Boom goes the – uh – Natural Gas: Court says SaskEnergy can buy Head Office for $31 Million under Market Price

The impact? They are able to purchase a building presently valued at $50 million for about $19 million.

The decision to purchase the property was announced in 2011 (as seen in this CBC story), and was the triggering step for this litigation.

The decision is an interesting read.  A lot of complex points, but I’ll try to distill it down with a little generalization. 

SaskEnergy was looking for some new commercial space back in 2000, and it was common knowledge that their now head office would soon be vacant.  They entered into negotiations to lease the space.  They negotiated with ADAG Corporation Canada Ltd., the general partner of a German limited partnership GGG (another defendant), for the lease.

The negotiations were key to dispute.  As the context of the formation of the contract can inform its meaning, the parties were presenting evidence about how the option to purchase came into being.  The Court looked at a recent Supreme Court of Canada decision and distilled the following three principles:

A key issue for the defendants was that the partnership agreement of GGG did not allow for an asset to be sold at any time without 2/3 majority of the partnership agreeing to the sale.  They argued in a number of different ways that this should prevent the option to purchase from being enforceable.

The court disagreed with the defendants.  The main reasons why included:

• The language of the contract clearly contemplated a firm option to purchase.
• The defendants acted in a manner that implied that the option to purchase was enforceable.  At one time, they even tried to purchase the option to purchase from SaskEnergy through a tendering process.
• The court determined that ADAG was acting with the authority to negotiate, and bound them to that transaction, despite GGG’s partnership agreement.

While often a court will just assess damages, with land they have the option to force the sale to occur (the remedy of ‘specific performance’) if the land has special characteristics that meet the requirements of the plaintiffs.  In this case, the fact that SaskEnergy invested $4.3 million in renovations was reason enough for the judge to force the sale and transfer of land.   

The sale of the property is not the only financial benefit.  The benefit to SaskEnergy is likely even greater than that, as they are also entitled to the rent that they paid on the property from the date in 2011 when they purchased the property and their court costs (not the same as solicitor/client costs).

I did not investigate to see if either party was appealing the decision of the lower court.  If an appeal occurs, it may alter the decision or outcome.