A Quebec court has dismissed the latest bid from Newfoundland and Labrador to redefine the ever-controversial Upper Churchill contract, something that has caused sharp divisions between the two provinces for more than four decades.

But the battle is not at all over, with Nalcor — Newfoundland and Labrador's Crown energy corporation — vowing on Friday to appeal the decision. 

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Newfoundland and Labrador and Hydro-Québec have a 65-year contract that ensures fixed rate for the majority of the output from the Upper Churchill generating station. (Jacques Boissinot/Canadian Press)

"We fundamentally disagree with the judge's ruling," said Nalcor CEO Ed Martin, adding that he is "absolutely not" backing down on the latest stage of a war that has been waged between Quebec and Newfoundland and Labrador over the Churchill Falls hydroelectric megaproject in central Labrador.  

Martin said Hydro-Qué​bec's refusal to renegotiate a fixed-rate contract that does not expire until 2041 is "an abuse" that ultimately hurts the people of Newfoundland and Labrador. 

Churchill Falls (Labrador) Corp., which is largely owned by Nalcor, took its case to redraw the 1969 power price agreement with Hydro-Québec to Quebec Superior Court. 

The 65-year contract, which took effect in 1976, allows Hydro-Québec to buy energy from Newfoundland and Labrador at flat rates established decades ago, and resell the energy to customers at prices several times higher. 

In a 250-page ruling, the court says CF(L)Co did not offer a convincing argument to change the deal. 

But Martin said the decision does not answer key questions posed by CFLCo. 

'Lower courts sometimes make mistakes'

"In the ruling, we have not found anywhere where he has explained why good faith would not apply, and on behalf of CFLCo and the people who own us, we have to have that answer," Martin told reporters. 

"We can't find what we're looking for in there as a rationale."

He said Nalcor's legal team has been instructed to prepare an appeal to the Court of Appeal of Quebec. 

'We can't find what we're looking for in there as a rationale'- Ed Martin

Martin, though, added that he had always assumed the case would wind up in a higher court, even if CFLCo had won. 

"When we made the decision to proceed with this case before the Quebec Superior Court in 2010, we anticipated that either party would appeal a judgment to the higher courts," he said. 

"Appeal Courts are there because the lower courts sometimes make mistakes."

Martin said if Nalcor had prevailed, it would have meant annual revenues between $300 million and $600 million. 

'Nebulous overriding principle of fairness'

But the Quebec Supreme Court found no reason to change the contract, and raised the spectre of the bruised feelings that Newfoundland and Labrador has expressed about the terms of the contract, in return for moving energy from Labrador across Quebec's territory. 

"Were the court disposed to grant the relief sought by CFLCo, it would effectively be disregarding one of the principal benefits negotiated and received by Hydro-Quebec in consideration of its assumption of the various financial risks and costs associated with the project, that of future cost certainty and protection from inflation in operating costs," wrote justice Joel Silcoff. 

"The court cannot disregard the will of the parties, as it is being asked to do, relying on some nebulous overriding principle of fairness or good faith in the circumstances in order to require Hydro-Quebec to share with it the alleged 'windfall benefits.'" 

Silkoff's decision also said a change to the original contract would have a stark effect on consumers in Quebec. 

"If granted, [such a change] would have resulted in a substantial and non-budgeted increase in the mill rate payable for the purchase of Churchill Falls energy in each year during the remaining initial term of the power contract, as well as during the renewal term terminating in 2041," the decision said. 

"Depending on the method of calculation used, the relief sought, if granted would have resulted in an additional cost to Hydro-Quebec for the CFLCo energy totalling many billions of dollars." 

The court ordered CFLCo to pay $1.3 million in court costs.