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 cooperate 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.

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 Hydro-Québec 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 towards 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 seeking 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,” said Bienvenu.

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.

Bienvenu rejected any suggestion the divisive debate in the east has carried a national unity cost. He said while much is made of the cost and length of the eight-year legal proceedings that led to Friday’s decision, more attention should be paid to the “rigour and impartiality” of judicial analyses which completely rejected the “thesis underlying CFLCO’s historical grievances.”

The fact that the majority ruling was not signed by the sole Newfoundland judge on the court did not trouble Bienvenu, who said the majority here was “very strong.”

Bienvenu and Hydro-Québec spokesman Cendrix Bouchard said the company hopes both sides will now move on to “a new chapter of collaboration” between them.

“Hydro-Québec did not have a duty to renegotiate the contract when the contract proved to be an unanticipated source of substantial profits for it,” wrote Justice Gascon. “In Quebec civil law, there is no legal basis for Churchill Falls’ claim.”

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Gascon said the high court “cannot change the content of the contract, nor can it require the parties to renegotiate certain terms of the contract or to share the benefits otherwise.”

It said Newfoundland’s Churchill Falls Corp. “has continued to receive exactly what it was owed.”

In essence, the high court said Newfoundland had accepted the risk when it signed the deal. Both parties were experienced, they negotiated the contract at length, and there was no inequality or vulnerability in the original relationship, he said.

Gascon, citing the Quebec’s legislative view of contracts and the role of judges not to intervene, said the duty of “good faith” in Quebec’s civil code is a general one and can’t be expanded to penalize a party “whose conduct has not been unreasonable.”

“The duty to co-operate with the other contracting party does not mean that one’s own interests must be sacrificed,” Gascon said. Nor does the “magnitude of the profits it earns” justify modifying the contract “so as to deny it that benefit.”

In any case, Gascon concluded, the most recent event that would have substantially changed the market — and pricing — for Churchill power occurred when the U.S. federal energy regulatory commission in 1997 took actions to ensure the market would be open to all energy producers.

Gascon said that meant, because Quebec civil law imposes a three-year statutory limitation on such lawsuits, Newfoundland had no case to bring.

But Justice Rowe took a dramatically different view.

He said it was clear that it created “an ongoing economic relationship rather than a one-off transaction.”

It was, he wrote “the framework for an interdependent and long-term relationship.”

Rowe said the court had a role to play in re-establishing an equilibrium where the contract’s “division of burdens and benefits do not align with its intended scheme.”

“While courts may not modify or revise contracts, they can enforce what appears to be equitable,” Rowe said.

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.

That project, planned on the dream of circumventing Quebec and shipping the power via undersea cables to the island of Newfoundland and then onto Nova Scotia and directly into Canadian and U.S. markets, has been floundering. Massively over budget and off schedule, it could cost double the original price, and the province has projected it could result in huge electrical bill hikes for customers.

Former chief justice Beverley McLachlin heard oral arguments on the appeal last Dec. 5, but has since retired from the court and so did not sign the judgment, leaving it an eight-judge bench.

With a file from The Canadian Press

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