Commercial Certainty Trumps Commercial Reality: B.C. Appeal Court Decides Receivers Must Give Written Notice Under Purchase & Sale Contract in KPMG Inc. v. 0747825 B.C. Ltd.
August 15, 2017
By Tim McLaughlin, at McInnes Cooper
Receivers across Canada seeking to sell assets can learn two important lessons about the importance of adhering to the letter of agreements of purchase and sale from a recent decision of the B.C. Court of Appeal. In KPMG Inc. v. 0747825 B.C. Ltd., the receiver learned these lessons the hard way when the Court chose commercial certainty over commercial reality: its failure to provide written notice that a condition had been satisfied, as required by the contract, resulted in losing its breach of contract claim of over $1.2 million – despite the fact the buyer had actual notice the receiver had satisfied the condition on time.
Comply with notice requirements. If the contract requires written notice, then give written notice. Doing so where the buyer has actual notice may seem a superfluous task, especially when both parties just want to conclude the deal. But if the contract requires written notice, giving it can save the receiver millions if the transaction doesn’t close: a court might very well let the buyer walk away from a transaction if the receiver fails to give written notice.
Fully understand agreements before entering them. The Court of Appeal’s comments about commercial certainty show that courts will enforce many other types of contractual provisions –in addition to those regarding notice – so long as they are clear and unambiguous. So a receiver should fully understand an agreement and its requirements before entering into and acting under it.
KPMG was the court-appointed receiver-manager of the assets and undertaking of Carmel Cove Resort & Spa Inc., a lakeside resort in B.C. On October 25, 2013, the receiver accepted the offer of 0747825 B.C. Ltd. to buy Carmel Cove’s business assets for $5.025 million. The contract was subject to a list of conditions and provided that unless “each condition is waived or declared fulfilled by written notice given by the benefiting party to the other party on or before the date specified for each condition, this Contract will be terminated”. The contract specifically included a condition that the Court approve the transaction within 21 days of October 25, 2013. The receiver obtained court approval for the transaction on November 15, 2013 – precisely 21 days after October 25. The buyer, 0747825, sent a representative to the November 15 court hearing, and likely had actual notice as of that date. Yet the receiver failed to deliver written notice to the buyer until November 19, 2013. By November 15, however, the buyer wanted out of the agreement and treated the receiver’s failure to deliver written notice as a termination of the contract. In turn, it refused to tender funds. After the receiver found another purchaser, it brought a breach of contract claim against the original buyer, 0747825, for $1,237,150.96, representing the expenses of maintaining and operating the business assets until it could find another buyer, and the difference in sale price it eventually received. The receiver relied heavily on the fact the buyer had actual notice that the receiver had satisfied the condition, insisting that, under such circumstances, written notice was unnecessary. Neither the trial court nor the Court of Appeal, however, agreed:
Clear Terms. The B.C. Supreme Court’s reasoning is simple: the parties had agreed the contract was null if the receiver failed to give written notice in a timely fashion. The buyer may have had actual notice, but by the contract’s clear and unambiguous terms, such notice was insufficient. Since the receiver failed to deliver written notice by November 15, the contract was terminated as of that date.
Commercial Certainty. The B.C. Court of Appeal agreed and dismissed the receiver’s appeal. The Court of Appeal noted that parties specify how to remove conditions in order to obtain commercial certainty in their agreements: such provisions clarify the parties’ obligations and reduce the risk of litigation. Out of respect for commercial certainty, courts should give effect to such agreements.
Please contact your McInnes Cooper lawyer or any member of the Bankruptcy & Insolvency Team @ McInnes Cooper to discuss this topic or any other legal issue.
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