2008 BCCA 69 Weyerhaeuser Company Limited v. Hayes Forest Services Limited

COURT OF APPEAL FOR BRITISH COLUMBIA

Citation:

Weyerhaeuser Company Limited v.

Hayes Forest Services Limited,

2008BCCA69

Date: 20080220

No.: CA034077, CA034495

Between:

Weyerhaeuser Company Limited

Respondent

(Petitioner)

And

Hayes Forest Services Limited

Appellant

(Respondent)

And

Cascadia Forest Products Ltd.

Respondent

(Respondent)

Before:	The Honourable Madam Justice Rowles
	The Honourable Madam Justice Ryan
	The Honourable Mr. Justice Low
C.F. Willms and E.A. Arbel		Counsel for the Appellant
P.G. Foy, Q.C. and R.J.C. Deane		Counsel for the Respondent, Weyerhaeuser Company Limited
J.J. Hunter, Q.C. and G. van Ert		Counsel for the Respondent, Cascadia Forest Products Ltd.
Place and Date of Hearing:		Vancouver, British Columbia
10 and 11 September 2007
Place and Date of Judgment:		Vancouver, British Columbia
20 February 2008
Written Reasons by:
The Honourable Mr. Justice Low
Concurred in by:
The Honourable Madam Justice Rowles The Honourable Madam Justice Ryan

Reasons for Judgment of the Honourable Mr. Justice Low:

[1] This case concerns the legal effect of an assignment to a third party (the respondent Cascadia Forest Products Ltd.) by the respondent Weyerhaeuser Company Limited of a timber supply contract between Weyerhaeuser and the appellant Hayes Forest Services Limited.

[2] Mr. Justice McEwan, in chambers, ruled that the effect of the assignment was to relieve Weyerhaeuser of all its obligations to Hayes under the contract as of the date of the assignment. The operative part of the order from which Hayes appeals reads as follows:

THIS COURT ORDERS AND DECLARES that

1. as and from May 30, 2005, Weyerhaeuser ceased to be a party to the Timber Supply Execution Agreement (the "TSE"), made on or about January 2, 2003, and subsequently amended, as between Weyerhaeuser and Hayes;

2. as and from May 30, 2005, the parties to the TSE, by virtue of the fulfilment of the conditions set out in s. 17.2 of the TSE by Weyerhaeuser and Cascadia, are Hayes and Cascadia;

3. in performing the obligations formerly performed by Weyerhaeuser in and under the TSE, Cascadia acts for itself and not as an agent of Weyerhaeuser; and . . .

[3] MacMillan Bloedel Limited obtained the Tree Farm Licence 44 on Vancouver Island in August 1994 and renewed it in August 1999 before transferring it that same year to Weyerhaeuser. The term of the licence extends to 2024. As stated in the order, Weyerhaeuser and Hayes entered into the Timber Supply Execution Agreement on 2 January 2003. It is a 41-page contract that sets out in considerable detail the obligations of both parties. A recital on the first page states that “Hayes will perform operational planning and timber harvesting on the Operating Area on the terms and conditions described herein”. The operating area is defined later in the agreement as “the Franklin Operating Area”, which delineates a portion of the area covered by TFL 44. However, the TSE is a contract with a large dollar value. It has a five-year term with an extension for a further five years at the option of either party. After ten years, it can be terminated by Weyerhaeuser upon 24-months’ notice to Hayes. The volume of timber to be harvested is substantial.

[4] On 17 February 2005, Weyerhaeuser agreed to transfer its coastal operations, including TFL 44, to Coastal Acquisitions Ltd. Coastal later transferred its rights so acquired to Cascadia. On 30 May 2005 (the effective date set out in the order under appeal) Weyerhaeuser transferred TFL 44 and assigned the TSE to Cascadia.

[5] Weyerhaeuser then sought the consent of Hayes to the assignment of the TSE. Hayes refused to consent and took the position that Weyerhaeuser remained obligated to it under the contract. The parties corresponded about the issue over several months, without resolution. On 2 December 2005, Weyerhaeuser filed a petition seeking declaratory relief substantially as set out in the order under appeal.

[6] The chambers judge heard the petition in March and April 2006. He handed down written reasons on 5 May 2006. They can be found at 2006 BCSC 728.

[7] In the meantime, as a result of a corporate amalgamation Cascadia became Western Forest Products Inc. That fact was not before the chambers judge and the issues on appeal are not affected by it.

[8] Hayes filed a notice of appeal on 12 May 2006.

[9] On 26 June 2006, Hayes applied to the chambers judge for leave to reopen the hearing of the petition to permit it to adduce further evidence. With that application pending, the order under appeal was entered on 11 July 2006. On 12 September the chambers judge gave written reasons refusing to reopen the hearing of the petition: 2006 BCSC 1375. A second order was entered dismissing the application to reopen. On 11 January 2007 a chambers judge in this court gave leave to Hayes to appeal that order and also ordered that the two appeals be consolidated for all purposes.

[10] In the first appeal, Hayes contends that the chambers judge erred in concluding that the law of novation did not apply and in interpreting Part 17 of the contract in such a way as to substitute Cascadia as a contracting party in place of Weyerhaeuser. Alternatively, Hayes says that the judge erred in holding that the matter was suitable for summary disposition under R. 10 of the Rules of Court. Hayes argues that the chambers judge should have ordered a trial of the proceeding under R. 52(11)(d) with a direction that the parties have full rights to conduct pre-trial discovery.

[11] Weyerhaeuser contends that the chambers judge reached the correct conclusion regardless of whether the route to that conclusion is by way of novation or of contract interpretation. It says that it was appropriate to resolve the issue summarily.

[12] This case turns on the proper construction of Part 17 of the TSE. That part reads:

PART 17

ASSIGNMENT

17.1 Hayes Assignment. During the Term Hayes may not assign any right, benefit or interest in this Agreement, without first obtaining the written consent of Weyerhaeuser, which consent may not be unreasonably or arbitrarily withheld, subject to the following:

(a) during the first five Years of the Term, Hayes may assign its right, benefit or interest in this Agreement in the event of the death or long term incapacitation of Donald Hayes without consent;

(b) an assignment includes a change of control in Hayes whereby Hayes ceases to be controlled directly or indirectly by Donald P. Hayes and for this purpose “control” shall have the same meaning as control of a corporation in section 1(4) of the Company Act (B.C.) (as defined on the date hereof);

(c) subject to providing prior written notice to Weyerhaeuser and executing any documents reasonably required by Weyerhaeuser, Hayes shall be entitled to assign its rights under this Agreement to a subsidiary or affiliated company (as those terms are defined in the Company Act (B.C.) as of the date hereof), provided that such assignment shall in no way release Hayes from its obligations under this Agreement; and

(d) Hayes may grant security over this Agreement and the amounts to be paid to it by Weyerhaeuser under this Agreement.

17.2 Weyerhaeuser Assignment. Weyerhaeuser agrees not to:

(a) assign this Agreement except to a person who acquires all or part of TFL 44 and who agrees to be bound by the terms hereof to the extent it has acquired any part of TFL 44 in the Franklin Operation; or

(b) dispose of all or part of TFL 44 unless at the same time it assigns this Agreement to the acquiror who has acquired any part of TFL 44 in the Franklin Operation and the acquiror agrees to be bound by the terms hereof.

[13] The transaction between Weyerhaeuser and Cascadia complied with clause 17.2 in that Cascadia acquired the TFL, became the assignee of the TSE and agreed to be bound by the terms of the TSE. Weyerhaeuser fully discharged its obligations to Hayes under clause 17.2.

[14] The third ground of appeal can be readily resolved. In my opinion, the chambers judge did not err in deciding that the issue before him was appropriate for determination on the hearing of Weyerhaeuser’s petition under R. 10 of the Rules of Court. Whether or not the law of novation applied, under R. 10(1)(b) “the sole … question at issue … [was] one of construction … of a written contract”. The essential facts were not in dispute and the matter lent itself to resolution under the summary procedure found in the rule and in R. 52(1). A conventional trial was not necessary. This is the kind of case for which R. 10 was enacted.

[15] On the hearing of the petition, counsel for both sides argued the case as though the sole issue was whether there had been a novation of the TSE when Weyerhaeuser assigned its rights and obligations under the contract to Cascadia. The legal concept of novation is described by Wilson J. in National Trust Co. v. Mead, [1990] 2 S.C.R. 410 at 426:

A novation is a trilateral agreement by which an existing contract is extinguished and a new contract brought into being in its place. Indeed, for an agreement to effect a valid novation the appropriate consideration is the discharge of the original debt in return for a promise to perform some obligation. The assent of the beneficiary (the creditor or mortgagee) of those obligations to the discharge and substitution is crucial. This is because the effect of novation is that the creditor may no longer look to the original party if the obligations under the substituted contract are not subsequently met as promised.

[16] In Mead, at p. 427, the court summarized and adopted the three-part test for novation set out by Begbie C.J. in Polson v. Wulffsohn (1890), 2 B.C.R. 39 (S.C.):

1. The new debtor must assume the complete liability;

2. The creditor must accept the new debtor as principal debtor and not merely as an agent or guarantor; and

3. The creditor must accept the new contract in full satisfaction and substitution for the old contract.

[17] After referring to the above passages from Mead in larger context, the chambers judge succinctly stated the positions of the parties:

[28] Hayes has drawn the court’s attention to those passages establishing the significance of privity, and establishing that the test for novation is onerous. Weyerhaeuser has underscored the definitions set out in the second and the third paragraphs, and attempted to show that the facts fit within them.

[18] The chambers judge discussed the novation arguments of the parties and concluded in para. 49 that “this is not the sort of case to which the Polson test can be dogmatically applied.” I agree with that conclusion. In reaching it, the chambers judge referred to older cases that made a distinction between post-contract conduct (to be considered on the question of novation) and interpretation of the contract itself. An example of the former is In Re Family Endowment Society (1870), 5 L.R. Ch. App. 118 in which no novation was found. Contract interpretation cases include In re European Assurance Society Arbitration Acts and Industrial and General Life Assurance and Deposit Company, (1876) 3 Ch. D. 1 (C.A.) (known as Cocker’s case) and In re European Society, (1875) 1 Ch. D. (a collective name for what are known as Hort’s case and Grain’s case).

[19] In Hort’s case the deed of settlement governing insurance policies owned by Hort and Grain required the directors of the insurance company, upon dissolution of the company, to “obtain from the directors or managers of some other assurance company or society an undertaking to pay …”. Those events occurred, Hort and Grain were given notice of the replacement insurer, and both attempted to claim against the original insurer in its winding up. The Court of Appeal held that Hort and Grain were bound to accept the new insurer as their debtor. With respect to Hort, Lord Cairns observed:

… whether the contract be wise or unwise, that is the contract which Mr. Hort entered into: a contract which, as I read it, contains a power given to those who contracted with him, in the due execution of their duty, provided they do so honestly and bonậ fide, to make over their funds to any other society which will take upon itself the obligation of paying on the policies which have been effected.

[20] Lord Cairns went on to say that the case “is not, in any respect, a case of what has been termed ‘novation’ – it is a case of a different kind - …”. He concluded: “Mr. Hort’s original contract was not that in all events and under all circumstances he would have a claim against [the original insurer], but was a contract in its nature open to the chance of shifting.”

[21] It is apparent from a reading of the authorities and textbooks on contract law that a distinction is to be made between cases in which it is a question of fact whether acceptance of the new party as the privy to the contract for all purposes (thereby creating a new contract) has been proven, and cases in which the question is whether the contract, properly interpreted, provides for the substitution of a third party for one of the contracting parties during the term of the contract.

[22] The former issue is one of novation which can be established by proof of an express three-party agreement, or by proof of acceptance through post-substitution conduct of the second party to the original contract. What has to be proven at common law is set out in the Polson test as adopted in Mead.

[23] In the citation above from Mead, Wilson J. said that novation involves “a trilateral agreement”. This is consistent with the following passage from H.G. Beale, ed. Chitty on Contracts, 29^th ed. (London: Sweet and Maxwell, 2004) at p. 1201:

There is no doubt that with the consent of both contracting parties all contracts of any kind may be transferred, and the term "novation" has been introduced from Roman law to describe this species of transfer. Novation takes place where the two contracting parties agree that a third, who also agrees, shall stand in the relation of either of them to the other. There is a new contract and it is therefore essential that the consent of all parties shall be obtained: in this necessity for consent lies the most important difference between novation and assignment.

[Italics in original, underlining added.]

[24] In the ensuing paragraph, the text states that the novation cases in English law arose out of corporate amalgamations or changes in partnerships and the issue became whether the contracting party accepted the new legal entity “as his debtor in the place of the old company or the old firm”. In the next paragraph it is noted that “the effect of a novation is not to assign or transfer a right or liability, but rather to extinguish the original contract and replace it by another”.

[25] In the present case, it is clear to me that novation did not arise. There was no trilateral agreement between Weyerhaeuser, Hayes and Cascadia. No new contract was created. What Weyerhaeuser purported to do was to transfer by assignment its rights and obligations under the contract. Weyerhaeuser says that the contract provided for this event and this effect, if not explicitly then by implication. The novation cases do not apply.

[26] This is, therefore, a contract interpretation case. We are concerned with the legal effect of the assignment of the logging contract by Weyerhaeuser to Cascadia on the contractual obligations of Weyerhaeuser to Hayes. Did those obligations continue post-assignment or were they extinguished as of the date of the assignment to Cascadia under the terms of the TSE?

[27] The analysis of the chambers judge on this ultimate issue reads thus:

[50] While Hort’s case arose in circumstances different from those in the present case, there are certain obvious parallels. Each involves a party that has taken responsibility for assuring succession, in the context of long term contractual relationships that would otherwise be hazardous for the other parties. In each, as well, the possibility of succession was clearly in the contemplation of the parties when they entered into their contracts: the TSE was, like the arrangement in Hort’s case, “a contract in its nature open to the chance of shifting.”

[51] I do not think it necessary to catalogue in detail the complex of interrelated obligations mandated by the Forest Act, R.S.B.C. 1996, c. 157 (the “Act”) and the Forest Practices Code of British Columbia Act, R.S.B.C. 1996, c. 159 (the “Code”) down through TFL 44, to the TSE, some of which are reflected in the excerpts from the TSE reproduced earlier in these reasons. When one reviews the descending chain from the Act and the Code through TFL 44 down into the TSE, it is manifest that the holder of the TFL is the conduit of rights and obligations that have their source in the Act and Code, a detailed articulation in TFL 44, and an operational articulation in contracts like the TSE.

[52] The centrality of TFL 44, and the extensive nature of Hayes’ obligations within the Operating Area are reflected in a clause providing that Hayes will do nothing to jeopardize Weyerhaeuser’s rights under TFL 44. The TSE runs, at Hayes’ option, for a long term and provides lengthy notice upon termination.

[53] It is against this backdrop that Part 17 of the TSE must be construed. It includes sections governing Hayes’ assignment rights as well as Weyerhaeuser’s. These are asymmetrical, in that Hayes’ ability to assign its contract with Weyerhaeuser is subject to the written consent of Weyerhaeuser, whereas there is no such requirement imposed upon Weyerhaeuser relative to Hayes.

[54] Clause 17.2 is framed in the negative and essentially assumes a right to assign, subject to a qualification that the agreement will not pass except to a party to whom TFL 44 (or enough of it to protect Hayes’ rights under the agreement) is transferred, and to a party who agrees to be bound by the terms of the TSE:

17.2 Weyerhaeuser Assignment. Weyerhaeuser agrees not to:

(b) dispose of all or part of TFL 44 unless at the same time it assigns this Agreement to the acquirer who has acquired any part of TFL 44 in the Franklin Operation and the acquirer agrees to be bound by the terms hereof.

[55] Given that the source of any right on the part of Weyerhaeuser to engage in the contractual relationship articulated in the TSE is TFL 44, Hayes’ agreement to this arrangement was, like that of Hort, a recognition that the contract might “shift.” As in Hort’s case, if Weyerhaeuser performed in accordance with the requirement to protect Hayes, it would fulfil the obligations it had undertaken in clause 17.2, and the “shift” anticipated and provided for in the agreement would be complete. This situation differs from a true novation, as the judges in Hort’s case point out. It is not a question of construing a new contract among three parties some time after the execution of the first contract, but of the coming to pass of an event anticipated and accommodated in the original contract.

[56] Once Weyerhaeuser passed the TFL and the contract to Cascadia in accordance with the terms of its agreement with Hayes, Hayes was, like Hort, in no position to object. This is so notwithstanding Weyerhaeuser’s attempt to elicit Hayes’ consent, which signals a mistaken view as to Weyerhaeuser’s position, but does not inform the contractual relationship I must construe. In its terms, the TSE anticipated and permitted the substitution that has taken place. The transfer of TFL 44 put the ongoing performance of any obligations under the TSE beyond Weyerhaeuser’s capacity, and the Assumption and Assignment agreement placed them in the hands of Cascadia. Having authorized this in the TSE, Hayes had no further recourse to Weyerhaeuser for anything arising under the TSE after May 30, 2005.

[28] Hayes relies upon Tolhurst v. The Associated Portland Cement Manufacturers (1900), Limited, [1902] 2 K.B. 660 (a commercial contract case), Mead (a mortgage case) and Crystalline Investments Ltd. v. Domgroup Ltd., [2004] 1 S.C.R. 60 (a lease case) for the proposition that only a novation can bring about a third-party substitution of a contracting party for all purposes. I do not extract such a broad proposition of law from the cases or from contracts textbooks. It is my view that the terms of the contract itself can accomplish substitution of a contracting party without creating a new contract. A simple example would be a contract containing a provision, not at all uncommon, that the benefit of the contract is to be received or its burden is to be discharged, or both, by either the contracting party or by his nominee. Such a clause might substitute a non-contracting party for a contracting party without creating a new contract. Hort’s case presents an example of such a contractual provision.

[29] In Mead, the issue was whether a purchaser of real property who assumed a mortgage over the property by way of an assumption agreement and later defaulted on the mortgage was liable to pay any deficiency arising out of a court-ordered sale of the property made in the course of foreclosure proceedings. A statute in Saskatchewan restricted a mortgagee’s remedy to foreclosure and sale of the mortgaged property. The mortgagee could not sue on the covenant to pay. Only corporate mortgagors could waive this protection which is what the original mortgagor, a home construction company, did in this case. The statute bound successors of the corporate mortgagor to the waiver.

[30] The Saskatchewan Court of Appeal found that the assumption agreement amounted to a novation of the mortgage contract so that a new contract was formed to which the statutory exception applied.

[31] The Supreme Court of Canada took a different view but reached the same result. The court found that there was no novation, but the provision in the statute binding successors to corporate mortgagors who had waived the protection had to be narrowly construed so as to apply only to corporate successors. Therefore the waiver by the original corporate mortgagor was not binding on the subsequent non-corporate purchaser and the mortgagee was restricted to realizing on its security.

[32] In its analysis the court did not deal with any term of the mortgage that might be seen to be equivalent to clause 17.2 of the TSE. It was concerned with the application of the statutory provisions to the assumption agreement and whether the assumption agreement effected a novation. I find nothing in the judgment of Wilson J. suggesting that novation is the only route to the result brought about by the analysis of the chambers judge in the present case.

[33] In Crystalline, a corporate lessee assigned two leases to a wholly owned subsidiary company that later became insolvent. A bankruptcy trustee lawfully repudiated the leases under s. 65.2 of the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3. The two lessors looked to the original lessee to recover rent unpaid by the insolvent assignee. The court, upholding the Ontario Court of Appeal, found that the repudiation did not terminate the leases for all purposes and that the rights between the lessor and the original lessee were not affected. Section 65.2 was read narrowly. The court stated at para. 29 that there is both a privity of contract and a privity of estate between the landlord and the tenant. When the tenant assigns the lease, the privity of estate comes to an end but the privity of contract remains, one effect of which is that the original tenant becomes liable for the assignee’s default on payment of rent. There was no discussion of novation and it seems the leases did not contain clauses dealing with the impact of future assignment.

[34] Mead and Crystalline dealt, respectively, with the general law of assignment of mortgages and leases, not with a specific assignment clause in either the subject mortgage or the subject lease. In neither of these cases was the court called upon to interpret a clause in the original agreement that contemplated assignment.

[35] It is fundamental to contract law that a contracting party can unilaterally assign benefits that flow to it from the contract to a third party but not that party’s obligations under the contract. The assignment notwithstanding, the assignor is required to perform its obligations under the contract absent a provision to the contrary in the contract (and absent a novation that creates a new contract).

[36] I think this area of the law was clearly enunciated in Tolhurst. The facts in that case are readily stated. Tolhurst owned chalk quarries in Northfleet and Company A owned a nearby piece of property which it had recently purchased from Tolhurst. The two parties entered into a contract in 1897 by which Tolhurst was to sell chalk from his quarries to the company in substantial weekly quantities for up to fifty years at a fixed price per ton, the chalk to be suitable for the manufacture of cement by the company on its property. The chalk was to be delivered by Tolhurst via a tramway to be completed by the company, the rolling stock to be provided by Tolhurst.

[37] In 1900, Company A wound up voluntarily. Its land was conveyed to Company B. The contract with Tolhurst was assigned to Company B without the consent of Tolhurst. Company B had a broader-based business than had been operated by Company A. Tolhurst received notice of the assignment. He offered to provide chalk to Company B at a higher unit price than that specified in the contract. The issue before the court was whether Tolhurst continued to be bound by the contract to supply chalk to Company B and, if so, whether he continued to be bound by the contract price.

[38] Collins M.R. stated the general law as follows (p. 668):

It is, I think, quite clear that neither at law nor in equity could the burden of a contract be shifted off the shoulders of a contractor on to those of another without the consent of the contractee. A debtor cannot relieve himself of his liability to his creditor by assigning the burden of the obligation to some one else; this can only be brought about by the consent of all three, and involves the release of the original debtor ... On the other hand, it is equally clear that the benefit of a contract can be assigned, and wherever the consideration has been executed and nothing more remains but to enforce the obligation against the party who has received the consideration, the right to enforce it can be assigned, and can be put in suit by the assignee in his own name after notice. Whether the right so created involves privity between the debtor and the assignee is, I think, doubtful; and the rule of the common law that the action must be brought in the name of the assignor shews that it did not regard such a transaction as equivalent to a novation. The right seems rather to be based on the equitable principle that it would be against conscience on the part of the person on whom the obligation lay to discharge it to the original contractee after he had notice that the latter had assigned the benefit of it to another person. The special right of ignoring altogether the consent of the person upon whom the obligation lies to the substitution of one person for another as the recipient of the benefit would seem in principle and in common justice to be confined to those cases where it can make no difference to the person on whom the obligation lies to which of two persons he is to discharge it, and I think the right of dropping the original contractee out of the discussion must be limited to those cases only in which the contract - that is, the benefit of all that remains to be done under it - has been assigned; and it is in this sense only, as it seems to me, that contracts can be said in strictness to be assignable.

[39] He continued with a statement of the law that appears to have some application to the case at bar (p. 669):

There is, however, another class of contracts, where there are mutual obligations still to be enforced and where it is impossible to say that the whole consideration has been executed. Contracts of this class cannot be assigned at all in the sense of discharging the original contractee and creating privity or quasi privity with a substituted person. “You have a right,” says Lord Denman C.J., in a passage cited by Gray J. in delivering the judgment of the Supreme Court of the United States in the case of Arkansas Smelting Co. v. Belden Co. [127 U.S. 379, 387], “to the benefit you contemplate from the character, credit, and substance of the party with whom you contract”: Humble v. Hunter [(1818) 12 Q.B. 310, at p. 317]. To suits on these contracts, therefore, the original contractee must be a party, whatever his rights as between him and his assignee. He cannot enforce the contract without shewing ability on his part to perform the conditions performable by him under the contract. This is the reason why contracts involving special personal qualifications in the contractor are said, perhaps somewhat loosely, not to be assignable. What is meant is, not that contracts involving obligations not special and personal can be assigned in the full sense of shifting the burden of the obligation on to a substituted contractor any more than where it is special and personal, but that in the first case the assignor may rely upon the act of another as performance by himself, whereas in the second case he cannot. He cannot vouch the capacity of another to perform that which the other party to the contract might, however unreasonably, insist was what alone he undertook to pay for-namely, work to be executed by the party himself. If, for instance, he had ordered a painting from some unknown artist of his own choice, he could not be compelled to accept instead of it the work of another artist, however eminent.

These considerations seem to me to establish beyond all question that the present case is not one where it would be possible to assert that on any rule of law or equity the new company could be deemed to be substituted into the place of the old one at the mere will of the assignor without the consent of Mr. Tolhurst. The latter may be wrong, but he is entitled, it seems to me, to have a choice in the matter of the person or company to whom he is asked to give credit, and he may prefer, and I think he is entitled to prefer, to deal with a particular company doing business in one place on a comparatively small scale, rather than with one which is about to embark upon a large combination of competing businesses requiring a very large capital and involving commensurate risks. No instance of such a contract being sued on in the name of the assignee has been adduced, and the judgment of the Supreme Court of the United States in the case cited is clear against it; while for the reasons I have above given it seems to me to fall outside that limited class of cases in which privity or quasi privity can be said to be established without novation.

[Emphasis added.]

[40] The court went on to hold that, notwithstanding the fact that it had been wound up, because Company A was still willing and able to fulfill its obligations under the contract through Company B, the contract continued to be enforceable by Company A.

[41] The TSE is a contract under which “material obligations are still to be enforced”. I think the concluding words of Collins M.R. underlined in the quote above are significant to the present case. It seems to me that one class of case in which privity can be said to be established without novation is where the contract, reasonably interpreted, so provides. In the circumstances of this case, has privity of contract been established without novation as between Cascadia and Hayes by operation of clause 17.2 in the TSE? To put it another way, has clause 17.2 displaced Hayes’s common law right to enforce the contract against Weyerhaeuser notwithstanding the assignment?

[42] Clause 3.1(d) of the TSE is a representation and warranty by Weyerhaeuser that it “is the agreement holder under Tree Farm Licence 44 and holds its rights to harvest timber from the Operating Area”. The whole of the TSE is directed to the harvesting of timber on a portion of TFL 44 and is hinged upon the right of Weyerhaeuser, as licencee, to cut timber as regulated by the licence and by the Forest Act, R.S.B.C. 1996, c. 157.

[43] The licence, whoever holds it from time to time, will be valid until 2024. When the parties executed the TSE, the Forest Act contemplated that such licences would change hands, subject to ministerial approval. These facts must have been well known to the parties when they included clause 17.2 in the contract. The intention of the parties with respect to that clause must be interpreted against that background and in accordance with good business sense.

[44] Without clause 17.2, Weyerhaeuser could not argue that it was relieved of its contractual obligations to Hayes under the TSE as of the date of the assignment to Cascadia. The law is clear that Weyerhaeuser would then have remained contractually obligated to Hayes unless it could have persuaded Hayes to consent. Hayes argues that in law, absent its consent to the assignment creating a new contract under the law of novation, the assignment to Cascadia creates legal rights and obligations between that company and Weyerhaeuser, but it has no legal effect upon Weyerhaeuser’s contractual obligations to Hayes. I do not think that clause 17.2 can be viewed so narrowly.

[45] The parties must have had a purpose when they included clause 17.2 in the contract. Unless, as is contended by Weyerhaeuser, it was the intention of the parties that Weyerhaeuser could assign the contract in full to a third-party, there was no apparent reason for clause 17.2. The clause did three things: (1) it permitted Weyerhaeuser to dispose of TFL 44, in whole or in part, to a third party; (2) if Weyerhaeuser did sell the TFL (or a relevant portion thereof), it required the company to also assign the TSE to the purchaser in such a way as to bind the purchaser to the TSE; and (3) it prevented Weyerhaeuser from assigning the TSE unless the assignee also purchased the TFL (or a relevant portion thereof).

[46] These provisions were for the benefit and protection of Hayes and would not have been put in the contract unless it was contemplated by the parties that the purchaser/assignee was to stand in the place and stead of Weyerhaeuser. Both the TFL and the TSE are long-term contracts. It was anticipated that Weyerhaeuser might sell the TFL and assign the TSE. If, following these anticipated events, Weyerhaeuser was to remain contractually bound to Hayes, clause 17.2 would be unnecessary and meaningless.

[47] In my opinion, the chambers judge did not err in holding (at para. 56) that “Hayes had no further recourse to Weyerhaeuser for anything arising under the TSE after May 30, 2005”.

[48] The second appeal concerns the order of the chambers judge dismissing the application of Hayes to adduce further evidence. Rather than argue that appeal, Hayes has sought to have the evidence admitted as fresh evidence in this court.

[49] The new evidence consists of accounting documents entitled “Advice of Deposit Slips” delivered to Hayes after the assignment to Cascadia by Weyerhaeuser’s parent company in the United States.

[50] The purpose of this evidence, as I understand it, is to support an argument that there never was a true assignment of the TSE and that Cascadia merely became an agent of Weyerhaeuser to hold the TFL and to perform Weyerhaeuser’s obligations under the contract. If that argument were successful the relationship between Weyerhaeuser and Cascadia would be that of principal and agent and not assignor and assignee. Therefore Weyerhaeuser would remain as a party under the TSE.

[51] Affidavit evidence filed in response makes it clear that the accounting documents put forward by Hayes were generated during a transitional period arrangement and, except in the case of one slip that was cancelled, they represented payments made electronically by Cascadia (and later by Western Forest Products Inc.) to Hayes. This evidence was not contradicted.

[52] But even without the explanatory evidence, it is inconceivable that the new evidence Hayes wishes to adduce could counter the clear wording of the assignment agreement between Weyerhaeuser and Cascadia. The evidence cannot reasonably be seen to have any potential for affecting the result of the hearing of the petition. It is not admissible: see Palmer v. The Queen, [1980] 1 S.C.R. 759 at 775 – 776.

[53] I would dismiss the application to adduce fresh evidence.

[54] I would dismiss both appeals.

“The Honourable Mr. Justice Low”

I agree:

“The Honourable Madam Justice Rowles”

I agree:

“The Honourable Madam Justice Ryan “