Top court upholds Churchill Falls contract
Hydroelectric deal has made Quebec $27 billion in the past 50 years
OTTAWA— It was one of the sweetest energy deals ever cut. Also one of the most foolhardy. But the country’s top court has ruled the Churchill Falls-Quebec hydro contract is ironclad and cannot be undone.
For the third time Friday, the Supreme Court of Canada upheld a controversial 1969 contract that sees massive amounts of Churchill Falls hydroelectricity sold at enormous profit to Quebec with relatively little benefit to Newfoundland and Labrador.
The 7-1 decision, written by Quebec Justice Clement Gascon, overwhelmingly rejected all arguments by the Newfoundland government and Churchill Falls (Labrador) Corp. to try to undo the original deal, or to modify it.
Only Newfoundland Justice Malcolm Rowe dissented, in support of the latest attempt by his home province to force Quebec to renegotiate a contract that has poured more than $27 billion into Quebec coffers in the past 50 years and only $2 billion to Newfoundland and Labrador.
The terms of that contract are now set to govern until 2041. Newfoundland Premier Dwight Ball told reporters in St. John’s he was resigned to the outcome. He said his government would not file further legal challenges but would seek to co-operate with the neighbouring province. Nalcor, the provincial Crown corporation that is the parent company of Churchill Falls, echoed that. They have little choice. One by one, the high court decisively rejected Newfoundland’s attempts to use Quebec’s own civil law and distinctive legal principles to roll back what has been a humiliating and disastrous result for the province.
It punted Newfoundland’s claims that Quebec was breaching a duty of good faith under the civil code to renegotiate, that the contract should be viewed more like a joint venture than a simple transaction, that an “unforeseeable” jump in market prices for hydroelectricity has led to a legal obligation to renegotiate. Finally, the majority said a three-year statute of limitations bars Newfoundland’s latest lawsuit to overturn the original terms.
“The day will come when all of the benefits of this undertaking will flow to (Churchill Falls).” PIERRE BIENVENU LAWYER
In the 1960s, Newfoundland premier Joey Smallwood, desperate to develop the ferocious tumbling waterfall power of the giant Churchill Falls in Labrador, struck a deal with HydroQuébec that would transmit the hydroelectricity at fixed, declining prices over the life of the contract. But after the oil crisis of the 1970s shifted international energy markets and hydro power soared in value, those fixed prices became a boon to Hydro-Québec.
Quebec has, for decades, transmitted and sold Labrador- generated power into eastern Canadian and northeastern United States markets for a windfall and resisted all efforts, legal and political, to tilt the balance back.
After the ruling was released, Hydro-Québec said the court had vindicated Quebec after years of legal battles and reinforced the notion it had always acted “in good faith” and in a fair and equitable way toward Newfoundland.
“It is a fair contract,” said lawyer Pierre Bienvenu. He rejected suggestions that Quebec’s refusal to renegotiate is evidence it is greedy. He said both sides in the deal got what they “bargained for.”
Hydro-Québec could have developed hydro power on its own territory back in the 1960s but chose to invest in the Churchill plant as long as it reaped the kinds of benefits it would have received had it built a similar project at home, he said.
Bienvenu said Quebec and CFLCO, the Newfoundland Crown-owned company that managed the project, went into the contract with their eyes wide open, with Quebec seek- ing a guaranteed stable price and Newfoundland agreeing to its inherent protection against inflation through fixed declining prices in order to complete the project.
Now the high court and two lower Quebec courts have “confirmed that this contract was fair when it was entered into, continued to produce benefits for both parties that were fair and anticipated, and the day will come when all of the benefits of this undertaking will flow to CFLCO,” Bienvenu said.
In 2041, when there’ll be an estimated 120 years left in the generating plant’s lifespan, Newfoundland will be able to renegotiate it with Hydro-Québec or find a “new client” for the power and reap the benefits for itself, Bienvenu said. Churchill Falls produces 34 billion kilowatt-hours of hydroelectricity a year.
The sting of the ruling is even worse now, as Newfoundland faces huge hurdles in trying to complete yet another massive hydroelectric power plant lower down on the Churchill River at Muskrat Falls.