Natural Resources Minister Kathy Dunderdale backtracked Monday on whether the province is considering a lawsuit over the Upper Churchill power contract. (CBC)

A Newfoundland and Labrador cabinet minister sparked a brief uproar Monday, saying the province was considering a lawsuit aimed at Ottawa and Quebec over the controversial Upper Churchill hydroelectric deal.

However, Natural Resources Kathy Dunderdale retracted her statement within hours, saying that she had misspoken about any government plans to launch litigation over a 65-year hydroelectric contract that for decades has been a sore point between the neighbouring provinces.

Dunderdale said government lawyers are preparing a case to seek redress for the 65-year Upper Churchill contract, in which Hydro-Quebec buys power at inexpensive rates from Newfoundland and Labrador and pockets the profits.

"Consideration is even being give to pursuing an action against the federal government," Dunderdale told reporters.

"We are always looking for opportunities for redress and where we find there are options that make sense to us and have a measure of success on a go-forward basis, then we are prepared to consider them," she said.

Dunderdale told reporters that any potential lawsuit against Ottawa would be based on the long-held belief that the federal government could have intervened in the Upper Churchill talks to ensure a more fair deal. Dunderdale also said litigation was planned against Quebec, which has reaped the lion's share of profits from the 65-year Upper Churchill contract, which kicked into gear once Upper Churchill power started flowing in 1976.

However — after a testy exchange in the house of assembly, with Opposition politicians demanding answers on what plans, if any, government had on launching lawsuits — Dunderdale acknowledged that she made a mistake.

"I certainly did misspeak," Dunderdale told a scrum after question period.

The issue, she said, was revived by a statement earlier this month by the Innu Nation, which wants redress on the Upper Churchill contract before it agrees to any further development on the Churchill River.

Dunderdale said if the redress issue proceeds, the province may pursue the federal government and Quebec, because they have been the principal beneficiaries of Upper Churchill profits.

"In terms of this issue, we are considering all options that are available to us," she said.

Justice Minister Jerome Kennedy said that the Innu, formerly a nomadic people, had hunted and lived on the land surrounding Churchill Falls and the Churchill River for centuries before the contract was drafted in 1969.

"One of the legal issues would be, are the aboriginal rights extinguished by the passage of time," Kennedy said.

Just last week, Premier Danny Williams said the Innu Nation's demands could derail the Lower Churchill project.

The Supreme Court of Canada has twice unanimously ruled against Newfoundland and Labrador over elements of that contract. A 1984 provincial act on reversing water rights was found unconstitutional, because it interfered with Hydro-Quebec's rights under the contract.

In a separate decision in June 1988, the country's top court dismissed Newfoundland's claim to reopen the contract.

The Newfoundland and Labrador government is still hoping to start construction on a Lower Churchill project in 2010, with first power expected to flow in 2015.