Past Practices May Be Too Far Removed to Satisfy the Test for Estoppel by Convention

The Ontario Court of Appeal in Grasshopper Solar Corporation v. Independent Electricity System Operator clarified the applicability and effect of estoppel by convention between two sophisticated parties.

The appellants and the respondent entered into Feed in Tariff (FIT) Contracts for the construction of solar facilities. The appellants agreed to achieve commercial operation of the facilities by a specified date but failed to do so. The agreement included a clause indicating that time is of the essence. At issue is whether the respondents properly exercised their rights to terminate the contracts due to delay. The appellants sought to rely on the doctrine of estoppel by convention to support their position that the respondent had waived their right to terminate.

That doctrine, as established in Ryan v. Moore, requires three criteria:

  1. The parties’ actions must be based on a shared assumption of fact or law; there must be a manifest representation by statement or conduct creating a mutual assumption;
  2. A party must have relied on the assumption resulting in a change of its legal position; and
  3. It must be unjust or unfair for one party to resile or depart from the shared assumption. The party seeking to rely on the doctrine must demonstrate that harm will result if no effect is given to the shared assumption.

The Appellate Court upheld the application judge’s decision and concluded that estoppel by convention did not apply. The Court clarified that the requirement of a shared assumption is not one element among three to meet the test, but is rather “the thing that gives rise to the need for equitable relief.” In the absence of a shared assumption, the argument for estoppel by convention fails. The shared assumption may be based on mistake but typically involves existing as opposed to future circumstances. Conclusively, the appellants’ reliance on the respondent’s past practice with other suppliers as the basis for the shared assumption failed to meet the test. Further, in the absence of any finding of shared assumption, it is inappropriate for the court to engage in other elements of the test.

This case not only reinforces the primacy of a shared, unambiguous, unequivocal assumption for the doctrine to apply but also potentially renders reliance on past conduct nugatory in a claim of estoppel by convention. It would seem the significant effect of the doctrine, undermining certainty of contract bargained and agreed between sophisticated commercial parties, may have motivated the court to further constrain the availability of the doctrine even where fairness may be a concern.