On January 12, 2021 the Alberta Court of Appeal issued its decision in H&C S Holdings PTE Ltd v Pengrowth Energy Corporation, 2020 ABCA 473, upholding the 2019 decision of Justice R.A. Neufeld of the Alberta Court of Queen’s Bench. This decision issues a stark reminder to purchasers of the consequences that can flow from failing to adhere to their contractual closing obligations.
The purchaser was a start-up energy company formed by veteran oil executives. It entered into a contract to purchase certain oil and gas assets from the vendors for $180,000,000 and provided an $18,000,000 deposit under the purchase agreement. The purchasers failed to obtain financing for the closing date of June 16, 2017. After the closing date passed, actions were taken by both parties in an attempt to salvage the deal, but ultimately three weeks’ time elapsed and the deal did not close.
On July 6, 2017, the vendor issued written notice to the purchaser of its intention to terminate the agreement and keep the $18,000,000 deposit being held in escrow. The purchaser refused to authorize the release of the deposit. Litigation was commenced with both parties claiming the deposit.
The purchaser did not dispute that it had failed to obtain financing to close the transaction and did not assert that the vendor was not ready, willing, and able to close the transaction. Instead, the purchaser argued that it had met its obligations under the agreement, had continued to work in good faith towards closing the transaction, and that the vendor was not entitled to terminate the agreement without first providing the purchaser with written warning of its intention to terminate.
Because the agreement contained no “time of the essence” clause, the purchaser asserted that time was not of the essence and therefore the vendor had to give the purchaser a reasonable amount of time to come up with the cash to close, or at the very least, warn the purchaser before terminating the agreement. It was found that time was intended to be of the essence with respect to the purchaser’s obligation to secure funding to close, despite the absence of express language in the agreement. The factual matrix surrounding the intention of the parties was readily taken into context.
The defendant’s arguments did not persuade the lower court judge, who relied upon the plain language of the contract in determining that the purchaser did not adhere to its contractual obligations regarding timeliness of performance and had failed to comply with contractual deadlines. The decision of the lower court noted that the agreement did not state that prior notice or further indication of a future intention to terminate was to be given and pointed out that the agreement did not provide an opportunity for the defaulting party to cure the default by closing the transaction at a later date.
Purchasers must remember to take their closing obligations seriously and to ensure that financing and all other matters required to effect closing have been dealt with in advance of the closing date. In situations where the vendor is ready, willing, and able to close and the agreement does not provide for relief to cure defaults on closing obligations, purchasers are reminded that foot-dragging will not be tolerated, and in some instances will result in loss of the deposit.
Invitation for Discussion:
Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.