Resolute FP Canada Inc. v. Hydro‑Québec2020 SCC 43 (38544) 2019 QCCA 30

“In 1926, the corporate predecessor of Resolute FP Canada Inc. (“Resolute”) and the Gatineau Power Company (“Gatineau Power”) signed a synallagmatic contract of successive performance for the supply of electric power. Article 20 of that contract provided that Resolute would accept any increases in the price of electricity that might result from future increases in taxes or charges levied by the provincial or federal government on electrical energy generated from water power. In the early 1960s, the Quebec government acquired the capital stock of a number of private power production companies, including Gatineau Power, which became a wholly owned subsidiary of Hydro‑Québec. In 1965, Hydro‑Québec entered into a bilateral contract with Gatineau Power that was designed to unify that company’s management and operations. This contract provided for the sale of all of Gatineau Power’s movable property to Hydro‑Québec and the lease to the latter of all of the former’s immovables for a term of 25 years. Hydro‑Québec was to benefit from the revenue derived from Gatineau Power’s power contracts, and was entitled to use the premises leased from the latter as if they were its own. In 1982, Resolute and Hydro‑Québec entered into a contract for the supply of additional power. Between 2005 and 2009, Gatineau Power assigned to Hydro‑Québec three power plants that Hydro‑Québec had been leasing from it and that had supplied Resolute before the nationalization.

Starting in 2007, Hydro‑Québec had two levies imposed on it under provincial legislation: a new amount fixed by s. 32 of the Hydro‑Québec Act (“HQA”) and an amount provided for in s. 68 of the Watercourses Act (“WA”) from which it had previously been exempted. The levied amounts are paid into the Generations Fund, a fund established by the Quebec government in 2006 for the purpose of reducing the public debt. In 2011, Hydro‑Québec sent Resolute an electricity bill for over $3 million. Relying on the price adjustment clause in the 1926 contract, Hydro‑Québec claimed from Resolute an increase in the price of electricity that resulted from the levies it paid to the Quebec government. Resolute paid this bill under protest and asked the Superior Court to declare that it did not owe the amount being claimed from it to either Hydro‑Québec or Gatineau Power.

The Superior Court granted Resolute’s motion to institute proceedings for a declaratory judgment. It declined to find that the effect of the 1965 contract was that Gatineau Power had assigned its rights and obligations under the 1926 contract to Hydro‑Québec, and declared that Hydro‑Québec could not claim payment of the levies from Resolute. The Court of Appeal allowed Hydro‑Québec’s appeal in part, declaring that the levies in question constituted taxes or charges that were payable by Resolute to Hydro‑Québec under the 1926 contract.”

The SCC (7:2) dismissed the appeal.

Justice Kasirer wrote as follows (at paras. 4-8, 61-64, 124-127, 176):

“In this appeal, this Court is asked to reconsider the conditions for and effects of assignment of contract, a juridical operation by which, according to the conclusion of the Court of Appeal, the assignor, Gatineau Power, a contracting party, had carried out an inter vivos transfer to the assignee, Hydro‑Québec, of claims and debts arising from the 1926 contract with the assigned party, which had since become Resolute.

Conventional assignment of contract, which is viewed sometimes as the addition of an assignment of claims to a transfer of debts and sometimes as the transfer of a contract as a whole, has long been a source of uncertainty among jurists. One might assume that this uncertainty, which is conceptual and moral in nature, results in part from the absence of a nominate scheme in the civil codes. Although the Civil Code of Lower Canada (“C.C.L.C.”) and the Civil Code of Québec (“C.C.Q.”) do regulate certain specific forms of assignment of contract (e.g. assignment/transfer of lease in arts. 1870 to 1873 C.C.Q. and arts. 1619 and 1655 C.C.L.C.; assignment/transfer of a contract of insurance in arts. 2475 and 2476 C.C.Q. and arts. 2577 and 2578 C.C.L.C.), they provide no explicit general scheme for this well‑known business practice.

Thus, civilians have long raised questions about assignment of contract because, according to a subjective conception, the contract is [translation] “a relationship, not property”, and “a contractual relationship cannot be assigned, since, like a debt, it has no patrimonial value” (see the description by J. Flour, J.‑L. Aubert, and É. Savaux, Les obligations, vol. 3, Le rapport d’obligation (8th ed. 2013), at No. 400 (emphasis deleted)). From a moral perspective — and this relates directly to the points raised by Resolute in its appeal — the fact that the assigned party did not consent to the assignment between the assignor and the assignee is the central concern. Some authors have pointed out that it could be unfair to impose on the assigned party a new debtor who might prove to be unreliable, if not insolvent, after the assignment of the contract. Even more fundamentally, the principles of binding force and relativity of contract are sometimes seen as a complete bar to the transfer of a contract if the assignment would impose on the assigned party a new contracting party and new undertakings to which it has not consented (see the explanations of F. Levesque, Précis de droit québécois des obligations: contrat, responsabilité, exécution et extinction (2014), at paras. 928 and 1019; and of J.‑L. Baudouin and P.‑G. Jobin, Les obligations (7th ed. 2013), by P.‑G. Jobin and N. Vézina, at No. 1042).

Despite this uncertainty and the apparent silence of the general law, however, assignment of contract is firmly rooted in commercial life, and it enables contracting parties, as in this case, to meet complex objectives (see, e.g., D. Lluelles and B. Moore, Droit des obligations (3rd ed. 2018), at No. 3227). This appeal confirms that assignment of contract has a key role to play as a business technique, given that, being a contract itself, assignment has a legitimate malleability that is supported by the principle of autonomy of the will. Here, the parties set up a novel assignment mechanism, one with a translatory effect on the rights and obligations under the contract, although that effect is temporally limited by a lease to which the assignment is accessory. In this case, the technique of assignment made it possible, at one stage of the nationalization of electricity, to balance the interests of the assignor, Gatineau Power, and that company’s secured creditors with those of the government and Hydro‑Québec and even, despite the objections it now raises, those of Resolute in the assigned contract.

In fact, the dispute between the parties shows how assignment of contract — seen as a transfer to the assignee not merely of rights and obligations but also of the contract itself — can be achieved in a manner that, while protecting the interests of the assigned party, is compatible with the principles of binding force and relativity of contract. In addition to being a composite technique comprising two mechanisms involving the transfer of, respectively, claims and debts under a contract, assignment represents first and foremost, in this case, a legal mechanism by which one party to the 1926 contract, the assignor, Gatineau Power, transferred its [translation] “status as contracting party” to a third person, the assignee, Hydro‑Québec, in a manner that is consistent with the moral foundation of relativity of the original contract. Overall, the answer to Resolute’s objections, the most important of which is that it did not consent to the operation, lies in legal rules that protect the assigned party’s interests by requiring that party’s consent in order for the assignment to be valid. The interpretation I propose here is thus consistent with an important current in Quebec doctrine and jurisprudence, as well as with recently reformed French law. According to all these authorities, there is no conceptual or moral bar to the assignment of a contract, seen as a patrimonial asset in itself, provided that the operation protects the interests of the assigned party.

It should be noted that it is necessary, in interpreting a contract, to seek “[t]he common intention of the parties” (art. 1425 C.C.Q.) while taking into account, in the words of the C.C.Q., “the nature of the contract, the circumstances in which it was formed, the interpretation which has already been given to it by the parties or which it may have received, and usage” (art. 1426 C.C.Q.). Each clause is to be interpreted “in light of the others” so that each one is given the meaning derived from the contract as a whole (art. 1427 C.C.Q.). In this case, none of these considerations suggest that Gatineau Power and Hydro‑Québec intended to achieve anything other than the assignment contemplated in the text of the contract.

To begin, it should be borne in mind that mandate is a contract by which the mandator confers upon the mandatary the power to represent him or her in “the performance of a juridical act” (art. 2130 C.C.Q.; see also C. Fabien, “Mandate”, in Reform of the Civil Code, vol. 2‑C, Obligations VII, VIII (1993), at pp. 3‑5; A. Popovici, La couleur du mandat (1995), at pp. 17‑18). An essential aspect of the contract of mandate is that mandataries are not personally liable to third persons except in very specific circumstances, in particular when they act in their own names, exceed their powers or commit faults in the performance of their mandates (Fabien, at pp. 15‑17).

Furthermore, the law imposes two duties on mandataries. A mandatary must (1) “act honestly and faithfully in the best interests of the mandator, and . . . avoid placing himself in a position where his personal interest is in conflict with that of his mandator” (art. 2138 para. 2 C.C.Q.; see also Fabien, at pp. 8‑9; Pincourt (Ville de) v. Construction Cogerex ltée, 2013 QCCA 1773, at paras. 180‑81 (CanLII)); and (2) “act with prudence and diligence” in performing the mandate (art. 2138 para. 1 C.C.Q.). Regarding the first duty, it is important to bear in mind that even mandataries charged with full administration of the property of others cannot use the mandator’s property for their own needs or purposes (art. 1310 C.C.Q.; see also Groupe Sutton‑Royal inc. (Syndic de), 2015 QCCA 1069, at para. 122 (CanLII)). As Professor Cantin Cumyn observes, the duty to act faithfully [translation] “prohibits using the powers in the personal interest of the person in whom they are invested” (“Le pouvoir juridique” (2007), 52 McGill L.J. 215, at p. 231; see also M. Cantin Cumyn and M. Cumyn, L’administration du bien d’autrui (2nd ed. 2014), at Nos. 301 et seq.). As for the second duty, Professor Cantin Cumyn explains that the conduct of an administrator of the property of others will be prudent and diligent “if it is consistent with the conduct expected of a person who . . . acts for another or in an interest other than his or her own” (Cantin Cumyn (2007), at p. 233 (emphasis added); see also Cantin Cumyn and Cumyn, at Nos. 272 et seq.).

It should also be mentioned that assignment of contract is known in Quebec civil law and that there is every indication that this operation was part of the positive law in 1965. It is true that before Hutton, there were some who argued that the idea of assigning a contract, as a legal relationship, was conceptually problematic and that the assignment of debts caused difficulties in light of the principle of relativity of contract. That being said, Baudouin J.A. did not in that case, in explaining how assignment of contract can be effected in Quebec law by combining the assignment of claims and the transfer of debts, invent a novel juridical operation for Quebec law. In its instructively helpful explanation in Hutton, the Court of Appeal simply explained itself more completely on the subject than any court before it had, because courts had [translation] “rarely had occasion to address the issue” (p. 8). I would add that the original contract in that case — which included a clause authorizing an assignment of contract — had been concluded in 1959 (p. 2), while the assignment of the contract had been effected in 1990 (pp. 4‑5). As in the case at bar, therefore, all the events took place while the C.C.L.C. was still in force.

Some jurists adopt a dualistic conception according to which assignment of contract is defined as the addition of an assignment of claim to an assignment of debt or delegation of payment (see Baudouin and Jobin, at No. 1034). Others instead see assignment of contract as the transfer of the contract itself to a third person, thus placing the focus on the object of the contract — its economic cause — and in their view assignment of contract serves to [translation] “maintain the binding force of the contract even though the identity of one of the contracting parties has changed” (L. Aynès, La cession de contrat et les opérations juridiques à trois personnes (1984), at p. 21; see also p. 170).

In Quebec, the Court of Appeal’s decision in Hutton is sometimes cited as an example of the dualistic approach because of the fact that Baudouin J.A., in explaining the assignment of the contract, broke the parties’ operation down into an assignment of claim and an assignment of debt. He did so to assist him in articulating why, in his view, the transfer of debts required in particular the assigned party’s consent. I find Baudouin J.A.’s exercise helpful in clarifying both why this consent is necessary and why it can be given in advance. But it must not be forgotten that, even while he was breaking down the contract in Hutton, Baudouin J.A. was considering the assignment of the contract as a whole — a conception that was compatible with the one adopted by this Court in Aqueduc du Lac St. Jean in 1925.

In the unitary approach, the focus is in fact on the transfer of the contractual relationship as a whole — claims, debts, potestative rights and other undertakings. From this perspective, the operation is understood to involve a transfer of status as a contracting party to the assignee, while leaving the original contract intact. This approach is especially apposite in circumstances in which the parties are disputing the transfer not only of claims and debts, but also of other undertakings made in the original contract. In the case at bar, aside from the provisions of the 1926 contract with respect to the delivery of power and the price to be paid for it, the parties are concerned in particular with arts. 17 (application of present and future provincial and federal laws) and 22 (transferability of the contract) of that contract given the relevance of these articles to Hydro‑Québec’s claim based on the price increase clause. Resolute states in its factum that it does not matter whether the dualistic approach or the unitary approach is taken in analyzing the central issue in its appeal, that is, whether its consent was necessary to the assignment from Gatineau Power to Hydro‑Québec. I take note of that, but I would stress that the unitary approach is particularly helpful in making it clear that, if Hydro‑Québec acquired the status of party to the 1926 contract, that enabled it to demand, in its own name and by reason of its status, the increased price resulting from the two levies.

The circumstances clarify the fact that assignment effects [translation] “the replacement of a party by a third person” (Lluelles and Moore, at No. 3214 (footnote omitted); see also Modern Concept (C.A.), at paras. 149‑50, aff’d 2019 SCC 28; or, in the case of an imperfect assignment, the addition of a new party, Lluelles and Moore, at No. 3217). Viewed from this perspective, the unitary approach is an elegant solution that serves to stress the parties’ freedom of contract and to connect the law to the factual reality. As Mignault J. put it in Aqueduc du Lac St. Jean, the assignee is thus put [translation] “in the place” of the assignor (p. 195). Moreover, this approach is echoed by the manner in which a recent reform of French law incorporated assignment of contract into that country’s Code civil. In the 2016 reform, the French legislature explicitly adopted the unitary conception of assignment of contract by allowing a party to [translation] “assign his status as party to the contract” (French Code civil, art. 1216; see J. Colliot, “La cession de contrat consacrée par le Code civil” (2016), 4 R.J.O. 31, at p. 40).

I conclude that the words “tax or charge” in art. 20 of the 1926 contract encompass the two levies at issue that were imposed under s. 32 of the HQA and s. 68 of the WA, and I would therefore declare that those levies are payable by Resolute to Hydro‑Québec under that agreement. The Court of Appeal did not err in reaching this conclusion. Like the Court of Appeal, given the absence of the Attorney General of Quebec, I will not address the question whether Hydro‑Québec will be required to pay the levy provided for in s. 32 of the HQA in the future such that it will be entitled to an increase on the basis of that levy. To dispose of the case, it will suffice to note that the Quebec government required Hydro‑Québec to pay the charges at issue and that the latter was entitled to apply them to the amount billed to Resolute.”