Supreme Court re­views 1969 deal spark­ing Que­bec-N.L. hy­dro feud

Times Colonist - - Busi­ness - SUE BAI­LEY

ST. JOHN’S, N.L. — Per­haps no one was more cau­tiously thrilled than Tom Marshall to hear Thurs­day that Canada’s top court will re­view the long dis­puted Churchill Falls hy­dro deal — a case that could reap big money for a cash-strapped prov­ince.

The former premier of New­found­land and Labrador was jus­tice min­is­ter seven years ago when he read a col­lec­tion of le­gal opin­ions. They of­fered hope that there might be a way to win one of the most bit­ter po­lit­i­cal feuds in the coun­try: the fight over wildly lop­sided ben­e­fits from the Churchill Falls hy­dro­elec­tric dam and power sta­tion in Labrador.

Terms of the 65-year con­tract signed in 1969 have so far de­liv­ered about $27.5 bil­lion for Hy­droQue­bec ver­sus $2 bil­lion for New­found­land and Labrador.

If the Supreme Court of Canada rules the deal should be re­opened, it could mean a mas­sive wind­fall in a prov­ince that des­per­ately needs one.

“We’re not ask­ing for the con­tract to be can­celled,” Marshall said. “We’re ask­ing the court to or­der Hy­dro-Que­bec to rene­go­ti­ate the con­tract with us and, if they don’t, that the court it­self estab­lish a new con­tract.

“It would give us the fair­ness that the peo­ple of the prov­ince have al­ways wanted.”

A spokesman for Hy­droQue­bec said Thurs­day it’s “un­for­tu­nate that both par­ties are de­vot­ing so much en­ergy to lit­i­ga­tion rather than look­ing into more con­struc­tive av­enues.”

“The courts have al­ways found in favour of Hy­dro-Que­bec with re­spect to its po­si­tion to up­hold the 1969 con­tract,” Serge Abergel said in an emailed state­ment.

Un­der the deal, Hy­dro-Que­bec agreed to buy al­most all the en­ergy gen­er­ated by the hy­dro­elec­tric plant it fi­nanced on the Churchill River in Labrador.

The con­tract set a fixed price for the en­ergy that would de­crease in stages over time.

At is­sue in this lat­est le­gal ar­gu­ment is whether Hy­droQue­bec has a “good faith” obli­ga­tion to take into ac­count how elec­tric­ity mar­kets have changed since 1969, Marshall said.

“When you have long con­tracts, in many cases the cir­cum­stances that ex­isted when you en­tered into them have changed, and changed sub­stan­tially. That’s what hap­pened here.”

The case draws on le­gal opin­ions based on civil law in Ger­many and France, Marshall said.

“We all owe a duty, es­pe­cially in long con­tracts, of good faith to each other — not only at the time we started, when we en­tered into it, but when we ex­e­cute it over its long term.”

Still, Marshall is re­al­is­tic about the prospects of the case. Var­i­ous as­pects of the con­tract have al­ready been ar­gued be­fore the high­est court on dif­fer­ent le­gal prin­ci­ples, twice, with­out suc­cess.

This most recent court chal­lenge be­gan seven years ago.

Churchill Falls (Labrador) Corp. Ltd. — whose par­ent com­pany is Crown cor­po­ra­tion Nal­cor En­ergy — went to Que­bec Su­pe­rior Court in 2010. It ar­gued, with­out suc­cess, that prof­its of such mag­ni­tude from elec­tric­ity were un­fore­seen in 1969 and that Hy­dro-Que­bec had a duty to rene­go­ti­ate the con­tract.

The Que­bec Court of Ap­peal up­held the 2014 lower court rul­ing, agree­ing the provin­cially owned power util­ity has no obli­ga­tion to re­open the agree­ment.

Un­der the 1969 terms, Hy­droQue­bec may pur­chase the elec­tric­ity at low prices be­fore re­selling it at much higher val­ues on the do­mes­tic mar­ket and for ex­port. The le­gal chal­lenge said the con­tract was un­fair and es­sen­tially bro­ken by “un­pre­dictable events” that have trans­formed en­ergy sales.

But the five Que­bec Court of Ap­peal judges re­jected those ar­gu­ments. “It is in­ap­pro­pri­ate to re-ex­am­ine the par­ties’ cir­cum­stances when they signed the con­tract,” they ruled. “The un­con­tra­dicted ev­i­dence es­tab­lishes that they knew that the price of hy­dro­elec­tric power was sub­ject to fluc­tu­a­tion but they vol­un­tar­ily agreed to fix the price.”

The court also found the gen­eral prin­ci­ple of “good faith,” as found in Que­bec’s civil code, doesn’t ap­ply to Churchill Falls as the con­tract has re­mained “prof­itable” for New­found­land.

Siob­han Coady, nat­u­ral re­sources min­is­ter for New­found­land and Labrador, wel­comed news that the Supreme Court of Canada will take an­other look.

“That would be of tremen­dous fi­nan­cial ben­e­fit,” she said of a po­ten­tial win. Pub­lic spend­ing soared dur­ing an off­shore oil boom and the prov­ince has suf­fered pun­ish­ing fis­cal hits since prices dropped. It faces years of deficits and es­ca­lat­ing net debt.

For now, Coady said the high court hear­ing, ex­pected some­time in the next year, must play out.


The Churchill Falls power de­vel­op­ment in cen­tral Labrador un­der con­struc­tion in 1970.

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