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Wind farm killed by new government following legal battle

‘Stark reminder’ of sovereign risk
|Written By Shannon Kari
Wind farm killed by new government following legal battle
Sean O’Neill says the recent cancellation of a wind farm project by the province is ‘a reminder of how the government can pass legislation that deprives a party of contractual rights or remedies.’

A few days after the new Conservative government introduced legislation last month to kill a major wind turbine project in Prince Edward County, a lawyer for the Ministry of the Environment and Climate Change was in court to defend the initial approval process.

The Divisional Court panel dismissed the application by a residents group for an injunction to halt construction and ruled in favour of the respondents — the province and WPD White Pines Wind Incorporated.

That decision and other court rulings related to the project were rendered moot when the Urgent Priorities Act received royal assent on July 25, nine days after it was introduced.

The legislation terminates the project, revokes any contracts between the company and related parties, extinguishes any existing proceedings and prevents future proceedings against the Crown.

White Pines has also been ordered to decommission the project and is responsible for any liabilities that may result. In a separate move, the ministry was re-named the Ministry of the Environment, Conservation and Parks. The cancellation was part of the Conservatives’ election platform and an example of the risk that private sector companies face when entering into contracts with the public sector and there is a change in government.

“It is blunt legislation,” says Sean O’Neill, a partner at McCarthy Tétrault LLP in Toronto and the industry group leader of the firm’s power group.

“It is a clear example of sovereign risk. It is certainly not unique, but it is a reminder of how the government can pass legislation that deprives a party of contractual rights or remedies,” says O’Neill. “You are not dealing with a private counter-party. You are dealing with an entity that has statute-making power,” he adds.

WPD, a subsidiary of a German company, was originally awarded a contract in 2010 by the province. The project faced numerous court challenges in the past eight years and a smaller facility than originally planned was supposed to be operational by this fall.

Eric Gillespie, who acted for the “Alliance to Protect Prince Edward County” at the Divisional Court and other proceedings, says that while the legislation was enacted quickly it should not have been a surprise to WPD.

“The current government clearly stated its position on this issue during the campaign,” says Gillespie, a Toronto-based litigator whose practice focuses on environmental issues. Gillespie says the province “took steps” because it recognized the urgency of the situation, since construction was underway.

For residents’ groups, it is also difficult to challenge these types of projects at tribunals and in the courts. “Judicial review is often not a very useful tool. Part of the problem is that courts have interpreted legislation like the Judicial Review Procedure Act very narrowly,” says Gillespie.

One aspect of the litigation over the White Pines project that was successful, he notes, was that it bought some time for Prince Edward County residents until there was an election.

“In the end, the legal processes did have an impact on the timing of the construction, so that when a new government came into office the project was not fully developed,” he says.

If the company does initiate litigation against the province over the cancellation of the project and the provisions in the legislation, that same judicial deference may be difficult to overcome, suggests Gillespie. “WPD is likely to meet the same obstacles our clients did,” he says.

Restricting its own liability is also not unusual, says Gillespie.

“Governments do this on a regular basis, limiting who you can sue,” he notes.

Patrick Duffy, a partner at Stikeman Elliott LLP in Toronto, who acts for WPD, was unavailable for comment about whether the company might bring any legal action against the province as a result of the cancellation of the wind project.

According to O’Neill, the province appears to have crafted the statute with an eye to the possibility of litigation.

“Whoever drafted it has gone through the jurisprudence and drafted it in a way to try to bullet-proof it from any claims,” he says. One example, he notes, is a section of the bill that seeks to deny any claim of expropriation.

“Nothing in this Act and nothing done or not done in accordance with this Act constitutes an expropriation or injurious affection for the purposes of the Expropriations Act or otherwise at law,” states section 5(8) of the bill.

There is also a precedent for voiding past contracts in the energy sector.

“The Electricity Act as it stands has similar provisions preventing claims,” says O’Neill.

A section of that legislation, enacted in 1998 when Ontario Hydro was re-structured into five separate entities, declared that any contract it had entered into with a municipality no longer had any force or effect. While the province may be on solid legal ground, the new legislation will be on the minds of any company seeking to make a significant investment in Ontario, O’Neill suggests.

“All investors are aware of the notion of sovereign risk. This is a stark reminder of what it means,” he says.


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