N.L. looks to 1990 case as Churchill precedent

Rob Antle
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Supreme Court ruled on 'good faith' lawsuit

Newfoundland and Labrador is citing a 1990 Supreme Court of Canada decision as a precedent that bolsters its legal case against Hydro-Quebec for a better deal on the Upper Churchill power contract.

Nalcor Energy president Ed Martin referenced the case - Houle v Canadian National Bank - in a briefing with reporters earlier this week.

Newfoundland and Labrador is citing a 1990 Supreme Court of Canada decision as a precedent that bolsters its legal case against Hydro-Quebec for a better deal on the Upper Churchill power contract.

Nalcor Energy president Ed Martin referenced the case - Houle v Canadian National Bank - in a briefing with reporters earlier this week.

Nalcor - the province's Crown-owned energy corporation - owns two-thirds of Churchill Falls (Labrador) Corporation, which operates the Upper Churchill power plant.

CF(L)Co is suing Hydro-Quebec to reopen the Upper Churchill contract, citing "good faith" provisions of Quebec civil law.

Some two decades ago, the country's top court considered that issue of "good faith" in contracts.

The Supreme Court of Canada's Houle decision runs more than 23,000 words.

But boiled down to its essence, it deals with a family business that had a dispute with its bank.

The Houle family and its company had done business with the National Bank for more than 50 years. In 1973, the company approached the bank for financing to modernize and expand. In return, the bank got security over the company's assets.

Later that year, Houle family members began talks to sell their shares in the company to an outside interest for $1 million. The bank was aware of the negotiations.

When the Houle business asked for an increase to its line of credit, the bank instructed an accounting firm to study the financial situation of the company. Once the bank received the report, it called in its loans and realized on the guarantees.

The bank immediately took possession of the company's assets and liquidated them in less than three hours.

A few weeks later, the Houle family ended up selling their shares for $300,000.

They later sued the bank in Quebec Superior Court for $700,000, claiming that their loss from the original negotiated price of $1 million was solely due to the bank's abusive conduct.

The court found the bank at fault, even though it had acted within the terms of its contract. It ruled in favour of the Houle family. The Quebec Court of Appeal upheld the verdict.

The bank then went all the way to the Supreme Court of Canada. The nation's top court dismissed the bank's final appeal.

The Supreme Court of Canada decision referenced precedents all the way back to Roman law up to then-pending changes to the Quebec Civil Code about good faith being an "implicit, necessary obligation" in all contractual relationships.

"At a general level, it seems indisputable that an implicit obligation of good faith exists in every contract in Quebec civil law," the court noted.

Fast-forward a couple of decades.

In late November, Martin said that 1994 changes to the Quebec Civil Code opened the door for legal redress on the Upper Churchill.

Martin wrote Hydro-Quebec asking the power giant to reopen the disastrous Upper Churchill contract, citing "good faith" provisions of the law.

Hydro-Quebec did not respond to that letter. And last month, Quebec's deputy premier dismissed the request as "nothing new."

But Martin told reporters this week that the Houle case is a "good example" of the Newfoundland and Labrador argument.

"The court decided to go outside the actual direct confines of the contract from the perspective of the principle of good faith," Martin said.

He noted that subsequent changes to Quebec law strengthened the good-faith concept even more.

CF(L)Co plans to file a motion in Quebec Superior court within weeks. That application will outline in greater detail the basis for Newfoundland and Labrador's claim, Martin indicated this week.

Martin told reporters the matter could take two to three years to work its way through the court system.

The current purchase price of Upper Churchill power is roughly one-quarter of one cent per kilowatt hour. In 2016, that price will drop to one-fifth of one cent.

The contract runs until 2041.

According to Nalcor, those prices mean Upper Churchill power will be sold to Hydro-Quebec for less than five per cent of its recent commercial value over the contract's remaining 32 years.

Newfoundland and Labrador officials have contended the province nets only $63 million a year from the lopsided arrangement, while Quebec receives an estimated $1.7 billion annually.

rantle@thetelegram.com




Weblinks

For the full Supreme Court of Canada decision, go online to:
http://tinyurl.com/houledecision

Organizations: Supreme Court of Canada, Hydro-Quebec, Churchill Canadian National Bank Quebec Superior Court

Geographic location: Quebec, Newfoundland and Labrador

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Recent comments

  • PIG
    July 02, 2010 - 13:13

    The case can be found here:

    http://canlii.org/en/ca/scc/doc/1990/1990canlii58/1990canlii58.html

  • Manny
    July 02, 2010 - 13:10

    This lop-sided deal should be re-negotiated. Anyone with a conscience would agree.

  • PIG
    July 01, 2010 - 19:52

    The case can be found here:

    http://canlii.org/en/ca/scc/doc/1990/1990canlii58/1990canlii58.html

  • Manny
    July 01, 2010 - 19:46

    This lop-sided deal should be re-negotiated. Anyone with a conscience would agree.