Arguments to renegotiate Churchill Falls met with stern questions in Supreme Court

Arguments made in favour of renegotiating the Churchill Falls-Hydro Quebec deal did not go over swimmingly in the Supreme Court of Canada on Tuesday.

Decision not expected for several months

The Churchill River in Labrador has been a source of electricity and controversy since the 1969 deal with Hydro-Québec. (Greg Locke/Reuters)

Arguments made in favour of renegotiating the Churchill Falls-Hydro-Québec deal were met by stiff questions in the Supreme Court of Canada on Tuesday.

The nine judges repeatedly questioned lawyers for the Churchill Falls (Labrador) Corporation (CFLco) on the basis of their arguments and why they thought the court should meddle in a decades-old contract.

"There's no suggestion that Churchill Falls has received anything less than it was contracted," said Justice Russell Brown during arguments by lawyer Doug Mitchell.

"Well I would submit that is actually not the case," Mitchell responded. "CFLco gets the amount provided for in contract, yes. But that's just a literal reading of the contract."

Partnership or separate entities?

Mitchell, along with co-counsel Audrey Boctor, argued the Churchill group entered a co-venture with Hydro-Québec in 1969.

While nothing in the contract states they were to be partners in the deal, or share profits and risks, they argued the two sides were co-dependent.

Doug Mitchell and Audrey Boctor are the lawyers arguing on behalf of the Churchill Falls (Labrador) Corporation. (Supreme Court of Canada)

While they were not an official partnership, Mitchell said this made them "akin to a partnership," and thus Hydro-Québec has acted in bad faith by not renegotiating the notorious lopsided terms.

The deal has generated $27.5 billion for Quebec, while it has returned about $2 billion for Newfoundland. It does not expire until 2041.

Hydro-Québec buys power from the Churchill Falls hydroelectric generator at a fixed price and sells it to other regions for huge profits.

When you enter into a 65-year contract, you must do that knowing the world will turn over a couple of times in the process.- Justice Russell Brown

The two sides went to Quebec Superior Court in 2010, with CFLco arguing unsuccessfully the sizable profits from electricity were unforeseen in 1969 and that Hydro-Québec had a duty to renegotiate the contract.

On Monday, lawyers for Hydro-Québec disputed the partnership argument, saying they were not co-dependent.

While Mitchell and Boctor said Hydro-Québec had no other viable options for power generation in 1969, their opposing counsel said Quebec had ample untapped resources they could have developed.

Paradigm shift was unforeseen

The Churchill Falls lawyers also argued unforeseeable events derailed the contract and, by refusing to renegotiate terms, Hydro-Québec did not act in good faith.

Several judges questioned if fluctuation in rates over a long-term contract could be considered "unforeseeable."

Justice Russell Brown of British Columbia listens during a Supreme Court session Tuesday. (Supreme Court of Canada)

Mitchell and Boctor said it was more than just fluctuation — it was a global paradigm shift, mixed with Hydro-Québec's switch from a non-profit company to a profit generator.

Brown was the most vocal of the Supreme Court judges, interjecting several times to offer opinions and ask questions.

"When you enter into a 65-year contract, you must do that knowing the world will turn over a couple of times in the process," he said.

A decision in the case is not expected for about six months.