Bidell Equipment LP v Caliber Midstream GP LLC, 2020 ABCA 478 (“Bidell”) is a recent appeal decision showcasing the importance of a properly drafted contract and its significance during contractual disputes. Additionally, this decision highlights the enforceability of an appropriately drafted liquidated damages clause as opposed to penalty clauses. This appeal reaffirmed the decision of the trial judge, completely dismissing the appeal of the appellants.

Background

Bidell Equipment LP is in the business of providing custom natural gas compression services and custom built natural gas compression units. Caliber is a company in the midstream oil gas and services industry. In 2014, Bidell approached Caliber to design and build six gas compressor units for Caliber’s new expansion project. Bidell provided Caliber with quotations for different compressor packages accompanied by letters of intent, Bidell’s terms and conditions and a manufacturing warranty to be signed by Caliber. The letters of intent specifically stated that Bidell’s terms and conditions and warranty would be in effect and upon Caliber’s signing of these documents, Bidell began designing the units. Some of the relevant clauses within the terms and conditions included:

Clause 12. Payment

Unless specified otherwise, the payment terms set out in this section shall apply to all Quotations. Purchaser shall pay the following percentages of the total price set out in the Quotation, as well as the taxes, duties and other charges applicable on such amounts, at the following times: 20% upon receipt of notice of acceptance of the Quotation; 30% upon receipt of the driver by Bidell; 15% upon receipt of the screw compressor or the reciprocating compressor frame by Bidell; 15% upon receipt of the cooler by Bidell; 15% upon the earlier of test run / function test or 30 days prior to scheduled ship date; and 5% upon 30 days from Bidell issuance of offer-to-ship notice. Any change order adjustment will be invoiced in accordance with the above schedule. In all cases, 95% of the Quotation amounts must be received by Bidell before goods will be released for delivery.

All such amounts shall be invoiced by Bidell on the date of the event noted above and are due within 30 days. Purchaser shall pay Bidell interest monthly, calculated from the due date for payments, at the rate of 24% per year (2% per month) on all amounts which are outstanding for more than 30 days after payment is due, until the date of actual payment, whether before or after judgment.

Purchaser shall pay all costs and expenses of Bidell incurred in collecting payment of any overdue amount or interest from Purchaser, including actual legal fees paid or payable by Bidell. Bidell may set off any amount owing from Purchaser to Bidell against any amount due or owing to Purchaser.

Clause 16. Optional Termination

Except as noted in this section, this Quotation may be terminated by Purchaser at its option, in whole or in part, at any time by written notice to Bidell. Upon such termination, Purchaser shall pay Bidell the price of all goods and services which have been delivered or provided pursuant to this Quotation, including work in progress in proportion to the total work to be performed under this Quotation, as reasonably determined by Bidell, and all materials ordered by Bidell for the performance of this Quotation. Purchaser shall also pay Bidell an amount equal to 10% of the total price of this Quotation, as amended, if applicable, as liquidated damages, which the parties hereto agree is a genuine, reasonable pre-estimate of the loss of profit and damages suffered by Bidell as a result of this termination. Purchaser shall not be permitted to terminate under this section within 60 days of the delivery date specified in this Quotation or such later date communicated to Purchaser by Bidell in writing. …

Eventually, Caliber advised Bidell of their intention to cancel its order for the units however; Bidell had already finalized the shipping dates for all six units and placed all the necessary orders with suppliers to begin designing the units. In addition, Bidell had already provided Caliber with invoices totalling $4,247,545 at this point in time. Once the cancellation of the remaining five units was confirmed, total cancellation costs of the units and termination of work amounted to $845,208 and total cancellation charges of $5,092,753.

The trial judge concluded that on receipt of the signed intents to purchase, there was a complete and binding contract between Bidell and Caliber, including Bidell’s terms and conditions. Within the judgement the trial judge awarded Bidell with a total of $4,190,286 for cancellation charges, $440,142 for storage fees, $6,073,407 for pre-judgment interest and $816,662 for indemnity costs.

Appeal Decision

The appeal in this decision involved the following issues:

• Whether the liquidated amounts for termination provisions found in clause 16 of Bidell’s terms and conditions were actually enforceable or considered a penalty for breach of contract.
• Whether Bidell had lost the opportunity to sell some of their supplies to other jobs after they were assigned to the Caliber job.
• Whether the amounts for cancelled equipment and returned equipment should be deducted from the amount awarded to Bidell.
• Whether the pre-judgment interest of 24% per annum applies to the entire judgement.

The Appeal Court ultimately decided that the trial judge had come to the correct conclusions on all the appeal issues and dismissed the appeal. This decision was largely due to the well-drafted clauses within Bidell’s terms and conditions and the overarching principles of freedom of contract. Regarding the first issue of liquidated damages, it was determined that there is a distinction between a penalty clause designed to deter a party from breaking a contract, as opposed to a liquidated damages clause negotiated in advance with the sole purpose of compensating for the loss of expected profits under an agreement. As a result, the wording of clause 16 fell well within the parameters of this definition and the liquidated damages clause was found to be valid. Caliber’s arguments against the 24% pre-judgement interest failed largely due to the fact that the Court had determined the parties contracted to this interest rate. Clause 12 of Bidell’s terms and conditions clearly stated the interest and how it would apply to any outstanding amounts longer than 30 days. Any arguments referring to this interest rate as a penalty were denied by the Court stating that “even a contractually agreed upon high interest rate is enforceable and a creditor is entitled to judgement in accordance with the terms of the contract.”

Key Takeaways

Bidell showcases the importance of a properly drafted contract and its significance during contractual disputes. Organizations can expect the Courts to look to Bidell when examining the enforceability of an appropriately drafted liquidated damages clause as opposed to penalty clauses.

• Both the trial and appeal decisions reflect the importance of a properly drafted clause. Having clauses drafted in a way where you are protected and adequately compensated can be crucial in the event of a contractual dispute, as was showcased within this decision.
  • The importance of including these pre-judgement interest costs on the front end is amplified when comparing the numbers to a contract without such a clause. For example, had Bidell not included the interest rate of 24% within clause 12 the Court would have referred to the Judgement Interest Act which would have resulted in a pre-judgment interest rate of only 1.5% for the year 2020. Ensuring an adequately drafted interest clause is included within the contract allows for a real reward in the event of a dispute.
• Liquidated damages clauses can still be valid and upheld by the Court as long as they are drafted in a way which fits the definition of a clause negotiated in advance for the sole purpose of compensating the loss of expected profits under an agreement as opposed to a penalty designed to deter a party from breaking a contract.
• This decision highlights the value for a client in having their counsel review and ensure all terms within a contract are drafted appropriately and are agreed upon on the front end to be adequately protected from any disputes that may arise.

If you are looking to ensure your contracts are drafted in a way to best suit your organization’s needs while offering the appropriate protection in the event of a dispute, contact Jeremy Taylor in Edmonton.