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Newfoundland and Labrador to appeal Quebec ruling on Churchill Falls hydro deal

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ST. JOHN'S, N.L. - Newfoundland and Labrador's latest court loss isn't the end of its decades-long fight with Hydro-Quebec over Churchill Falls power, says Premier Tom Marshall.

He's backing plans to appeal a Quebec Superior Court ruling that struck down arguments that a 1969 pricing deal unfairly undervalues electricity from the Labrador plant.

The case was launched in February 2010 after Hydro-Quebec rebuffed a call from the Newfoundland and Labrador government to reopen the contentious agreement.

Its terms have caused friction between the two provinces since the 1970s.

Marshall said Friday that legal advisers support continuing a battle that has so far cost taxpayers about $4 million.

The province's latest argument that Quebec has a "good faith" duty to recognize how unforeseen pricing escalations have created what it calls grossly lopsided terms could reach the Supreme Court of Canada, he said.

"I think any government and any premier would be negligent if they didn't pursue to right this wrong on behalf of the people of the province when there's an opportunity to do so," he said in an interview.

"If we're successful, the revenue gains will be tenfold what the costs have been to date."

Ed Martin, president and CEO of Churchill Falls (Labrador) Corp., which is leading the case, said it's a disappointing loss.

"We respectfully disagree with the judge's ruling and more so have a grave concern that he did not address the essence of our argument that the duty of good faith requires renegotiation of the pricing terms of the power contract in the circumstances of this case."

Martin said if the ruling was allowed to stand, Hydro-Quebec would pay less than five per cent of the recent commercial value of Upper Churchill power until the deal ultimately expires in 2041. He estimates the disparity costs the province between $300 million and $600 million a year.

Quebec has already reaped more than $20 billion from the deal since 1969 compared to about $1 billion for Newfoundland and Labrador, Martin told a news conference Friday.

Judge Joel Silcoff in his 188-page ruling dated Thursday flatly rejected what he called the "creative legal theories" argued by Churchill Falls (Labrador) Corp., a subsidiary of Newfoundland and Labrador Hydro.

"CFLCo has failed to satisfy the court that, in the context of the nature and equilibrium of the relationship and the legitimate expectations of the parties as reflected in the (1969) power contract, by refusing to renegotiate the pricing terms ... Hydro-Quebec has breached its civil law duty of contractual good faith," Silcoff wrote.

Moreover, the company's argument that Hydro-Quebec has violated the true intent of a deal "based on an equitable sharing of risks and benefits" is simply not backed by evidence, Silcoff concludes.

Such a theory "at best requires the court to disregard the clear language and binding force of the power contract as negotiated between the parties by their own free will," says the judgment.

Silcoff also orders the Churchill Falls (Labrador) Corp. to pay just over $1 million in court costs as well as another $250,000 in special fees for Hydro-Quebec lawyers.

Hydro-Quebec has long argued that the deal is valid because it assumed all the costs and risks associated with the project when the contract was signed.

Newfoundland and Labrador has previously challenged the fairness of those terms all the way up to the Supreme Court of Canada and lost. Its latest attempt relies on its allegations of Hydro-Quebec's "good faith" contractual duties.

Dwight Ball, the Liberal Opposition leader in Newfoundland and Labrador, said he hopes the legal advice on which the Progressive Conservative government is relying is stronger than Silcoff's ruling suggests.

"In this case, for me, I don't have the information to know if I would have even started it in the beginning. But if you're going to start a fight, you may as well be prepared to finish it."

Follow @suebailey on Twitter.

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