Executive Summary: Key Legal and Evidentiary Issues

• NAPP alleged Williams Canada breached its contractual duty to cooperate under Articles 1.10 and 2.8 of a Propylene Sales Agreement by implementing a "Slow Roll" and initiating a sale of its Canadian operations without prior consultation.

• Central to the dispute was whether the organizing principle of good faith could impose positive obligations — such as prior notice, minimum spending, and involvement in the sales process — beyond what was expressly negotiated.

• Williams Canada indicated that NAPP's requests were a demand to renegotiate the terms in the Agreement under the "guise of cooperation in financing" rather than a genuine effort to secure financing.

• The trial judge found NAPP never approached lenders and characterized its financing cooperation requests as "positioning" to maximize recovery of its development costs rather than pursue the project.

• At issue was NAPP's claim for $43,625,737 (USD) in NAPP Termination Costs and Technical Works Costs under the Agreement's termination provisions.

• Appellate review applied the deferential "palpable and overriding error" standard for contractual interpretation, ultimately finding no reviewable error in the trial judge's analysis.

The partnership to build adjacent propylene and polypropylene plants

North American Polypropylene ULC ("NAPP") and Williams Canada Propylene ULC ("Williams Canada") entered into a Propylene Sales Agreement ("Agreement") in August 2015 to develop two adjacent and interdependent manufacturing plants near Redwater, Alberta. Williams Canada, a wholly owned subsidiary of Williams Companies Inc. ("Williams Inc"), was to build a propylene plant, while NAPP — incorporated by the Goradia Group for the single purpose of developing and owning the polypropylene plant — would develop a polypropylene plant next door. Vinmar International ("Vinmar"), an affiliate of the Goradia Group, had been selected by Williams Inc in July 2013 for the development of the polypropylene plant. NAPP's plan was to project finance construction of the polypropylene plant, relying on debt financing obtained on the economic strength of the project itself rather than the Goradia Group's corporate resources and balance sheet. The trial judge found the Agreement was much more than a sales agreement, and was intended to govern the relationship between the parties across three phases: pre-construction, construction and commissioning of the plants, and the operation of both plants as adjacent operators involving the buying and selling of propylene and polypropylene.

Economic downturn and the "Slow Roll"

By mid-January 2016, NAPP had advanced its project planning to the verge of issuing a "teaser" to potential lenders. Unknown to NAPP, Williams Inc had initiated a company-wide review of capital spending in response to a slowdown in the economy, including the collapse of oil and gas prices, and uncertainties brought on by an ongoing hostile takeover bid of the company. These developments caused Williams Inc's stock to drop, and it no longer enjoyed an investment grade credit rating. As a result, Williams Canada was told that its 2016 budget would be significantly reduced and the Propylene Plant project would be put into "value preservation mode, under which only critical expenditures would be made in 2016." A few weeks later, Williams Canada was told that Williams Inc was putting its Canadian operations up for sale, including both Williams Canada and Williams Energy Canada ULC ("Williams Energy"). On January 13, 2016, Williams Inc told both NAPP and Williams Canada that it was implementing a "Slow Roll" of the financing and development of the Propylene Plant. Shortly afterwards, NAPP was advised on February 9, 2016, that Williams Inc would be selling Williams Canada. The Goradia Group and NAPP decided that approaching lenders at that point would be pointless. NAPP continued, however, to finish certain work necessary to secure financing for the Polypropylene Plant in accordance with its original March 31, 2016, target date.

Failed attempts to amend and extend the Agreement

In February 2016, NAPP sought amendments to the Agreement. During a meeting on February 18, 2016, NAPP told Williams Canada that it was still scheduled to meet the September 1, 2016, deadline for the Final Investment Decision and identified non-timing related expectations on any amendments, including no change to provisions where termination requires Williams to reimburse NAPP costs. Williams Canada responded on March 1, 2016, indicating that its Slow Roll was not a cancellation of the Propylene Plant and inviting NAPP to discuss new timelines. The parties then negotiated a possible extension of the Agreement's timelines, including the date of the financial close and other conditions precedent from September 1, 2016 to June 30, 2017. Williams Canada received the extension agreement from NAPP on April 18, 2016, with a 24-hour turnaround requirement. Williams Canada sent it to Williams Inc for review, and on April 28, 2016, Williams Inc sent the extension agreement for a final legal review before execution. However, before receiving an answer, on April 29, 2016, NAPP told Williams Canada that it was no longer prepared to enter into the extension agreement. The trial judge found that by backing away from the extension agreement, NAPP showed it was not truly after the benefits that an extension could bring to it, but rather needed substantive amendments to the Agreement, without which it was not worthwhile to continue spending on the Polypropylene Plant, including securing financing.

The cooperation dispute and the contractual clauses at issue

The Agreement contained two key cooperation provisions. Article 1.10, titled "Good Faith Cooperation," was a general clause spanning all three phases of the Agreement, requiring the parties to act in good faith and cooperate with respect to all matters, including the negotiation and implementation of Related Agreements, the conduct of construction, maintenance and operations, the fulfillment of their respective obligations, and the resolution of any disagreements or disputes. Article 2.8, "Cooperation Regarding Financial Close," was narrower in scope and duration, obligating Williams Canada to provide "all cooperation reasonably requested" by NAPP in connection with achieving the Financial Close Date, while expressly providing that Williams Canada "shall not be required to alter its contractual rights under this Agreement." On May 11, 2016, NAPP sent Williams Canada a formal request for cooperation in financing, specifically requesting that certain information and assurances were required by May 31, 2016. Williams Canada offered brief answers but declined to agree, indicating that the requests made were a demand to renegotiate the terms in the Agreement under the "guise of cooperation in financing." NAPP eventually sent two notices of termination of the Agreement, alleging Williams Canada breached its contractual duty to cooperate.

The trial decision and NAPP's claim for termination costs

NAPP claimed that because of the alleged breaches, Williams Canada was obligated to pay NAPP the Termination Costs and Technical Works Costs defined in the Agreement, in the amount of $43,625,737 (USD). Under the Agreement, "NAPP Termination Costs" were defined as the lesser of $35,000,000 or the aggregate of all documented third-party out-of-pocket expenditures and all documented employee compensation costs incurred in connection with the development of the polypropylene plant, but excluding Technical Works Costs. "Technical Works Costs" were defined separately as the actual third-party out-of-pocket costs paid for all engineering, design, equipment, and construction work and technology licenses related to the project. Under clause 2.2(c), if the Agreement was terminated due to Williams Canada's failure to fulfill certain conditions precedent, or due to NAPP's failure to achieve financial close caused by Williams Canada's breach of its obligations under clause 2.8, then Williams Canada was required to pay both the NAPP Termination Costs and the Technical Works Costs. Following a five-week trial, Justice R.A. Neufeld dismissed NAPP's claims in their entirety, finding that Williams Canada had not breached its cooperation obligations or duty of good faith. The trial judge concluded that the cooperation clauses could not reasonably capture obligations the parties did not accept during negotiations — including a prohibition against the change of control of either party in the pre-construction phase or any other protective clauses against Williams Inc's choice to sell its Canadian operations. He found the risk that one party could come under the control of a new entity which might not be inclined to proceed past the pre-construction phase was a risk to which both parties exposed themselves. The trial judge concluded Williams Canada went above and beyond its contractual obligations by informing NAPP as early as February 9, 2016, of Williams Inc's Sales Process and by introducing NAPP to the purchaser of its shares, InterPipeline Ltd, on July 15, 2016. The trial judge also characterized NAPP's May 11, 2016, request for cooperation as a letter of "positioning" rather than a genuine attempt at achieving financing, noting that no financing efforts were underway, nor lenders approached. He further found that Williams Inc had offered to reimburse NAPP for its project development costs if the new owner did not proceed with the Propylene Plant, even though not contractually required, but this offer was "rebuffed."

The appeal and its outcome

On appeal to the Court of Appeal of Alberta, NAPP argued the trial judge erred by narrowly construing Williams Canada's contractual duty to cooperate, and in finding it unlikely that NAPP would have achieved the required financing. The appellate court, composed of Justices Feehan, de Wit, and Feth, applied the deferential "palpable and overriding error" standard established in Sattva Capital Corp v Creston Moly Corp and found no reviewable errors. The Court confirmed the trial judge correctly interpreted the Agreement in light of its contractual language, the factual matrix, and the organizing principle of good faith from Bhasin v Hrynew. The Court agreed that Articles 1.10 and 2.8 could not reasonably have been intended to extend obligations — such as prior notice of a sale, a minimum spending obligation, or the right to be involved in the sale of Williams Canada's shares — given the absence of any restrictions on change of control in the Agreement. The Court found the trial judge properly determined the parties' bargain, including both express and implied terms, and correctly concluded that the cooperation sought by NAPP was incompatible with the bargain and the allocation of risks negotiated by the parties. Because no breach was established, the Court declined to consider the trial judge's provisional assessment of causation, in which he stated that if a determination had been necessary, he would have found it unlikely that NAPP would have achieved financing given the obstacles to be overcome under an aggressive and expedited schedule. The appeal was dismissed in favour of the respondents — Williams Canada Propylene ULC, Williams Energy Canada ULC, the Williams Companies, Inc., and InterPipeline Ltd. No exact monetary award was ordered, as the successful respondents defended against NAPP's claim rather than seeking affirmative relief.