and others from their small executive group (most of whom testified at trial). [ 28 ] Decisions could be made quickly and informally without the need for reporting up through different corporate teams. B.

The Letter of Intent and Non-Binding Term Sheet [ 29 ] In July of 2013, the Williams Inc Board of Directors approved the selection of Vinmar as developer of a PP plant adjacent to the proposed Williams Canada PDH plant. [ 30 ] The next step was to agree in principle on the structure of the commercial relationship. According to Nitin Dalal (Vinmar’s lead negotiator), different models were considered.

These included a totally integrated model, in which the two plants would be jointly owned and operated, and profits divided according to an agreed upon formula; a partially integrated model, in which the plants would be separately owned and operated, with profit-sharing divided according to an agreed upon formula; and non-integrated, in which the plants would be separately owned and operated and propylene would be sold by Williams to NAPP at a price to be negotiated. Mr.

Dalal considered the totally integrated model ideal because it would eliminate potential commercial misalignment between the parties as the project was developed and operated.

[ 31 ] Over the course of the next year, the parties exchanged economic and financial modelling information. From the perspective of Vinmar (NAPP was not yet created), it was especially important that the schedules of the two projects be coordinated in a way that would minimize the risk that one plant would not be ready before the other. [ 32 ] In February 2014, the parties finalized a Letter of Intent (“LOI”) and non-binding Term Sheet.

The LOI makes clear that the provisions of the non-binding Term Sheet were to be explicitly stated in a separate, definitive agreement to be binding. [ 33 ] The non-binding Term Sheet describes the scope of the two plants, construction and operational responsibilities, coordination of construction, cooperation in achieving unified operational integration of the two plants, commercial terms of PDH to be sold to Vinmar, sharing of netback margins, PDH supply obligations, assurance of financial resources by the Goradia group, and obligations of the parties in the event of project abandonment (including recovery of sunk costs up to $10 million (USD) and purchase of engineering work from the party that failed to sanction construction).

III. Negotiation of the PSA [ 34 ] The non-binding Term Sheet contemplated finalization of a definitive agreement within sixty days of execution, and approval of the definitive agreement by the parties’ boards of directors nine months thereafter. This proved to be quite optimistic. In fact, it took until August of 2015 for the PSA to be approved and executed. [ 35 ] Several reasons for the delay were identified at trial. [ 36 ] To begin with, only days after the LOI was signed, Williams Canada received a Class IV cost estimate for its PDH plant that was higher than expected.

This triggered re-examination of potential cost reductions, including steps that could be taken to save costs by increased integration and sharing of expenses between Williams Canada and Vinmar. One major initiative was to have the electricity requirements for both plants serviced by a common utilities building (“CUB”). The contractual and engineering implications of that initiative would need to be considered by each party and incorporated into their project plans.

Negotiations with ATCO Power Ltd (“ATCO”) (which was identified as a potential builder of the CUB) would also be needed. [ 37 ] Without a definitive agreement in place both parties (and in particular Vinmar) were concerned that money spent in advancing their respective projects might be placed at risk if the deal fell through. Nonetheless, Vinmar went ahead with certain pre-construction activity, had preliminary discussions of its own with ATCO, and engaged third party advisers to assist it in advancing the project.

The latter included Sumitomo Mitsui Banking Corporation (“SMBC”) which was engaged to provide project financing assistance advice and assistance. It also included new legal counsel (the New York office of White and Case). [ 38 ] According to Williams Canada, the introduction of new counsel in the Fall of 2014 set completion of a definitive agreement back by many months. Its CEO David Chappell testified that the new lawyers essentially “rewrote the deal”. [ 39 ] Both parties viewed the PSA negotiations as difficult and hard fought.

In fact, the lack of progress in finalizing a definitive agreement became so pronounced that in the Spring of 2015 both Vinmar and Williams Canada suspended project spending. [ 40 ] In many respects, negotiation of the definitive agreement was an exercise in allocation of risk. The success of each project was to some extent dependent on that of the other. Both parties stood to suffer economic loss if the other party was unwilling or unable to proceed to construction and operation of their plant in a timely way.

At the same time, both were in an early stage of project development, and were not yet able to make a final commitment to proceed with what was in effect a tandem project. It was up to counsel and the parties to identify and memorialize a path forward that would allocate known risks in a way that both parties could accept. This would allow the parties to move toward a final investment decision, which would be to either proceed together with the construction, operation and a long-term sale and marketing arrangement, or go their separate ways. A.

The Propylene Sales Agreement [ 41 ] On August 19, 2015, approximately eighteen months after the parties’ letter of intent and non-binding Term Sheet, the PSA was finally signed by NAPP and Williams Canada. [ 42 ] Including schedules (three of which are deemed to be part of the agreement), the PSA is sixty-three pages long. It commences with thirteen pages of

definitions. It also includes schedules that set out the essential terms of related agreements that remained to be negotiated, including a site lease for the PP plant, a site construction coordination agreement and a site operations and utilities supply agreement. These scheduled agreements are in addition to agreements referred to in the body of the PSA governing the right of Williams Canada to step-in to NAPP’s project by exercising an option to purchase NAPP’s common shares, or option to purchase a controlling ownership interest in NAPP under a joint venture participation agreement.

Both contracts were “to be entered into” between Williams Canada, NAPP and NAPP’s shareholders on or before November 1, 2015, with the parties promising to make all reasonable commercial efforts to do so. [ 43 ] Although called a sales agreement, the PSA is much more than that. It has three separate purposes. The first is to govern the relationship between the parties as they proceeded with the early stages of developing their respective projects (which for convenience will be referred to as “pre-construction” or “pre-final investment decision”).

The second is to govern the relationship between the parties following a final investment decision (“FID") by each company to proceed with construction. This phase includes construction and commissioning of the plants.

The third is to govern the relationship between the parties during operation, both as operators of adjacent plants and as the buyers and sellers of propylene produced by Williams Canada at its PDH plant, and then upgraded to polypropylene by NAPP at its PP plant and sold by NAPP to Vinmar for marketing and distribution. [ 44 ] As will be discussed later, the PSA was terminated prior to a final investment decision being made by either party as to

whether to proceed with construction. [ 45 ] The pre-construction provisions can be summarized as follows: 1. The parties identified certain conditions precedent that were to be met or waived prior to final decisions being made on September 1, 2016, as to whether to proceed with their respective projects, failing which the agreement would end. This included NAPP securing project financing. 2. The parties agreed to the rights and remedies that would be available on termination if certain conditions precedent were not met or waived. 3.

Williams Canada agreed to provide a performance guarantee from its US parent (or an investment grade company) at NAPP’s financial close (thereby assisting in NAPP’s project financing effort). 4. The parties agreed to exchange spending plans in the lead-up to a final decision to proceed with their project. 5. NAPP agreed not to reduce its spend below 80% of the average spending over the preceding three months in the lead-up to a final decision failing which Williams Canada would be entitled to terminate the agreement. 6.

Williams Canada agreed to provide NAPP all cooperation reasonably requested in connection with NAPP achieving financing by the financial close date, provided that Williams Canada was not required to alter its contractual rights under the agreement. 7.

NAPP agreed to provide notice to Williams Canada in three month intervals (November 19, 2015, February 19, 2016, May 18, 2016 and August 19, 2016) if its Board of Directors had determined that it would not be able to obtain financing by the financial close date, in which case Williams Canada could terminate the agreement and at its option exercise step-in rights to the PP project. 8. The parties identified related agreements that were to be negotiated.

In some cases, the essential terms of such agreements were articulated in schedules. [ 46 ] The rights and obligations of the parties under the PSA are not symmetrical. For example, there is no obligation on NAPP to assist Williams Canada in the financing of the PDH plant and no financial close date was specified for Williams Canada. This reflects the fact that Williams Canada would be obtaining financing from its US parent, whereas NAPP intended to project finance its plant.

There is, however, an obligation on Williams Canada to provide a parental guarantee from Williams Inc (or another investment grade entity) in favour of NAPP at the time of NAPP’s financial close. [ 47 ] There is no minimum spend obligation on Williams Canada. In contrast, NAPP was obligated to maintain at least 80% of its preceding three- month average spend until financial close, failing which Williams Canada was entitled to terminate the PSA. [ 48 ] Neither party was obligated to proceed with construction until and unless a final decision to do so was made.

Under the contract, they were entitled to walk from the deal for any reason on the date specified for a final investment decision (September 1, 2016) if approval of the PSA and Related Agreements had not been given by their respective Boards of Directors. It was only if all applicable conditions precedent were met or waived that a construction obligation arose. [Articles 3.5(a); 3.6(a); 3.7 (a).] [ 49 ] After all applicable conditions precedent had been met or waived, the rights and obligations were to ramp up. Each was then obligated to proceed with construction of their plant.

By then, a definitive Site Construction Coordination Agreement (“SCCA”) was to have been negotiated and finalized, the essential terms of which are set out in

Schedule G of the PSA. Under that schedule, the parties were to form an Integrated Construction Coordination Team (“ICCT”) that would develop a high-level construction execution plan, identify and coordinate execution synergies, and establish a target on-stream date for the plants. Unless agreed otherwise, each party was to meet a common Guaranteed Commissioning date (August 2020) and to pay liquidated damages if its plant was not ready on that date and the other party’s plant was. [ 50 ] Oversight for the ICCT was to be provided by a steering committee.

Disputes were to be resolved by negotiation, or referred to the steering committee, executive sponsors or mediation. If all these steps failed within a time to be stipulated, the dispute would be resolved by arbitration. [ 51 ] The SCCA was to terminate on the earlier of termination of the PSA or the on-stream date (the date on which each plant has been commissioned, tied-in, tested and in production). [ 52 ] While both parties were permitted to terminate the agreement as of the September 2016 FID date, NAPP was entitled in certain circumstances to termination costs.

Recoverable termination costs are defined as the lesser of $35 million and the aggregate of third-party costs incurred by NAPP and its affiliates for development of the facilities and documented costs of fulltime NAPP employees. In some circumstances, NAPP was also entitled on termination to recover the costs of technical work assigned to Williams Canada. In other circumstances, Williams Canada was entitled on termination to step-in to the PP plant project by acquiring all outstanding shares of NAPP from its sponsors. IV.

Post PSA Events [ 53 ] When the PSA was finally executed in mid-August 2015, NAPP was faced with a significant challenge. It had undertaken some pre-development activity in advance of a definitive agreement, costing approximately $13 million (USD). However, on restart of those activities it had only one year or so to do the work required to make a final investment decision by September 1, 2016.

That work included negotiation and finalization of the suite of agreements contemplated under the PSA; obtaining a Class III project cost estimate (or an equivalent lump sum turnkey (“LSTK”) contract) for economic modelling, financing and construction planning; commissioning additional market and engineering studies for use in discussions with lenders; obtaining regulatory approvals for the PP plant; applying

for government incentives; development of coordinated construction and governance procedures as contemplated under the PSA; and obtaining project financing. NAPP projected that its pre-construction “burn rate” for this work would be approximately $2 million (USD) per month. [ 54 ] NAPP’s commercial project lead, Mr. Nitin Dalal, testified that in the Fall of 2015 both parties proceeded with their project development activities with an understanding of the need to move quickly.

NAPP was acutely aware that time was tight, particularly with respect to project financing. [ 55 ] Testifying on behalf of Williams Canada, Mr. Neil Montgomery (its head of engineering) and Ms. Amelie Delisle (its commercial lead) confirmed that after the signing of the PSA spending on the Williams Canada project was in full swing. To that point, Williams Canada had already spent approximately $97 million USD, and had internal approval to spend a further $298 million USD in 2016.

Included in that projected spend was $4 million (USD) that would be provided to ATCO in the Spring of 2016 to advance ATCO’s design and construction work on the proposed CUB. [ 56 ] As of mid-January of 2016, NAPP had advanced its project planning to the point where it was on the verge of issuing a “teaser” to potential lenders to kick off the process of identifying interested lenders and thereafter securing financing commitments necessary under the PSA. [ 57 ] NAPP knew that for the project to be “bankable,” lenders would need assurances that key risks were being adequately managed.

These included execution risks (capital cost, regulatory approvals, essential site agreements and engagement of experienced builders and operators); project on project risks (alignment of plans and obligations between NAPP and Williams Canada); and financial risks (price exposure, assured polypropylene off-take and potential credit support from the polypropylene marketer Vinmar).

Despite internal concerns around project cost, and the potential need to bring in equity investors, key executives within the Goradia group testified to being confident that all these risks had been adequately addressed as of mid- January 2016. It was time to seek financing. [ 58 ] That confidence was soon to disappear. [ 59 ] Unbeknownst to NAPP and its sponsors, Williams Inc had initiated a company wide review of capital spending in the last week of 2015.

This was necessitated by the collapse of oil and gas prices in North America, as well as uncertainties brought on by an ongoing hostile takeover of Williams Inc by Energy Transfer Inc. These developments had severely restricted access to capital within the company.

Williams Inc stock had dropped precipitously in price over 2015, and as of April 2015, the company no longer enjoyed an investment grade credit rating. [ 60 ] A Christmas Eve email from the CEO of Williams Inc, Alan Armstrong, to key executives gave notice that all capital programs would be under review, as would opportunities for asset divestitures. [ 61 ] Within weeks, Williams Canada was told that its 2016 budget would be significantly reduced.

The PDH project would go into a value preservation mode, under which only critical expenditures would be made in 2016, and a decision on 2017 spending would be deferred to the future. A few days later, Williams Canada was advised that Williams Inc was going to put its Canadian operations up for sale. This included WEC, which was an established operator of pipeline and midstream liquids extraction facilities in Alberta, and Williams Canada. [ 62 ] NAPP was advised of the “slow roll” of authorized Williams Canada spending in mid-January.

The bad news was simultaneously broken to NAPP and Williams Canada project team members on January 13, 2016, at a dinner that had been scheduled some time earlier, in association with project governance discussions in Houston. Williams Inc’s executive overseer of the Williams Canada project was John Dearborn. He was able to advise his counterpart Hemant Goradia of the news in advance of the dinner meeting but everyone else was taken by surprise. [ 63 ] NAPP was given advance notice of the decision of Williams Inc to place its Canadian operations on the market soon after it was made.

At a meeting on February 9, 2016, John Dearborn of Williams Canada advised Hemant Goradia of the decision, and suggested that the Goradia group consider making a purchase proposal. Access to a data room for purchasers would be available subject to non-disclosure agreements being signed. [ 64 ] Soon after the Williams Inc decision to slow roll the PDH project, and sell its Canadian operations, NAPP concluded that it would be pointless to pursue project financing.

Thomas Wells (VP Finance for the Goradia group) and SMBC both considered that the project was not financeable in the absence of a known counterparty and committed supplier of propylene feedstock. Hemant Goradia testified that in the circumstances it made no sense to go to the financing market. He therefore instructed SMBC to not go forward with the planned approach to lenders. [ 65 ] Although NAPP suspended its plan to approach lenders, it continued to finish certain work that would have been necessary for project financing, in accordance with its original target date of March 31, 2016.

This included completion of a LSTK construction proposal by Fluor Engineering (“Fluor”); a cost estimate for rail facilities not included in Fluor’s scope of work; and a market study. [ 66 ] Despite the completion of preparatory work for use in financing discussions, the initial decision not to seek debt financing remained unchanged. No potential project lenders were ever approached and the engagement of SMBC ended in March 2016. V. Attempts to Manage Uncertainty [ 67 ] According to the lead commercial negotiators for the parties (Mr. Dalal and Ms.

Delisle), their early reaction to the slow roll and sale decision was that a simple extension of PSA timelines was all that would be required. Williams Canada believed this would benefit NAPP by giving it more time to plan and develop its project and would be well-received.

[ 68 ] As discussions progressed, the propensity for hard-fought negotiations appears to have resurfaced. In February 2016 NAPP sought PSA amendments. As will be discussed in further detail below those amendment demands were rejected. [ 69 ] Extension discussions continued, however. An agreement was eventually reached in mid-April 2016 as between the commercial teams that would have extended the date for Financial Close and other conditions precedent to June 30, 2017.

It also included an amendment to the PSA’s pricing formula for propylene sold to NAPP (to the benefit of Williams Canada) and a reduction of NAPP’s minimum pre-construction spend obligation. [ 70 ] The amendment agreement was sent by counsel for NAPP to Williams on April 18, 2016, for execution and return to NAPP within 24 hours. Mr. Dalal was advised by his counterpart that Mr. Chappell was away from the office and would not be able to attend to the agreement until April 20, at the earliest. [ 71 ] The amendment agreement was forwarded to Williams Inc for review. Mr.

Dearborn testified that because of the ongoing hostile takeover proceedings in the USA, additional caution had to be taken to ensure that the agreement would not contravene any restrictions arising from the takeover. He received that confirmation on April 28, 2016, and the agreement was then sent for final legal review before execution. [ 72 ] In the meantime, NAPP had reconsidered its position. On April 29, 2016, NAPP informed Williams Canada that it was no longer prepared to sign the amendment agreement. VI.

The Parties Head Toward Litigation [ 73 ] In some circumstances, the PSA allows NAPP to recover certain pre-development costs (including engineering costs) if the parties did not proceed to construction. The rights and obligations of the parties in that case were dependent, to some extent, on whether the failure to proceed was due to NAPP’s inability to obtain project financing, and whether that inability was caused by a breach of Williams Canada’s obligation to cooperate in the financing attempt as per

Article 2.8. [ 74 ] On May 11, 2016, NAPP General Counsel sent a letter to Williams. The letter was characterized by NAPP as a formal request for cooperation in financing. It stated that certain information and assurances were required by NAPP and its lenders for financing to be obtained.

It set a deadline on May 31, 2016, for those to be provided, presumably so that NAPP could obtain binding letters of commitment from lenders by July 15, 2016 (which would have extended the date for financial close from September 1, 2016, to December 1, 2016). [ 75 ] Williams Canada had previously expressed its surprise with NAAP’s decision not to proceed with the agreed upon amendment agreement. Its response to the May 11, 2016, letter was that it went beyond a request for cooperation under the agreement and was in substance a demand for renegotiation of the PSA under the guise of cooperation in financing.

Nonetheless, Williams Canada provided brief answers to the essential questions posed.

This will be discussed in further detail later. [ 76 ] Thereafter, contact between the parties essentially took place at two levels: between legal counsel as the parties postured and positioned themselves for litigation, and at a senior executive level as they each kept the door open for resolution, particularly in respect of the potential reimbursement of NAPP pre-construction costs and purchase of NAPP’s technical work. [ 77 ] Among the former communications were two letters from NAPP giving notice of termination of the PSA due to Williams’ breach of the duty to cooperate; and denials by Williams’ General Counsel of NAPP’s right to terminate as being based on an anticipatory breach.

Contact between senior executives included emails and meetings in which offers were made by Williams to purchase engineering work done by NAPP and to defray other pre-development expenses; and a July 15, 2016, meeting with the eventual purchaser of Williams Canada shares, IPL. [ 78 ] On August 11, 2016, NAPP commenced two actions. The first was an action in the Alberta Court of Queen’s Bench alleging breach of contract and misuse of confidential information - the subject of this decision.

The second was an action in the Texas District Court, Harrison County alleging that various torts were committed by Williams Inc, WEC and certain of their executives in negotiation of the PSA.

The action alleges, among other things, that the Defendants acted in a fraudulent manner by assuring NAPP and its sponsors that Williams Inc was committed to the project when the Defendants knew that this was not the case. [ 79 ] On August 31, 2016, Williams Canada gave formal notice that it was terminating the agreement due to NAPP’s reduction in spending in April 2016 and onward in breach of its spending commitments and NAPP’s actions in commencing litigation, all of which evidenced an intention to repudiate the PSA. VII.

Assessment of Breach of Contract Claim [ 80 ] In a breach of contract action, the Court is tasked with determining the scope and substance of the contractual promises exchanged, and whether the defendant failed to perform the promises made. The former task requires determination of the objective intent of the parties, having regard for the factual matrix surrounding the agreement. The focus of analysis is on what the parties objectively intended, not their subjective intentions.

The second task requires assessment of the actions taken (or not taken) by the Defendant in discharging its obligations under the contract as per the objective intent of the parties and having regard for the organizing principle that all contracts are expected to be performed in good faith and honesty: Bhasin v Hrynew , 2014 SCC 71 at para 93 [ Bhasin ]. [ 81 ] NAPP alleges that Williams Canada breached two specific provisions of the PSA: Articles 1.10 and 2.8. [ 82 ]

Article 1.10 states:

Good Faith Cooperation The Parties agree to act in a good faith with each other and cooperate with respect to all matters hereunder, including: (

a) the negotiation and implementation of the Related Agreements. (

b) the conduct of construction, maintenance, and operations at the Site. (

c) the fulfillment of their respective obligations under this Agreement and the Related Agreements; and (

d) the resolution of any disagreement or dispute related to this Agreement, the Related Agreements or the Site Facilities pursuant to clause 9.6. [ 83 ]

Article 1.10 is general in nature. That is appropriate given that the provision extends throughout all three phases of the agreement (pre-construction, construction, and operation/sales), potentially spanning several decades. It is also reflective of the organizing principle of good faith performance and the Recitals of the PSA, which confirm the shared objective of the parties to act in a cooperative and coordinated manner. [ 84 ]

Article 2.8 states: Cooperation Regarding Financial Close (

a) The parties acknowledge and recognize that North American is implementing an expedited

schedule to reach Financial Close. (

b) Williams agrees that, from the date hereof until the Financial Close Date, Williams shall provide all cooperation reasonably requested by North American in connection with achieving by North American of the Financial Close Date. The Parties agree that notwithstanding its obligation to provide all cooperation requested by North American, Williams shall not be required to alter its contractual rights under this Agreement. [ 85 ]

Article 2.8 is narrower in scope and duration. It is specific to the issue of cooperation in NAPP’s efforts to achieve the financing necessary for it to reach Financial Close by the Financial Close date (September 1, 2016, subject to extension to December 1, 2016, if certain conditions were met). It is subject to the express qualification that in providing such cooperation, Williams would not be required to alter its contractual rights. A specific remedy for breach of

Article 2.8 is provided later in the Agreement in the form of reimbursement of NAPP’s pre-construction costs, without being required to transfer NAPP’s Technical Works to Williams Canada. [ 86 ] NAPP agrees with Williams Canada that the PSA does not prohibit either party from undergoing a change of control due to sale of its shares. Nor does it require Williams Inc or Williams Canada to maintain their planned expenditures, as previously disclosed.

In other words, when viewed in isolation, neither the decision of Williams Inc to reduce authorized expenditures by Williams Canada, nor the decision to place its Canadian operations for sale would have constituted a breach of the PSA (even if Williams Inc was privy to that agreement). [ 87 ] NAPP argues however that the general and specific duty to “cooperate”, per Articles 1.10 and 2.8, when considered in the context of the factual matrix (including the Recitals) obligated Williams Canada (and its ultimate parent Williams Inc) to effectuate the spending reduction and sale decisions in a way that would not unreasonably impair the overall project

schedule and NAPP’s financing efforts. NAPP says that Williams failed to do that and therefore breached both Articles, and the overriding duty of good faith performance. [ 88 ] NAPP advances numerous examples of uncooperative behavior by Williams Canada and/or Williams Inc.

These include: 1) Williams Inc’s failure to consult with NAPP in advance of the decisions to reduce spending and sell Williams’ Canadian operations. 2) Williams Canada’s rejection of NAPP’s initial demands for amendments to the PSA because of the inclusion of non-timing amendments to the PSA. 3) Williams Canada’s failure to execute a replacement amending agreement agreed upon by both parties’ negotiators within a reasonable time (characterized by NAPP as “hanging us out to dry”). 4 4) Williams Canada’s refusal to fund ATCO for work necessary to keep the CUB project on

schedule when it knew that assured power supply would be necessary for NAPP’s financing. 5) Williams Canada’s failure to provide a satisfactory response to NAPP’s May 11, 2016,” Request for Cooperation in Financing” letter. 6) Williams Inc’s failure to identify, introduce and promote NAPP to prospective purchasers of its Canadian operations. [ 89 ] Whether viewed from the perspective of contractual

interpretation or the organizing principle of honesty and good faith in performance, Williams Canada’s duty to cooperate must be evaluated in the context of the structure and wording of the contract and the factual matrix underlying its formation. The Court must also abide by basic precepts of the law of contract and business associations- including privity of contract and the ability to conduct business through sole purpose limited liability corporations: see IFP at para 89 . As noted in Wastech Services Ltd v.

Greater Vancouver Sewerage and Drainage District, 2021 SCC 7 , at para 76 : what a court considers unreasonable is highly context-specific, and ultimately ‘depend[s] upon the intention of the parties as disclosed by their contract’ [...]. [ 90 ] The Williams group of companies and the Goradia group of companies both decided to pursue the business opportunities presented by the tandem plant project through sole purpose, wholly owned subsidiaries. Those subsidiaries were Williams Canada and

NAPP, which are the only counterparties to the PSA. The rights and obligations created under the PSA belonged to those companies-not their shareholders or ultimate parent corporations. [ 91 ] During the negotiation process the possibility that the control of these companies might change through a share sale was acknowledged. NAPP did not want a change of control provision at the pre-construction stage. Williams Canada accepted that position against legal advice. In the result there was no prohibition on change of control until both parties had decided to proceed with construction.

Nor were there any other restrictions, such as prior notice of a proposed sale, rights of first refusal, disclosure of and introduction to potential purchasers, or disclosure of the intentions of prospective purchasers regarding carrying on with the project as then envisaged.

Both parties were at risk that the other could come under the control of a new entity, who may not be inclined to proceed past the pre-construction stage. [ 92 ] In my view, NAPP was not entitled to receive prior notice of the decision of Williams Inc to sell its Canadian operations, only a minor part of which was its investment in the PDH plant. Had NAPP wished to obtain such a concession it could have bargained for it during the PSA negotiation process. It did not.

Similarly, there was no entitlement or reasonable expectation to be involved in the sales process itself once that was launched by Barclay’s Bank on behalf of Williams Inc.

While early introduction to prospective buyers might have been beneficial to NAPP and perhaps the prospective buyers themselves, the identity of prospective buyers was a closely held secret, and not even disclosed to Williams Canada employees themselves until July of 2016. [ 93 ] I find that prior notice of and involvement in the sale of Williams Inc’s Canadian operations falls well outside of the general or specific duty of cooperation contained in the PSA.

On an objective basis, Articles 1.10 and 2.8 cannot reasonably have been intended to extend such rights given the absence of any restrictions on change of control. Nor can the organizing principle of good faith ordinarily be extended to impose an obligation that was not part of the contract as bargained, not to mention one that was eschewed in negotiations by the party now advancing it.

And even if such an obligation did exist, it was not within Williams Canada’s power to dictate how its ultimate parent went about disposing of its Canadian operations. [ 94 ] Although not contractually obligated to do so, it bears note that Williams Canada advised NAPP of the sale decision as early as February 9, 2016 –well before the decision was disclosed publicly. It also introduced NAPP to the company that ultimately purchased the shares of Williams Canada —InterPipeline Ltd. A meeting took place on July 15, 2016, well after NAPP sent notice to Williams Canada of termination of the PSA.

The meeting was cordial but disappointing to NAPP. According to Hemant Goradia, IPL advised that it intended to build both the PDH plant and the PP Plant as a single enterprise.

Others at the meeting recall that IPL was open to considering the arrangement then in place and was also interested in learning more about the marketing and distribution capabilities of the Goradia group. [ 95 ] NAPP also argues that while Williams Canada did not have a minimum spend obligation in the PSA, the general and specific duty to cooperate as per Articles 1.10 and 2.8 obligated Williams Canada to refrain from precipitous and unilateral spending reductions that would imperil the anticipated commissioning date of August 2020, and achievement of Financial Close in the shorter term.

It says that NAPP only agreed to being the only party with a minimum spend obligation (80% of the preceding three-month average) because of Williams’ assurance that it was fully committed to the project. It should have been consulted before the spending reduction was made.

In addition, Williams Canada was obligated to continue to fund development of the CUB project, as NAPP’s lenders would require evidence of an assured power supply before committing to lend to NAPP. [ 96 ] With respect, the arguments advanced by NAPP on this issue lack merit. [ 97 ] In undertaking this tandem project development and sales arrangement the parties committed to proceed with their respective plants according to a

schedule to be agreed upon and incorporated in a SCCA, which included within it provisions for scheduling, governance and dispute resolution. While the PSA contains a common guaranteed commissioning date of August 2020 that common date was still subject to discussion and refinement through the SCCA process under an agreement that had yet to be finalized. Moreover, even if the reduction of authorized spending did cause Williams Canada to fall behind NAPP in its construction

schedule as ultimately agreed upon (assuming that all applicable conditions precedent had been met or waived), Williams Canada could have either accelerated its later spending to close the gap or made compensation payments to NAPP under the agreement as liquidated damages for its relative delay. [ 98 ] The evidence does not support the implication that Williams simply cancelled its project without notice to or appropriate consideration of NAPP’s legitimate interests.

Cancellation was one of the options considered in reports done by Williams Canada for Williams Inc and for planning purposes it was reported that if the PDH project was cancelled, Williams Canada would be exposed to responsibility to reimburse NAPP’s development costs. However, that was not the route taken. Instead, Williams Inc reduced authorized 2016 spending to approximately $75 million (USD). [ 99 ] Even after its reduction, Williams Canada’s spend was much higher than NAPP’s.

From December 2015 to June 2016 (when NAPP first gave notice of termination of the PSA) Williams Canada spent $57.9 million (USD) on its project.

Over the same period, NAPP expended $12.1 million (USD). [ 100 ] On an aggregate basis, Williams Canada expended $187 million (USD) on its PDH project prior to its termination of the PSA on August 30, 2016, whereas NAPP expended between $35 million and $42 million (USD) on the PP facility. [ 101 ] Williams Canada also agreed to address the timing impact of the reduced spend and sale decisions by extending the date for NAPP’s Financial Close from September 1, 2016, to June 30, 2017, as per a PSA amendment agreement that was agreed to by NAPP at the commercial team level.

Assuming a new owner of Williams Canada shares was identified and in place by September of 2016 (as indeed turned out to be the case), NAPP would have been positioned to market its capabilities to the new owner and thereafter resume its efforts to achieve financing, all under the rubric of an existing and enforceable contractual relationship. At that point it would have had a similar amount of time available for securing debt financing as originally contemplated.

Its opportunity to proceed to financing and construction of the PP facility would have been delayed, but not foreclosed. [ 102 ] As for the funding of development of the CUB project, there is no compelling evidence to support NAPP’s claim that such funding would have been necessary for it to receive debt financing commitments. NAPP sought a condition precedent in its favor that

would have required Williams Canada to have a third-party energy supply agreement in place at Financial Close. This was declined by Williams Canada - an outcome accepted by NAPP in agreeing to the PSA as ultimately executed. [ 103 ] On March 11, 2015, Williams Canada responded to an inquiry from SMBC regarding power supply. It advised SMBC that it had planned for connection to the Alberta power grid in case the CUB plant was not available on commissioning of the two plants.

According to Williams Canada, such connection may not have been a satisfactory permanent solution, but it would have ensured commercial startup until the CUB was commissioned. On May 6, 2015, SMBC reported to NAPP that the power supply issue had been addressed through the provision of temporary back-up supply.

In its December 15, 2015, assessment of the bankability of the NAPP project, SMBC noted that project on project risks included the CUB and would be heavily scrutinized by lenders but made no comment on whether the back-up power solution would be part of that scrutiny. [ 104 ] As NAPP did not approach lenders it is not possible to determine whether back-up grid connection arrangements would indeed have satisfied potential lender concerns regarding power supply on start-up.

It is reasonable to expect that this (like the concerns identified by SMBC) would have been a topic for discussion with lenders, but the outcome of such discussions and available options is a matter of speculation. [ 105 ] The other allegations of uncooperative behavior centre on Williams Canada’s response to efforts by NAPP to renegotiate substantive (ie, non-timing related) provisions of the PSA in the aftermath of the reduced spending and sales decisions.

As discussed earlier, the first such effort was in February of 2016. [ 106 ] Although the initial reaction of the parties’ commercial leads was that the decisions could be addressed by a simple extension of timelines in the PSA, NAPP advised Williams Canada at a meeting on February 18, 2016, that it remained on

schedule for a September 2016 FID and had the following key non-timing expectations in any PSA amendment. A

summary of contemporaneous meeting notes by Williams Canada reported as follows: NAPP: Outcome of Feb 18 th Meeting • NAPP would not indicate their “best for project” timeline given current circumstances o Stated they are on September 2016 FID

schedule • NAPP identified key non-timing expectations of any PSA amendment: o No change to provisions where termination requires Williams to reimburse NAPP costs without option to purchase Technical Work o Williams to maintain 80% of planned spend and notify NAPP every 3 months of continued intent to proceed, or reimburse NAPP costs without option to purchase Technical Work o Gap of 3 months between Financial Close (fully termed NAPP project financing) and Financial Close Date (drawdown under NAPP project financing) extended to 12 months o Parent guarantee of obligations to reimburse NAPP costs on pre-FID termination o Alternative security for Williams Guarantee if WMB in “junk” credit rating at Financial Close (e.g. letter of credit) o New condition precedent that Williams enter into an Energy Supply Assessment with ATCO, or reimburse NAPP costs with no option to purchase Technical Work o New requirement for Williams to pay NAPP Compensable Losses if Williams default in supplying inputs to ATCO causes ATCO to not supply utilities under NAPP – ATCO PPA o Additional compensation for reduction of NAPP return on investment due to delay [ 107 ] Amelie Delisle of Williams Canada responded to NAPP’s demands as follows: March 1, 2016 North American Polypropylene ULC 16800 Imperial Valley Drive Suite 499 Houston, Texas, USA 77060 Attention: Nitin Dalal Dear Nitin: Re: Propylene Purchase and Sale Agreement between Williams Canada Propylene ULC (Williams) and North American Polypropylene ULC (NAPP) dated August 19, 2015 (PSA) As explained in our January 26, 2016, letter, in light of current market conditions, Williams has deferred certain 2016 PDH Facility spending to 2017.

This deferral is not a cancellation of the PDH project, and neither William’s senior management nor its board of directors has decided to not approve the PSA at this time. We met in Houston on February 18, 2016 to explore possible

schedule amendments that might better meet our intended 2016 PDH

Facility spending profile, and expand NAPP’s financing and engineering alternatives for the PP Facility. At the meeting, we discussed three alternatives that could be acceptable to NAPP: 1) a standstill agreement to suspend PSA obligations for a six to eight week negotiation period, following which the PSA would either be amended or terminate; 2) a rapid amendment to the PSA, in which any revisions would be agreed by this week; and 3) maintaining existing timeline without amendment of the PSA.

At the meeting you outlined NAPP’s key non-timing expectations for a PSA amendment, and indicated that NAPP has not considered alternate timelines, given its current focus on meeting the existing schedule. Based on your input, and as discussed by our respective senior management in Calgary on February 25, 2016, Williams’ preference is to maintain existing timelines without amendment of the PSA at this time. Should you identify alternate timelines which would be of benefit to NAPP, or should NAPP’s expectation for non-timing revisions to the PSA change, we invite you to contact us with a proposal.

Until then, Williams will continue to honour its commitments to NAPP as agreed in the PSA. Yours truly, Amelie Delisle [ 108 ] The response by Williams Canada to the February 18, 2016, NAPP demands was reasonable and appropriate. Williams Canada was entitled to take NAPP at its word that it was continuing to work to a September 2016 FID under the existing PSA, and to do likewise. [ 109 ] It was also reasonable to keep the door open for discussion of an extension of PSA timelines, for the benefit of both parties.

Such discussions did in fact take place and an agreement was reached at the commercial level on an extension agreement that would have postposed NAPP’s obligation to reach Financial Close until June 30, 2017. It was sent to Williams Canada on April 18, 2016, with a request by NAPP’s counsel that it be executed and returned the next day. [ 110 ] When Williams Canada delayed in executing an agreed upon extension agreement, NAPP management decided that it was no longer willing to proceed without substantive amendments to the PSA. Its decision was communicated to Williams Canada on April 29, 2016.

According to Hemant Goradia, extending the PSA deadlines would not address the risks to which NAPP was now exposed – the lack of a known and committed counterparty and the downgrade of Williams Inc to junk bond status. They would simply push those problems down the road, during which time NAPP would be required to continue to spend. [ 111 ] When cross-examined, Mr. Goradia conceded that these risks had not changed in the days following delivery of the extension agreement to Williams Canada for execution. He explained the reversal by saying that a delay of eleven days was “a lifetime”.

NAPP had concluded that Williams Canada was trying to “put them in a box” whereby it could walk away without compensating NAPP for its development costs. [ 112 ] Mr. Goradia’s testimony regarding its reasons for abandoning the extension agreement is problematic. An extension agreement would have provided an obvious solution to the uncertainty regarding the ultimate owner of Williams Canada following the sales process and its position regarding the merits of the two plant project configuration. The sale of Williams Inc’s Canadian operations was by that time well underway.

Although the names of interested parties were confidential, as a potential bidder itself, NAPP was at least generally aware of the timelines contemplated for sale completion. Moreover, the PSA already provided for a construction guarantee to be provided by Williams Canada at Financial Close from either Williams Inc or an investment grade entity. By extending the deadline for financing, NAPP could have obtained clarity on the counterparty issue if that was indeed what it needed. [ 113 ] It is apparent however that while an extension might have created clarity, that was not what NAPP was after.

To proceed, it needed substantive amendments to the PSA. Without them it was not worthwhile to continue to spend money on the PP project. This included financing, which was not considered achievable. [ 114 ] A memorandum was prepared by Thomas Wells on April 18, 2016. In it, Mr. Wells responds to a request for an assessment of the current status of financing for the project. It sheds light on the problems faced by NAPP at the time. [ 115 ] The memorandum was prepared at Mr. Dalal’s request, and for the benefit of Hemant Goradia.

The context was NAPP’s ongoing overtures to potential third-party equity investors, and the expectation that Financial Close would be extended to June 30, 2017, as per the extension agreement being sent to Williams Canada for execution. [ 116 ] The memorandum describes several lender risks that would need to be addressed. These are consistent with the risks identified by SMBC earlier, and at trial by both financing experts - Mr. Whalen (for NAPP) and Dr. Atherton (for Williams Canada).

They included the need for propylene supply assurances from Williams Canada (addressed by the guarantees required under the PSA); the need for volume commitments from Vinmar and credit support in respect of Vinmar’s polypropylene purchase obligations; and the polypropylene price risk borne by NAPP under the PSA. Mr. Wells concluded that these risks were manageable but at a cost (undefined) to NAPP and its sponsors. [ 117 ] Mr. Wells also described some of the structural problems faced by NAPP from the start.

The two basic problems were the financial difficulties faced by Williams Inc and the cumbersome two plant structure employed. Mr. Wells then discussed potential options for restructuring and redistributing risks. He concluded that the most realistic option would be a single project undertaken with a strategic equity partner but notes that the complications associated with that would probably not justify going down that path. [ 118 ] Although prepared in the context of ongoing efforts to attract third party equity investors, the assessment by Mr.

Wells provides an unvarnished view of the circumstances leading NAPP to suspend its plan to approach lenders shortly after the slow roll and sales decisions were made, and to ultimately abandon those plans even if the Financial Close could be extended to June 30, 2017. It is notable that at no point did Mr. Wells mention the issue of “cooperation in financing” by Williams Canada. Instead, he focussed on business risks that the project had faced from the start.

[ 119 ] Among those risks was the possibility of change of control prior to FID. While not identified as such in the memorandum, the assessment describes an essential dilemma faced by NAPP at the time. The purchase of Williams Canada by a more financially stable company would benefit the NAPP project by reducing the risk of an inability to provide financial performance guarantees.

However, that same financial strength would increase the risk that the new owner would exercise its right to exit the agreement at FID and carry on with a combined PDH/PP project on its own rather than carrying on under the cumbersome two project structure contemplated under the PSA. [ 120 ] Whatever the underlying business rationale, the delay in execution of the extension agreement by Williams Canada coincided with NAPP’s conclusion that it was time to cut bait on this project by stopping pre-construction spending while maximizing recovery of its development costs to date.

From that point on, NAPP’s spending fell below the minimum required under the PSA. [ 121 ] The doorway to maximizing recovery of development costs would be to show that Williams Canada had breached its obligation to provide reasonable cooperation in financing pursuant to

Article 2.8 of the PSA. [ 122 ] On May 11, 2016, General Counsel for NAPP sent a detailed letter entitled “Cooperation Regarding Financial Close.” The letter sought a variety of commitments and assurances from Williams Canada, all to be delivered by May 31, 2016.

The requests made were similar in part to those advanced by NAPP when it sought substantive amendments to the PSA in February 2016. [ 123 ] Included in the information and assurances demanded were: • Identification of the purchaser of Williams Inc’s Canadian operations, and detailed evidence of the purchaser’s plans, commitments and financial capability to proceed with the PDH project as then envisaged. • Details of Williams Canada’s spending program and source of funds to meet a completion date of August 30, 2019, and start up of sales of PDH feedstock by August, 2020. • Assurance of funding by Williams Canada of ATCO’s 2016 construction costs on the CUB as previously planned. • Assurance that Williams Canada would provide construction and operation guarantees (from Williams Inc. or an investment grade guarantor) for the benefit of NAPP lenders, as required at Financial Close under the PSA. [ 124 ] This information and assurances were said to be required by “NAPP and its lenders” and hence within the ambit of the cooperation in financing promised by Williams in

Article 2.8. [ 125 ] Williams Canada provided brief responses to each request but declined to provide the detailed assurances and commitments requested. It took the position that the letter was an attempt to renegotiate the PSA provisions dealing with Williams Canada’s spending obligations and noted that the PSA did not include any timelines for finalizing third party power supply arrangements. It advised that a buyer of Williams Canada had not been identified or publicly announced, and there was no change in control provision in the PSA.

It advised that Williams Canada intended to meet its obligations under the PSA regarding provision of guarantees, but confirmation of that was not required until Financial Close. [ 126 ] For reasons discussed earlier, I agree with Williams Canada that the contractual duty to cooperate in financing did not extend to measures that would alter the rights of Williams Canada under the PSA, including imposition of a minimum spend obligation, the right to be involved in the sale of Williams Canada shares; and an obligation to fund development of the CUB as previously planned. [ 127 ] In my view the May 11, 2016, letter was an exercise in positioning.

It did so in two ways. First it characterized NAPP’s decision not to pursue financing as being due to a breach of Williams Canada’s duty to cooperate in financing even though no financing efforts were underway and no lenders had been approached. [ 128 ] Second, by keeping the possibility of a last-minute push toward financing at least notionally alive, the May 11, 2016, letter also had the effect of forestalling NAPP’s obligation to give notice under the agreement of its inability to achieve financing. This would have given Williams Canada the right to terminate the PSA.

The next quarterly deadline for providing such notice was May 19, 2016, well before the May 30, 2016, deadline given for Williams Canada to respond. [ 129 ] The response by Williams Canada to the May 11, 2016, request for “cooperation in financing” was consistent with its contractual obligations and the organizing principle of good faith in performance. [ 130 ] In

summary, I find that the action taken by Williams Canada in response to the decision of its parent to reduce PDH project spending and place WEC for sale was not a breach of contract. The PSA contains no prohibition or restrictions on change of control, and no minimum spend obligation on Williams Canada. Given the wording of the agreement and the factual matrix the objective intent of the parties cannot have been to impose such restrictions under the duty to cooperate within the contract (either generally or in respect of NAPP’s financing efforts specifically).

Nor can such obligations arise under the organizing principle of good faith and honest performance. [ 131 ] The case law surrounding the organising principle of good faith has been clear that the organising principle is not a cause of action in and of itself, and that instead a breach of one of the categories of duties encapsulated by it must be demonstrated: McCamus at p 945.

Justice Cromwell at paragraph 93 of Bhasin highlights that the particular implications of the general organizing principle of good faith “are determined by resorting to the body of doctrine that has developed which gives effect to aspects of that principle in particular types of situations or relationships”. These particular types of situations or relationships are described in paragraphs 49 to 56 of Bhasin . I find that none of these apply in the present case. [ 132 ] There is also no evidence before me that Williams Canada violated the general duty of honesty in contractual performance.

It did not lie or mislead NAPP about its contractual performance: Bhasin at para 73 ; CM Callow Inc v Zollinger , 2020 SCC 45 , at para 53 ; see also Canlanka Ventures Ltd v Capital Direct Lending Corp , 2021 ABCA 115 .

[ 133 ] I also find that the actions taken by Williams Canada to substantively address the economic impact on NAPP of the Williams Canada decision to reduce PDH project spending and place its Canadian operations for sale were fair and reasonable. NAPP was advised of the Williams Inc’s decisions promptly, and from the outset Williams Canada was willing to extend the dates for NAPP to obtain debt financing for its project if it wished to do so.

Williams Inc also offered (even though not contractually required) to reimburse NAPP for its project development costs if the new owner of Williams Canada decided not to proceed as planned but was rebuffed. VIII. Could NAPP Have Obtained Project Financing Anyway? [ 134 ] Williams Canada argues in the alternative that even if the reduction of authorized spending and sale decisions had not been made by Williams Inc NAPP would not have achieved Financial Close anyway. [ 135 ] In advancing that argument Williams Canada relies heavily on an assessment presented by NAPP’s financing adviser SMBC in December 2015.

In this assessment, NAPP was cautioned that lenders might consider its project to be “unbankable” due to several risks. Among them were NAPP’s polypropylene offtake strategy, including lack of price or credit support. [ 136 ] SMBC recommended that to address such concerns, changes would be needed.

NAPP and its sponsors needed to consider bringing in an investment grade equity partner; providing credit support for the polypropylene off take obligation to be undertaken by Vinmar; and recruiting a creditworthy contingent off-taker of polypropylene. [ 137 ] No witnesses from SMBC were called at trial. [ 138 ] NAPP witnesses (including Vijay Goradia and Hemant Goradia) were insistent that solutions to the problems identified by SMBC were available.

They viewed issues such as price support, minimum volume commitments or credit support for polypropylene purchase to be matters for negotiation with lenders and not obstacles to financing itself. They testified they were confident that equity financing would be available through the Goradia group sponsors as and when necessary. Any capital cost escalation would not affect the ultimate competitiveness of the product, as all North American polypropylene producers would face similar cost increases. [ 139 ] Both NAPP and Williams Canada presented expert evidence concerning the bankability of the NAPP project.

That evidence was given by Mr. Michael Whalen of the Berkley Research Group (who was called by NAPP) and Dr. Clifford Atherton (who was called by Williams Canada). [ 140 ] Mr. Whalen opined that the NAPP project was bankable, assuming a debt-to-equity ratio of 44/56 (as opposed to NAPP’s preferred ratio of 70/30) supported by $90 - $135 million (USD) of contingent credit support from NAPP sponsors. [ 141 ] Mr. Whalen was requested to address three questions in his report: (

i) What was required to finance the PP Facility by way of finance debt, direct equity, and contingent support from Project Sponsors; (ii) Whether as of January 13, 2016, NAPP was on track to secure project financing; and (iii) the effect of “Williams not providing meaningful cooperation reasonably requested by NAPP”. [ 142 ] In answering these questions, Mr. Whalen relied on the following assumptions provided by NAPP: (

i) NAPP spent “significant effort” in moving forward with expedited

schedule for development of the initial stages of the PP project; (ii) despite Williams Propylene’s deferred development of the PDH Plant, NAPP continued to develop the PP Project such that it could perform its obligations under the PSA to meet Financial Close; (iii) the negotiations of the utility agreements with ATCO had “stalled” as Williams Propylene instructed ATCO to slow spending on the CUB, “which would have the effect of delaying ATCO’s final investment decision on the CUB”, (iv) NAPP made “repeated requests” to Williams Propylene for cooperation; and, (

v) the Sponsors had access to “significant resources” to deploy into NAPP for the purposes of achieving its initial project financing. [ 143 ] He did not independently audit or verify the information and assumptions given to him. [ 144 ] Mr. Whalen concluded that from a lender’s perspective, as of January 13, 2016, NAPP and its sponsors had advanced their financing plans and taken steps to mitigate prospective lenders’ risks such that the PP Facility had a suitable foundation for project financing and sufficient lending markets to allow it to raise $500 million (USD) in debt financing.

He opined that project financing by September 1, 2016, December 1, 2016, or June 30, 2017, would have been achievable. This assumed a debt equity ratio of 44/56 would have been acceptable to the project sponsors, and that they would also be willing to provide contingent credit support of $90 to $135 million (USD) and whatever equity required. [ 145 ] Mr. Whalen testified that the absence of requested cooperation from Williams created significant uncertainty and by June 17, 2016, (when NAPP first issued notice of termination of the PSA) made the Financial Close Date untenable.

In addition, he opined that a simple amendment of the date for Financial Close would not have been sufficient to make NAPP’s financing strategy and

schedule tenable. In cross-examination he was not able to recall seeing any documented requests for cooperation by NAPP other than the May 11, 2016, letter from NAPP’s General Counsel. [ 146 ] Mr. Whalen presented as a knowledgeable expert in the field of project financing. [ 147 ] His assessment that NAPP and its sponsors were on track to obtain $500 million (USD) of debt financing as of January 13, 2016, is somewhat reasonable given the assumptions and information given to him by NAPP. Nonetheless, mitigation of many of the lender risks identified by SMBC a month earlier (and for that matter as early as April 2015) was an unfinished work in progress. At no

point were the risk mitigation measures contemplated by NAPP and its sponsors ever rolled out to the market to test their acceptability. In other words, while NAPP may have been on track, the finish line was not yet in sight. [ 148 ] Where Mr. Whalen’s report falters is in its treatment of the events following January 13, 2016. [ 149 ]

Section 5 of the report is entitled “Williams Propylene cooperation”.

It commences with a description of the financial difficulties encountered by Williams Inc throughout 2015 and then states: “The uncertainties associated with the events affecting the Williams Group necessarily had a fundamental impact on NAPP’s financing efforts and triggered NAPP’s Requests for Cooperation, as I develop below.” [ 150 ] Under the ensuing heading “NAPP’s Requests for Cooperation” the report states “In para 1.6.2 (iii) above, I describe my understanding of NAPP’s Requests for Cooperation from Williams Propylene between January 13, 2016, and June 17, 2016, (the notice of termination of the PSA) in connection with NAPP achieving the Financial Close Milestones”.

However, the ensuing discussion refers to two documents only in which such requests were made: the May 11, 2016 demand letter from NAPP’s General Counsel and the June 17, 2016, notice of termination of the PSA. Beyond that, the only other “request for cooperation” mentioned is NAPPs agreement to enter into the PSA extension agreement (without mentioning the reversal of position on that agreement by NAPP’s Board of Directors shortly thereafter). [ 151 ] The report proceeds to describe each element of the May 11, 2016, request for cooperation.

It concludes in each case that the uncertainty associated with the sale of Williams Inc’s Canadian operations placed the NAPP financing strategy and

schedule in severe jeopardy and rendered it untenable. The implication left is that NAPP’s failure to achieve financing was not caused by those uncertainties, but rather by Williams Canada’s inability or refusal to resolve the uncertainties in a way that would favor NAPP, and thereby assist its financing efforts. [ 152 ] I do not doubt that the impending change of control of Williams Canada created significant uncertainty regarding the fate of the PP Project and, for that matter, the PDH plant. To a lesser extent, the reduction of authorized spending on the PDH plant also created uncertainty.

It does not follow however that the contractual duty to provide reasonable cooperation in NAPP’s efforts to obtain financing extends to an obligation to resolve such uncertainties in a manner favorable to NAPP.

This especially so where the measures requested would alter the rights of Williams Canada under the PSA, as negotiated, and agreed upon in August 2015. [ 153 ] Accordingly, while the discussion of the uncertainties faced by the projects in 2016 is helpful background, it is less helpful in assessing whether the actions taken by Williams Canada constituted a breach of contract. [ 154 ] The report’s discussion of cooperation concludes with the following commentary regarding the extension agreement that would have postponed the date for Financial Close to June 30, 2017.

The commentary is brief: Executing Amended PSA 5.3.23 In addition to the other requests from NAPP to Williams Propylene for the cooperation as I describe above, the parties discussed possible amendments to the projects’

schedule and the PSA. 5.3.24 On 11 May 2016, NAPP requested Williams Propylene to provide its cooperation in connection with achieving the Financial Close.

The Amended PSA would have enabled NAPP to extend the date in which it was required under the PSA to achieve Financial Close to 30 June 2017. 5.3.25 I have described above the uncertainty associated with the identity of a buyer to Williams Inc.’s Canadian operations (including the PDH Plant project), the ability of Williams Inc. or its successor to meet the requirements as guarantor pursuant to the PSA, William Propylene’s ability to meet the Guaranteed Commissioning Date or its spending in support of the PDH Plant project, and the availability and timeliness of required utilities for the PP Project.

Without addressing the above noted concerns, in my opinion, an amendment to Financial Close milestones in the PSA would not have been sufficient to make NAPP’s financing strategy and

schedule tenable. [ 155 ] Williams Canada argues that Mr. Whalen’s opinion regarding the efficacy of an extension agreement is conclusory and should be given no weight. I agree that the opinion is problematic. [ 156 ] As discussed earlier if uncertainty was the issue, the obvious solution would be to proceed with the extension agreement. However, the problems faced by NAPP went further than that and included whether the new owner of Williams Canada would want to proceed with the dual plant project structure envisaged in the PSA, notwithstanding its cumbersome structure. This is not addressed by Mr.

Whalen’s report - either previously or in its brief discussion of the utility of an extension agreement. [ 157 ] On behalf of Williams Canada, Dr. Atherton’s expert report concluded that the NAPP project was not bankable within the time deadlines set out in the PSA. Lender risks had not been addressed or resolved by NAPP, no lenders had been identified or approached and there were doubts as to the resolve of NAPP’s sponsors to provide the equity investment needed. [ 158 ] Dr.

Atherton’s opinion was based in part on the records of communications produced in this action, comprised primarily of email correspondence among and between NAPP, its sponsors, and its financial advisor SMBC, along with attached presentations and memoranda. Those documents disclose that there were at times concerns expressed by members of the project team regarding escalating capital costs (from an initial projection of $600 million (USD) to $1.1 billion (USD); the limits of equity investment that the

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