Supreme Court Judgments

Decision Information

Decision Content

Supreme Court of Canada

Constitutional law—Validity of provincial legislation—Legislation providing for reversion to province of ownership and control of certain water within the province—Expropriation of company’s assets—Whether legislation impairing status and essential powers of federally‑incorporated company—Whether legislation interfering with civil rights outside Province—The Upper Churchill Water Rights Reversion Act, 1980 (Nfld.), c. 40.

Evidence—Constitutional law—Validity of legislation—Admissibility of extrinsic evidence.

Churchill Falls (Labrador) Corp., a federally-incorporated company, developed the hydro-electric resources of Churchill Falls under a statutory lease granted by Newfoundland and provided for in The Churchill Falls (Labrador) Corporation Limited (Lease) Act, 1961. In

[Page 298]

1969, the company signed a contract (the Power Contract) with Hydro-Quebec whereby it agreed to supply and Hydro-Quebec agreed to purchase virtually all of the hydro-electric power produced at Churchill Falls for a term of 65 years. Delivery of power to Quebec began in 1971 and the whole development was completed by 1976. Since 1974, however, Newfoundland attempted unsuccessfully to recall more power than was provided for in the Power Contract. In 1980, the Newfoundland Legislature enacted The Upper Churchill Water Rights Reversion Act providing for the reversion to the province, free and clear of all encumbrances and claims, of the rights to the use of the waters and the water power rights described in the statutory lease. The Act also provided for the repeal of The Churchill Falls (Labrador) Corporation Limited (Lease) Act, 1961, including the statutory lease, and for the expropriation of the company’s fixed assets used in the generation of electric power. The Act limited compensation to creditors and shareholders. Newfoundland referred the matter to the Court of Appeal which held the Act intra vires of the Newfoundland Legislature.

Held: The appeal should be allowed.

In constitutional cases, extrinsic evidence may be considered to ascertain not only the operation and effect of the impugned legislation but also its true object and purpose as well. Here, The Upper Churchill Water Rights Reversion Act is colourable legislation aimed at the Power Contract. The extrinsic evidence, held admissible, showed that the pith and substance of the Act is to interfere with the right of Hydro-Quebec under the Power Contract to receive an agreed amount of power at an agreed price. This right to the delivery in Quebec of Churchill Falls power is situated outside the Province of Newfoundland and is beyond the territorial competence of the Newfoundland Legislature.

Reference re Residential Tenancies Act, 1979, [1981] 1 S.C.R. 714; Reference re Anti‑Inflation Act, [1976] 2 S.C.R. 373, applied; B.C. Power Corporation v. Attorney General of British Columbia (1963), 44 W.W.R. 65, disapproved; Royal Bank of Canada v. The King, [1913] A.C. 283; Ladore v. Bennett, [1939] A.C. 468; Ottawa Valley Power Co. v. Hydro‑Electric Power Commission, [1937] O.R. 265; Beauharnois Light, Heat and Power Co. v. Hydro-Electric Power Commission of Ontario, [1937] O.R. 796; Credit-Foncier Franco‑Canadien v. Ross, [1937] 3 D.L.R. 365; John Deere Plow Co. v. Wharton, [1915] A.C. 330; Great West Saddlery Co. v. The King, [1921] 2 A.C. 91; Attorney-

[Page 299]

General for Manitoba v. Attorney-General for Canada (the Manitoba Securities case), [1929] A.C. 260; Lymburn v. Mayland, [1932] A.C. 318; Morgan v. Attorney General of Prince Edward Island, [1976] 2 S.C.R. 349; Canadian Indemnity Co. v. Attorney-General of British Columbia, [1977] 2 S.C.R. 504; Walter v. Attorney General of Alberta, [1969] S.C.R. 383; R. v. Arcadia Coal Co., [1932] 1 W.W.R. 771; Abitibi Power and Paper Co. v. Montreal Trust Co., [1943] A.C. 536; Day v. Victoria, [1938] 4 D.L.R. 345; Central Canada Potash Co. v. Government of Saskatchewan, [1979] 1 S.C.R. 42, referred to.

APPEAL from a judgment of the Newfoundland Court of Appeal (1982), 134 D.L.R. (3d) 288, 36 Nfld. & P.E.I.R. 273, 101 A.P.R. 273, in the matter of a reference concerning the constitutional validity of The Upper Churchill Water Rights Reversion Act. Appeal allowed.

John Sopinka, Q.C., and Kathryn I. Chalmers, for the appellant Churchill Falls (Labrador) Corporation Limited.

T.G. Heintzman, Q.C., Jean-Paul Cardinal, Q.C., Michel Jetté, and David I. Hamer, for the appellant Hydro-Quebec.

Jean-K. Samson, Henri Brun and Odette Laverdière, for the appellant the Attorney General of Quebec.

Clyde K. Wells, Q.C., and Robert O’Brien, Q.C., for the appellant Royal Trust Co.

Robert Wells, Q.C., and Randell Earle, for the appellant General Trust of Canada.

Leonard A. Martin, Q.C., O. Noel Clarke, Edward Hearn and David Orsborn, for the respondent.

T.B. Smith, Q.C., and P.K. Doody, for the intervener the Attorney General of Canada.

E.R.A. Edwards, for the intervener the Attorney General of British Columbia.

James C. MacPherson and George V. Peacock, for the intervener the Attorney General for Saskatchewan.

Brian F. Squair, for the intervener the Attorney General of Manitoba.

[Page 300]

The judgment of the Court was delivered by

MCINTYRE J.—This appeal from a judgment of the Court of Appeal of Newfoundland arises from a reference made by the Lieutenant Governor in Council of Newfoundland to that Court by Order in Council, dated February 10, 1981, pursuant to s. 6(1) of The Judicature Act, R.S.N. 1970, c. 187. It concerns the constitutional validity of The Upper Churchill Water Rights Reversion Act, 1980 (Nfld.), c. 40, hereinafter referred to as the Reversion Act. Nine questions were referred to the Court of Appeal and by order of this Court, dated May 6, 1982, the same questions were argued before us. The Reversion Act has not yet been proclaimed but by agreement of all parties the appeal was argued on the basis that it was in force. The nine questions are set out below:

1. Is section 4 of the Reversion Act ultra vires the Legislature in whole or in part, and if so, in what particular or particulars and to what extent?

2. Insofar as section 4 of the Reversion Act is intra vires the Legislature to what extent does it:

a) repeal The Churchill Falls Labrador Corporation (Lease) Act, 1961;

b) repeal the Statutory Lease as defined in section 2(d) of the Reversion Act;

c) determine the Statutory Lease as defined in section 2(d) of the Reversion Act as contemplated by clause 6(a) of Part II of the Statutory Lease;

d) cause the determination of the leases, described in paragraph 9 of the Statement of Facts attached hereto as Appendix II (‘the said Leases’), of Crown Lands authorized and issued pursuant to clause 7 of Part III of the Statutory Lease by virtue of the provisions of clause 7(2) of Part III of the Statutory Lease and the termination clauses contained in the said Leases or either or both of such clauses;

e) cause to be vested in Her Majesty in right of Newfoundland the improvements made by the lessee on the Crown Lands described in the said Leases and leased pursuant to clause 7 of Part III of the Statutory Lease by virtue of clause 6(a) of Part II of the Statutory Lease or by virtue of the nature of the said

[Page 301]

Leases themselves or either or both of them.

3. Is section 5(1) of the Reversion Act ultra vires the Legislature in whole or in part, and if so, in what particular or particulars and to what extent?

4. Insofar as section 5(1) of the Reversion Act is intra vires the Legislature to what extent does it:

a) determine the Statutory Lease as defined in section 2(d) of the Reversion Act;

b) cause the determination of the said Leases of Crown Lands authorized and issued pursuant to clause 7 of Part III of the Statutory Lease by virtue of the provisions of clause 7(2) of Part III of the Statutory Lease and the termination clauses contained in the said Leases or either or both of such clauses;

c) cause to be vested in Her Majesty in right of Newfoundland the improvements made by the lessee on the Crown Lands described in the said Leases and leased pursuant to clause 7 of Part III of the Statutory Lease by virtue of clause 6(a) of Part II of the Statutory Lease or by virtue of the nature of the said Leases themselves or either or both of them.

5. Is section 7(1) of the Reversion Act ultra vires the Legislature in whole or in part, and if so, in what particular or particulars and to what extent?

6. Insofar as section 7(1) of the Reversion Act is intra vires the Legislature to what extent does it:

a) determine the said Leases of Crown Lands authorized and issued pursuant to clause 7 of Part III of the Statutory Lease;

b) cause to be vested in Her Majesty in right of Newfoundland the improvements made by the lessee on the Crown Lands described in the said Leases and leased pursuant to clause 7 of Part III of the Statutory Lease by virtue of clause 6(a) of Part II of the Statutory Lease or by virtue of the nature of the said Leases themselves or either or both of them.

7. Is section 8 of the Reversion Act ultra vires the Legislature in whole or in part and if so, in what particular or particulars and to what extent?

[Page 302]

8. Insofar as section 8 of the Reversion Act is intra vires the Legislature to what extent does it:

a) vest in Her Majesty in right of Newfoundland the hydro-electric works (as defined in section 2(c) of the Reversion Act) attached to the lands held under the said Leases authorized and issued pursuant to clause 7 of Part III of the Statutory Leases?

9. Is the Reversion Act ultra vires the Legislature in whole or in part and, if so, in what particular or particulars and to what extent?

I

The vast hydro-electric potential of the waters of Labrador has long been recognized. It is, however, only recently that steps towards its exploitation have been taken. In 1958 a company named Hamilton Falls Power Corporation was incorporated by federal letters patent with the following objects:

1. To produce or otherwise acquire and to transmit and sell electricity.

2. To harness or otherwise make use of water for the purpose of producing hydro‑electric and hydraulic power and for any other purpose.

In the same year the new company acquired an option from Her Majesty the Queen in Right of the Province of Newfoundland, at that time the owner of all water rights in Labrador, to develop the water resources of the Hamilton River in Labrador. In 1960 the company exercised its option and obligated itself to develop the hydroelectric resources of the Hamilton River. The river was renamed the Churchill River and in 1965 the company name was changed to Churchill Falls (Labrador) Corporation Limited (hereinafter referred to as CFLCo). The option having been exercised, the Legislature of Newfoundland on March 13, 1961 enacted what is now The Churchill Falls (Labrador) Corporation Limited (Lease) Act, 1961 (Nfld.), c. 51. This Act was amended in 1963-64, 1966-67, 1968, 1969, and 1970 and the Act, together with its amendments, will be referred to as the Lease Act. The Lease Act authorized the Lieutenant Governor in Council to execute and deliver a lease to CFLCo, the terms of

[Page 303]

which were to be substantially similar to the terms of a draft lease set out in the schedule to the Act. This lease, called the Statutory Lease, was executed and delivered on May 16, 1961. It was specifically approved in the Lease Act. It granted to CFLCo full right to the exclusive use of certain waters of the Churchill River and its watershed for the generation of hydro‑electric power, together with the right to transmit the power throughout the Province and to export it from the Province. Other leases were also granted by Her Majesty the Queen in Right of Newfoundland to CFLCo in 1968 covering lands and easements necessary for the Churchill Falls project, including leases for the power site itself where the main generating facilities were built, as well as for roads, transmission lines and an airport. These additional grants were referred to in argument as Crown leases.

Until the early 1960’s there were two obstacles that stood in the way of developing the water resources of the Churchill River. The first was the problem of transmitting electricity over great distances from the source at Churchill Falls to the nearest market in southern Quebec and the United States without undue loss of power. In the 1960’s a feasible means was developed by engineers of Quebec Hydro-Electric Commission (hereinafter referred to as Hydro-Quebec) using high voltage transmission lines (over 700KV) to transmit electricity over long distances without a substantial loss of power. The second obstacle in the way of Churchill Falls development was financial. In order to finance the project CFLCo had to find a credit-worthy purchaser of its electricity, one that would undertake to purchase electric power on a regular basis whether it was needed or not.

In 1963 discussions began between Hydro-Quebec and CFLCo regarding the development of Churchill Falls and the transmission of power to Quebec. As a result of these discussions a Letter of

[Page 304]

Intent was signed by the parties on October 31, 1966, whereby they expressed an intent to enter into a contract which was to be called the Power Contract for the purchase of hydro‑electric power by Hydro-Quebec. The Letter of Intent recognized that the purchase of power by Hydro-Quebec was essential to the feasibility of the project and that the Power Contract would have to meet the requirements of lenders regarding the security for the repayment of debt. The Power Contract and the performance of its various provisions were therefore essential to the completion of the project and after completion it was of fundamental importance to its operation.

In order to finance the project CFLCo was required under the provisions of the Power Contract to raise $700 million out of an estimated total cost in excess of $900 million. In addition to bank loans of between $100 and $150 million, CFLCo borrowed $100 million by the issue of General Mortgage Bonds, pursuant to a Deed of Trust of which General Trust of Canada was Trustee, known as the General Mortgage Trust Deed, which was executed on September 1, 1968. It was amended by a supplemental Trust Deed dated May 15, 1969. Pursuant to the Trust Deeds CFLCo assigned and charged all its assets and rights under the Statutory Lease and the Crown leases to the Trustee. The Lieutenant Governor in Council for the Province of Newfoundland consented to this assignment on August 1, 1968.

The bulk of the financing came from the sale of First Mortgage Bonds. CFLCo borrowed $540 million on the security of Series A bonds and a further $50 million on the security of Series B bonds. These funds came from lenders outside the Province of Newfoundland and largely from the United States. The Royal Trust was constituted Trustee for the bondholders under a First Mortgage Trust Deed entered into by Royal Trust and CFLCo on May 15, 1969. As security, CFLCo assigned all its assets and rights under the Statutory Lease and Crown leases and all its rights under the Power Contract. General Trust intervened in the Trust Deed as Trustee under the General Mortgage Trust Deed, granting priority to

[Page 305]

the First Mortgage Bonds. Newfoundland also intervened in the Trust Deed confirming its consent to the assignment by CFLCo of its assets to the Royal Trust, which consent had been given on May 12, 1969 by an agreement, known as the Financial Agreement, between the Royal Trust, CFLCo, and the Province of Newfoundland. This agreement was made pursuant to and given the force and effect of law by The Churchill Falls (Labrador) Corporation Limited (Financing) Act, 1969 (Nfld.), c. 76, (the Financing Act).

At the time of the hearing of this appeal, according to the statement of facts which forms part of the record, there remained owing by CFLCo in respect of the above-described borrowings $98 million in General Mortgage Bonds, $458,620,000 U.S. in Series A First Mortgage Bonds, and $45,804,000 Cdn. in Series B Bonds.

It is against this background that the Power Contract between CFLCo and Hydro-Quebec was signed on May 15, 1969. It is a lengthy and detailed document. Under the contract CFLCo agreed to supply and Hydro-Quebec agreed to purchase virtually all of the power produced at Churchill Falls for a term of forty years, which was renewable at the option of Hydro-Quebec for a further term of twenty-five years. The price to be paid for the electricity was to be based on the final capital cost of the project. Provision was made for CFLCo to retain a fixed amount of power for use within Labrador by its subsidiary Twin Falls Power Corporation. In addition CFLCo could recall on three years’ minimum notice up to 300 megawatts (MW) to meet the needs of the Province of Newfoundland.

The importance of the relationship between CFLCo and Hydro-Quebec to the success of the Churchill Falls development is made evident by a reading of the Power Contract. Each party was to be responsible for the construction of transmission lines on its side of the Quebec‑Labrador boundary. To ensure compatibility of the two systems, the

[Page 306]

contract provided that transmission lines and related facilities were to be built according to Hydro-Quebec’s specifications. Hydro-Quebec was given a supervisory role over CFLCo with respect to maintenance of the development and also acquired the right to operate the plant in the event of CFLCo’s failure to do so. For its part Hydro-Quebec agreed to make funds available for the completion of the project over and above the $700 million to be raised by CFLCo in exchange for mortgage security. If CFLCo lacked the funds necessary to meet debt service payments, Hydro-Quebec agreed to advance the necessary monies in exchange for debentures and shares of CFLCo. The Quebec utility also agreed to pay the difference between six per cent and any greater rate of interest payable by CFLCo on its obligations. Although Hydro-Quebec owns only 34.2 per cent of the issued shares of CFLCo (the remaining 65.8 per cent owned by Newfoundland and Labrador Hydro, a Newfoundland Crown corporation), a voting trust arrangement provides that no substantial changes in the financial or other obligations of CFLCo can be made without the consent of 75 per cent of the shareholders.

The Power Contract also provided that it would be governed and interpreted in accordance with the laws of Quebec and that only the courts of Quebec would have jurisdiction to adjudicate disputes under the Power Contract, subject to ordinary appeal rights and procedures.

The project was a success. CFLCo built the hydro-electric generating plant upon the leased lands in Newfoundland. It has a generating capacity of approximately 5,225MW of power and is capable of producing 34.5 billion kilowatt hours of energy per annum. The delivery of power to Quebec began in 1971 and the whole development was completed on schedule by 1976. As early as 1974, however, problems had arisen. Newfoundland wanted more power for its own use. In January of 1976 the President of Newfoundland and

[Page 307]

Labrador Hydro requested from Hydro-Quebec the recall of 600MW of power. This request was not met and in May of 1976 another request, this time to the Premier of Quebec, for 800MW was made. No diversion of power to Newfoundland resulted from these requests. On August 6, 1976 the Government of Newfoundland adopted an Order in Council calling upon CFLCo to supply 800MW to Newfoundland commencing on October 1, 1983. CFLCo declined to comply with the Order in Council because of its commitment to Hydro-Quebec under the Power Contract.

In September 1976, the Government of Newfoundland commenced an action in the Newfoundland Supreme Court for a declaration of entitlement to power under the Statutory Lease. This action is still pending in the courts of Newfoundland. In June of 1977 Hydro‑Quebec brought an action in the Quebec courts seeking a declaration of its rights under the Power Contract. That action too is still pending. On December 17, 1980 the Reversion Act received Royal Assent after passage in the Legislature of Newfoundland and on February 10, 1981 the present Reference was presented to the Newfoundland Court of Appeal.

II

The purpose of the Reversion Act is expressed in s. 3 which reads as follows:

The purpose of this Act is to provide for the reversion to the province of unencumbered ownership and control in relation to certain water within the province.

The sections which follow make it clear that the water which is affected is that of the Churchill River covered by the Statutory Lease. Section 4, which is the very heart of the Act, provides that the Lease Act, including the Statutory Lease, is repealed and that all rights and interests arising under the repealed statute and lease revest in Her Majesty in Right of the Province of Newfoundland free and clear of all encumbrances or claims. Subsection 3 of s. 4 makes an exception in the case of Twin Falls Power Corporation which is permitted to retain any interests, rights, and privileges

[Page 308]

acquired under the Statutory Lease or any other lease or licence, save only that Her Majesty in Right of Newfoundland will be substituted for CFLCo as lessor or licensor. Section 4 is reproduced hereunder:

4. (1) The Churchill Falls (Labrador) Corporation Limited (Lease) Act, 1961, including the Statutory Lease, is repealed.

(2) For greater certainty and the avoidance of doubt, all rights, privileges, liberties and interests that cease to be vested in, conferred on or accrued to any person by virtue of subsection (1) shall revest in and be held by Her Majesty free and clear of any claim, encumbrance or other right of any person as if that Act and Statutory Lease had had no effect in law.

(3) Notwithstanding subsections (1) and (2) or any other section of this Act, all rights, privileges, liberties and interests vested in, conferred on or accruing to Twinco under the Statutory Lease and any sublease or licence, as amended, executed pursuant thereto do not cease to vest, confer or accrue and do not revest in Her Majesty but continue on and after the commencement of this Act in all respects as though this Act had not been passed, except that in all respects and for all purposes CFLCo is replaced as lessor or licensor to Twinco by Her Majesty.

(4) For the purpose of subsection (3) “Twinco” means Twinco as defined in paragraph (b) of subsection (1) of clause 7 of Part IV of the Statutory Lease.

Sections 5, 6 and 7 merely make it clear that all rights and interests directly or indirectly stemming from the Statutory Lease or any of the Crown leases revest in the Crown free and clear of all claims and encumbrances. For greater certainty, s. 8 provides specifically that the hydro-electric works of CFLCo vest in the Crown.

Section 9 deals with payment to secured creditors for all indebtedness which has arisen under the Statutory Lease for the works done and created pursuant to its terms. Such payment is to be “both in discharge of the indebtedness and as full and final compensation to persons holding those interests for the revesting of rights, privileges, liberties and interests referred to in sections 4 to 8 in Her Majesty”. The section provides as well for

[Page 309]

the settlement of any dispute between a claimant and the Lieutenant Governor in Council by way of an appeal to the Trial Division of the Supreme Court of Newfoundland. Compensation is to include principal, interest accrued to the date of payment, and any premiums due as if the debt instruments were redeemed on the date of payment under subs. (1). Section 9 is reproduced hereunder:

9. (1) Her Majesty shall pay, as set out in subsection (2), the amount of all indebtedness secured by way of mortgage, lien, debenture or other encumbrance against the rights, privileges, liberties or interests referred to in the Statutory Lease and other instruments set forth in subsection (1) of section 5 and section 6 or hydroelectric works held under a Crown lease issued under clause 7 of Part III of the Statutory Lease both in discharge of the indebtedness and as full and final compensation to persons holding those interests for the revesting of rights, privileges, liberties and interests referred to in sections 4 to 8 in Her Majesty.

(2) Her Majesty may pay the indebtedness in cash or in such manner as the Lieutenant‑Governor in Council may prescribe by regulation, but where payment is permitted by a method other than cash the secured creditor may choose between cash or that other method of payment.

(3) Payment provided for in subsection (1) shall be made after a claim has been established to the satisfaction of the Lieutenant-Governor in Council and the claimant has executed a release in the form prescribed by regulation.

(4) Where a claimant is not satisfied with the decision of the Lieutenant-Governor in Council pursuant to subsection (3), the claimant may appeal to the Trial Division of the Supreme Court of Newfoundland within ninety days of the making of the decision.

(5) The payment provided for in this section is substituted for the security referred to in subsection (1) and, as against Her Majesty or any agent thereof, any claim to, or in respect of, an encumbrance referred to in subsection (1) becomes a claim for such payment and shall no longer affect or be a charge upon the encumbered property.

(6) For the purpose of this section “indebtedness” includes

(a) the principal as of the date of payment,

[Page 310]

(b) all interest as provided for in the debt instruments as may accrue to the date when payment under subsection (1) is made, and

(c) premiums, if any, due as if the debt instruments were redeemed on the date when payment under subsection (1) is made.

Section 10 provides for compensation to shareholders of CFLCo for any loss in value of their shares resulting from the coming into force of the Reversion Act. In case of any dispute as to valuation, the shareholder may appeal to the Trial Division of the Newfoundland Supreme Court. Section 11 provides for payments under the Act from the provincial Consolidated Revenue Fund. Section 10 bars any action arising from the coming into force of the Act other than for compensation as provided in the Act. Sections 10, 11 and 12 are reproduced hereunder:

10. (1) A shareholder of CFLCo has the right to elect to receive compensation from Her Majesty for any reduction in the value of the common shares of CFLCo owned by that shareholder that results from the coming into force of this Act.

(2) A shareholder who elects to receive compensation shall apply to and satisfy the Lieutenant-Governor in Council of the amount by which his shares have been reduced in value.

(3) Compensation for the purposes of subsection (1) shall be calculated in accordance with subsections (4) and (5).

(4) Subject to subsection (5), for the purpose of calculating the amount of the reduction in the value of the CFLCo common shares the value of those shares immediately prior to the coming into force of this Act shall be determined by the Lieutenant-Governor in Council, as if this Act had not come into force, on a fair and equitable basis having regard to

(a) the projected income or losses of CFLCo over the remaining period of its contractual commitments for the sale of its output of electrical energy;

(b) the net book value of such shares immediately prior to the coming into force of this Act; and

(c) such other factors as he may, in his discretion, consider appropriate.

(5) For the avoidance of doubt and only for the purpose of this section, the value of the common shares

[Page 311]

of CFLCo immediately prior to the coming into force of this Act shall not, other than as set out in subsection (4), be affected by any right or interest consequential to or contingent on the holding of those common shares.

(6) A shareholder may appeal any decision of the Lieutenant-Governor in Council under this section to the Trial Division of the Supreme Court of Newfoundland within ninety days of the making of the decision.

11. Payment by Her Majesty under this Act and expenses incurred in the administration of this Act shall be paid by the Minister of Finance out of the Consolidated Revenue Fund of the province.

12. No action or proceeding lies against any person including Her Majesty, and Minister, agent or servant of Her Majesty or any company in which Her Majesty or an agent thereof has an interest, for or in respect of

(a) the revesting in Her Majesty by virtue of this Act or the consequent divesting of any person, of any right, privilege, liberty or other interest;

(b) the reversion to Her Majesty pursuant to this Act or otherwise of any fixtures, structures, improvements or hydro-electric works of any person having any interest extinguished by virtue of this Act;

(c) the breach, if any, of a leasehold or other covenant or undertaking of Her Majesty to or in favour of any person including the provisions of any agreement entered into by Her Majesty on or prior to the date of the commencement of this Act;

(d) the breach, if any, by a person of a lease, assignment or covenant within the jurisdiction of the province, where such breach has been caused by reason of this Act;

(e) injurious affection to the property, hydro-electric works or business of a person caused by or resulting, in whole or in part, by reason of this Act;

(f) mortgages, liens, judgments or encumbrances, or sums due to the holders thereof, upon or held with respect to rights or interests referred to in sections 4 to 8;

(g) the payment of compensation or interest thereon except to the extent provided by this Act; or

[Page 312]

(h) any other matter caused by, arising out of or incidental to the cessation of the rights or benefits in relation thereto and the vesting of those rights and benefits in Her Majesty as provided for in this Act.

Section 15 which came into force on the giving of Royal Assent provides for the making of the Reference to the Court of Appeal, which is the subject of the present appeal, even though the rest of the Act has not been proclaimed in force. It will be recalled, however, that the case is to be dealt with as if the Act were already in force.

III

In this Court and apparently in the Court of Appeal, the arguments of counsel embraced the constitutional validity of the Reversion Act as a whole, rather than dealing with it section by section as contemplated by the nine questions referred to the Court.

The appellants challenged the constitutional validity of the Reversion Act on several grounds. Though differently stated by the parties, these grounds may be summarized as follows:

1. The Act interferes with the status and capacity of a federally-incorporated company.

2. The Act is legislation in relation to property and civil rights outside the Province of Newfoundland.

3. The Act is in relation to the regulation of interprovincial trade and commerce.

4. The Act is in relation to an interprovincial work or undertaking.

Not every appellant argued all of the grounds listed above, but each appellant in general terms supported the admissibility of certain extrinsic evidence for the purpose of constitutional characterization of the Reversion Act.

An additional argument was advanced by the appellant Royal Trust to the effect that, even if the Reversion Act is constitutionally valid, it is ineffective to repeal the rights of secured creditors under the Financial Agreement, the Financing Act, and the First Mortgage Trust Deed in which the Province intervened. It was argued that these rights

[Page 313]

were specific and given legislative force and could not be repealed by implication or by general legislation such as the Reversion Act. The questions referred to the Court of Appeal and to this Court concern the constitutional validity of the Reversion Act and the effect of the Act on various statutes, leases and rights, should certain provisions be intra vires. None of the questions refers to the argument advanced by the Royal Trust and most of the parties to this appeal did not address the issue. I therefore do not consider it appropriate to deal with this argument.

The respondent Attorney General of Newfoundland, supported by the Attorney General for Saskatchewan and the Attorneys General of British Columbia and Manitoba, argued that the Statutory Lease and the Lease Act were statutory rather than contractual instruments and therefore subject to repeal by the Legislature of Newfoundland, which had enacted them. Accordingly, all rights acquired under the statutory instruments fell with the repeal of the enactments. Alternatively, it was contended that the Reversion Act is valid legislation under subs. (5), (10), (13) and (16) of s. 92  of the Constitution Act, 1867  and is not rendered invalid because of any incidental effects it may have on extra-provincial interests.

IV

In general, the same arguments were heard by the Newfoundland Court of Appeal as were argued before this Court. By its judgment on March 5, 1982 the Court of Appeal held that the Reversion Act was intra vires of the Legislature of Newfoundland. Morgan J.A., speaking for the court, considered that the Act did more than merely repeal provincial legislation in that it expropriated the assets of CFLCo thus raising a constitutional question. He said:

In our view, the Act in question does more than modify or repeal existing legislation. It also purports to expropriate the fixed assets of CFLCo used in the generation of electric power while expressly precluding that company from asserting any claim either for additional compensation for the loss of its property or damages for breach of any of its leases. We must decide, then, whether the legislation is in respect of any of the

[Page 314]

classes of subjects enumerated in s. 92 , and assigned exclusively to the provinces and, if so, whether the subject matter of the Act also falls within one of the classes of subjects in s. 91, as a result of which the legislative authority of the Province is thereby overborne.

Citing the decision of this Court in Walter v. Attorney General of Alberta, [1969] S.C.R. 383, Morgan J.A. expressed the view that a provincial legislature was fully competent to expropriate property within its territorial limits and concluded: “There can thus be no question here that the Reversion Act on its face is validly enacted legislation of the Newfoundland Legislature”.

In dealing with the argument regarding the infringement of extra-provincial civil rights, the court considered the admissibility and weight of certain extrinsic evidence tendered by Hydro‑Quebec in support of its argument. Morgan J.A. concluded, after considering recent judgments of this Court, that the general rule of inadmissibility of extrinsic evidence to establish the real purpose and intent of an enactment had not been relaxed. He expressed the view that, while such evidence could be admitted to indicate the background against which the legislation was enacted, it could have no weight in determining the real purpose and intent of the statute.

The court then held that the Reversion Act in pith and substance concerned civil rights within the Province of Newfoundland and extra-provincial effects were collateral or incidental to its main purpose. As to the question of the regulation of interprovincial trade and commerce, the Court of Appeal held that the mere fact that the Reversion Act would have an effect on interprovincial trade did not infringe the federal power under s. 91(2)  of the Constitution Act, 1867 , since such an effect was incidental to the main purpose of the Act. The court shortly disposed of the argument that the Act sterilized a federally-incorporated company holding that the expropriation of CFLCo’s assets did not affect or impair the company’s ability to continue to function. The Reversion Act was also held not to be ultra vires because of interference with an interprovincial work or undertaking. Morgan J.A. noted that the expro-

[Page 315]

priated works and undertakings are situate wholly within the territorial limits of the Province of Newfoundland, that there is no superseding federal legislation, and that the Act does not purport to regulate the transmission line and its connection at the Quebec-Labrador boundary.

The Court of Appeal therefore concluded that the Reversion Act is wholly intra vires of the Newfoundland Legislature and it answered in the affirmative questions 1, 3, 5, 7, and 9 of the Reference. The court declined to answer the remaining Reference questions. The main reason for doing so is summarized in the following passage from the court’s judgment:

It is undesirable for the Court to answer in the abstract questions that may involve consideration of debatable fact and which may affect the rights of persons not represented before it.

V

As noted earlier, the case before us was argued on the basis of the constitutional validity of the Reversion Act as a whole, rather than section by section as suggested by the Reference questions. I propose to deal with the issues in the same way. Before dealing with the arguments raised by the appellants regarding the division of legislative powers, it is convenient to deal with the argument of counsel for the Attorney General of Newfoundland that the Reversion Act merely repeals provincial legislation and legislative rights and that, therefore, no constitutional issue arises. In my view, this argument was dealt with adequately in the Court of Appeal and I have already quoted the words employed by Morgan J.A. on that point. It is evident that the Reversion Act does much more than simply repeal the Lease Act and it, therefore, raises the constitutional questions referred to by Morgan J.A.

VI

On the hearing before the Court of Appeal Hydro-Quebec tendered as evidence the affidavit of one of its senior counsel, André E. Gadbois,—it

[Page 316]

was included as an appendix to the factum of Hydro-Quebec—which set forth the circumstances surrounding the Churchill Falls power development and the negotiations which led up to the execution of the Power Contract. Exhibits to the affidavit dealt with various matters connected with the dealings between the parties, including correspondence regarding the Newfoundland request for the recapture of 800MW of power already committed in the Power Contract for sale to Hydro-Quebec, copies of speeches and public declarations of highly-placed officials in Newfoundland and members of the Newfoundland Legislature made both in and out of the Legislative Assembly, copies of pleadings in the actions pending between the parties in Newfoundland and Quebec, copies of interviews given by the Premier and other Newfoundland cabinet ministers to the press, and a copy of an explanatory pamphlet sent by the Government of Newfoundland to the bondholders under the First Mortgage Bonds and to Hydro-Quebec at the time the Reversion Act was introduced in the Newfoundland Legislature. All of this evidence was tendered on the question of the Newfoundland government’s policy regarding the Power Contract.

The Court of Appeal reserved judgment as to the relevancy and weight of this material and dealt with the question in the reasons of the court. Morgan J.A. said:

In our view, the extrinsic materials sought to be introduced in the present case can have no weight in determining the true purpose and intent of the Act. However, in so far as they provide background against which the legislation was enacted, they may properly be considered.

Then after commenting that for the purpose of constitutional characterization of an Act evidence of what was in the mind of the Legislature in enacting the legislation could be considered, he said:

The factual background of the Reversion Act is a matter of public general knowledge and is recited in a memorandum published by the Government of Newfoundland dated November 21, 1980 entitled “The

[Page 317]

Energy Priority of Newfoundland and Labrador”, a copy of which was filed with the Court.

and after referring to its contents, he said:

We cite this memorandum, not as evidence of the facts therein recited, but as an indication of the materials the Government of Newfoundland had before them when promoting the statute now in question.

The general exclusionary rule formerly considered to be applicable in dealing with the admissibility of extrinsic evidence in constitutional cases has been set aside or at least greatly modified and relaxed. Dickson J., speaking for this Court, in the Reference re Residential Tenancies Act, 1979, [1981] 1 S.C.R. 714, at p. 722, said:

I think it can be taken from the conduct of the Anti-Inflation Reference and the use of extrinsic materials by the members of the Court in that case that the exclusionary rule expressed in obiter by Rinfret C.J. in Reference Re Validity of Wartime Leasehold Regulations, [1950] S.C.R. 124, can no longer be taken as a correct statement of the law.

He continued by expressing the view that no inflexible rule governing the admission of extrinsic evidence in constitutional references should be formulated and in this he was adopting the view expressed by Laskin C.J., speaking for himself, Judson, Spence, and Dickson JJ. in the Reference re Anti-Inflation Act, [1976] 2 S.C.R. 373, at p. 389:

…no general principle of admissibility or inadmissibility can or ought to be propounded by this Court, and… the questions of resort to extrinsic evidence and what kind of extrinsic evidence may be admitted must depend on the constitutional issues on which it is sought to adduce such evidence.

By way of illustration of the different approaches that could be applied, depending on the nature of the constitutional issue facing the Court, the Chief Justice went on, at pp. 389-90, to say that:

Taxing legislation provides, in my opinion, an apt illustration of the dangers of generalization so far as extrinsic material is concerned. Since the provincial taxing power is a limited one, namely a power to legislate in relation to “direct taxation within the Province in order to the raising of a revenue for provincial pur-

[Page 318]

poses”, the operation and effect of what is in form provincial taxing legislation are relevant matters on which extrinsic evidence may be helpful to enable a Court to decide whether the legislation masks an impermissible purpose or object.

It will therefore be open to the Court in a proper case to receive and consider extrinsic evidence on the operation and effect of the legislation. In view of the positions of the parties, particularly the appellants’ contention that the Reversion Act has extra-provincial effect, this is, in my opinion, such a case.

I agree with the Court of Appeal in the present case that extrinsic evidence is admissible to show the background against which the legislation was enacted. I also agree that such evidence is not receivable as an aid to construction of the statute. However, I am also of the view that in constitutional cases, particularly where there are allegations of colourability, extrinsic evidence may be considered to ascertain not only the operation and effect of the impugned legislation but its true object and purpose as well. This was also the view of Dickson J. in the Reference re Residential Tenancies Act, 1979, supra, at p. 721, where he said:

In my view a court may, in a proper case, require to be informed as to what the effect of the legislation will be. The object or purpose of the Act in question may also call for consideration though, generally speaking, speeches made in the Legislature at the time of enactment of the measure are inadmissible as having little evidential weight.

This view is subject, of course, to the limitation suggested by Dickson J., at p. 723 of the same case, that only evidence which is not inherently unreliable or offending against public policy should be admissible:

A constitutional reference is not a barren exercise in statutory interpretation. What is involved is an attempt to determine and give effect to the broad objectives and purpose of the Constitution, viewed as a “living tree”, in the expressive words of Lord Sankey in Edwards and Others v. Attorney-General for Canada and Others, [1930] A.C. 124. Material relevant to the issues before the court, and not inherently unreliable or offending

[Page 319]

against public policy should be admissible, subject to the proviso that such extrinsic materials are not available for the purpose of aiding in statutory construction.

In applying the above principles, I would say that the speeches and public declarations by prominent figures in the public and political life of Newfoundland on this question should not be received as evidence. They represent, no doubt, the considered views of the speakers at the time they were made, but cannot be said to be expressions of the intent of the Legislative Assembly. Much of the material tendered, concerning such matters as the Newfoundland demands for the recall of power, the background of the negotiations leading up to the development of the Power Contract, and the construction of the production facilities, I view as historical facts that were public knowledge in the Province of Newfoundland and may be considered. I am also of the view that the government pamphlet entitled, “The Energy Priority of Newfoundland and Labrador”, may be considered. The purpose of this pamphlet, explained in the pamphlet itself, is to inform the financial community of the Government’s reasons for enacting the Reversion Act. It was published by the Government less than one month before the Reversion Act was given Royal Assent, and actually includes a copy of the Act. It is my opinion that this pamphlet comes within the categorization of materials which are “not inherently unreliable or offending against public policy”, to use the words of Dickson J. quoted above, and are receivable as evidence of the intent and purpose of the Legislature of Newfoundland in enacting the Reversion Act.

VII

It was contended by the appellants that the Reversion Act was ultra vires of the Legislature of Newfoundland, because it impaired the status and essential powers of a federally‑incorporated company. This argument was rejected in the Court of Appeal. It concluded that, while the Reversion Act deprived CFLCo of most of its assets, it did not affect the essential corporate capacity of the company. It was still at liberty to raise capital by the issue of shares and securities and could thus effec-

[Page 320]

tively further its corporate objects and purposes. It went on to conclude that the fact that the Act was not a law of general application in Newfoundland—it affected only CFLCo—was not a factor in deciding whether the Act was intra vires. The court held that it could be supported under the general power of the Province to expropriate property and civil rights within the Province, saying:

If, as was held in the Great-West Saddlery Co. [2 A.C. 91], a federal company dealing only in land is subject to provincial mortmain legislation it would, in our view, be equally subject to provincial expropriation legislation which is the subject matter of the Reversion Act.

It then went on to conclude that any inadequacy in compensation did not restrict CFLCo in its corporate capacity and that, while s. 12 of the Reversion Act deprives the company of any right to sue in the courts of Newfoundland for compensation, it does not affect the company’s general right to sue, to contract, and to carry on its business within Newfoundland.

The appellants argued that the Act effectively sterilizes the Company by expropriating all its operating assets. By limiting compensation to direct payment to creditors and shareholders, and excluding CFLCo, it deprives the Company of any means by which it could function and perform its covenants under the Power Contract, in respect of which it remained liable. In addition, it was argued that, since the objects and powers of the company are limited to hydro-electric power generation and distribution, and in practical terms to the fulfilment of the project on the Upper Churchill River, the Act strips CLFCo of its essential powers and capacity to function as a company. Reference was made to B.C. Power Corporation v. Attorney General of British Columbia (1963), 44 W.W.R. 65 (B.C.S.C.).

The respondent Attorney General of Newfoundland supported the Court of Appeal’s judgment on

[Page 321]

this point and asserted that the Province had, because of its general competence to legislate with respect to property and civil rights within the Province, full power to pass the Reversion Act and to expropriate the assets of CFLCo. Such an expropriation, despite the fact that it deprives CFLCo of virtually all its assets, does not impair the status or essential powers of the corporation.

Generally speaking, a federally-incorporated company carrying on business in a province is bound to obey any of the provincial laws which ordinarily apply to it and the trade or business with which it is concerned. In this respect it does not, by virtue of its corporate status, obtain any advantage over a provincially-incorporated company or a natural person. Such a company will be liable to pay taxes competently imposed under provincial legislation. It will be subject to ordinary licensing requirements and regulations under valid provincial legislation, as would be natural persons. In short, it will be subject to all competently enacted laws of general application in the Province. The one exception to this general application of provincial laws is described by Professor Hogg in his Constitutional Law of Canada (1977), at p. 355, in this manner:

There is one important exception to the general principle that a company is obliged to obey any valid law which is apt to apply to it. A province may not impair the “status and essential powers” of a federally-incorporated company (hereinafter referred to as a federal company). What this means is that if a province enacts a law which is within its legislative competence, but which would have the effect of impairing the status or essential powers of a federal company, then the law will be held inapplicable to any federal company.

The following question therefore arises: Does the Reversion Act impair the status and essential powers of CFLCo?

There are many cases dealing with the subject. The starting point for consideration is generally taken to be John Deere Plow Co. v. Wharton, [1915] A.C. 330; and Great West Saddlery Co. v. The King, [1921] 2 A.C. 91. It is not necessary here to go into detail regarding the cases, but in

[Page 322]

John Deere Plow Co. a provincial enactment (the Companies Act of British Columbia) which provided for the licensing of federal companies under the Act as a condition of carrying on business in the Province or of maintaining proceedings in the courts was held ultra vires. In the Great West Saddlery Co. case the Mortmain and Charitable Uses Act of Ontario, which required the federally-incorporated company—and all other companies—to have a provincial licence as a condition of their right to hold land, was held to be intra vires as being a law of general application. The Privy Council noted that a Dominion company acquired no more favourable position than any other corporation when it sought to own land within a province.

In Attorney-General for Manitoba v. Attorney-General for Canada (the Manitoba Securities case), [1929] A.C. 260, it was held by the Judicial Committee of the Privy Council that a provincial enactment prohibiting the sale of shares by any company, provincial or federal, except on terms provided in the Act and with the consent of a provincial commissioner was ultra vires in that it struck at the basic capacity of the federal company to create its corporate being by raising capital. In Lymburn v. Mayland, [1932] A.C. 318, the Security Frauds Prevention Act, 1930 of Alberta required registration of anyone, including a company, trading in securities. The Judicial Committee held the Act intra vires and distinguished the Manitoba Securities case, saying at pp. 324-25, after deciding that the principle enunciated in John Deere Plow and the Great West Saddlery cases was not applicable to the Security Frauds Prevention Act:

A Dominion company constituted with powers to carry on a particular business is subject to the competent legislation of the Province as to that business and may find its special activities completely paralysed, as by legislation against drink traffic or by the laws as to holding land. If it is formed to trade in securities there appears no reason why it should not be subject to the competent laws of the Province as to the business of all persons who trade in securities. As to the issue of capital there is no complete prohibition, as in the Manitoba case

[Page 323]

in 1929; and no reason to suppose that any honest company would have any difficulty in finding registered persons in the Province through whom it could lawfully issue its capital. There is no material upon which their Lordships could find that the functions and activities of a company were sterilized or its status and essential capacities impaired in a substantial degree.

In Morgan v. Attorney-General of Prince Edward Island, [1976] 2 S.C.R. 349, a case which did not involve a question of sterilization of a federal company by provincial legislation, Laskin C.J. made the following observation, at pp. 364-65, which is relevant to the issue before us:

The issue here is not unlike that which has governed the determination of the validity of provincial legislation embracing federally-incorporated companies. The case law, dependent so largely on the judicial appraisal of the thrust of the particular legislation, has established, in my view, that federally-incorporated companies are not constitutionally entitled, by virtue of their federal incorporation, to any advantage, as against provincial regulatory legislation, over provincial corporations or over extra‑provincial or foreign corporations, so long as their capacity to establish themselves as viable corporate entities (beyond the mere fact of their incorporation), as by raising capital through issue of shares and debentures, is not precluded by the provincial legislation. Beyond this, they are subject to competent provincial regulations in respect of businesses or activities which fall within provincial legislative power.

In Canadian Indemnity Co. v. Attorney-General of British Columbia, [1977] 2 S.C.R. 504, this Court dealt with a case where the appellant, a company engaged in the business of writing automobile insurance, was refused a licence for the conduct of its business in the year 1974, because the provincial government had introduced a statutory scheme of compulsory government insurance which excluded private insurers. It was argued inter alia that the legislation creating the plan was ultra vires of the Province as legislation in relation to and directed at the status and capacity of a federal company. The legislation was held to be intra vires of the provincial legislature.

[Page 324]

Martland J., writing for this Court, reviewed the relevant authorities and quoted a lengthy passage from the judgment of Aikens J. at trial in the Supreme Court of British Columbia. The passage quoted includes, at p. 518 ([1977] 2 S.C.R.), the words of McGillivray J.A., speaking for the Appellate Division of the Alberta Supreme Court in R. v. Arcadia Coal Co., [1932] 1 W.W.R. 771 at pp. 784-85, where he said:

The distinction between enactments affecting Dominion companies that are of general application and those that may be termed company law is simply this: In the former case there is no attempt to interfere with powers validly granted to the company by the Dominion nor with the status of the company as such. The circumstance that the company consistently with the general laws of the province may not exercise those powers does not destroy or impair the powers. In the latter case the enactment prohibits or imposes conditions upon the exercise of the powers of Dominion companies as such. In short it is aimed at and affects Dominion company powers as distinguished from being aimed at and affecting a trade or business in the province which Dominion companies may happen to be engaged in in common with provincial companies and natural persons.

Martland J. then went on to say that he approved of the passage quoted from the trial judgment and he observed that it accorded with the words of Laskin C.J. in the Morgan case which have already been reproduced above.

There are, of course, many other authorities which have dealt with this question. Many are referred to and discussed in the cases cited above. I do not consider that more extensive reference to them is necessary here, because the governing principle in this matter emerges from the cases already cited. The authorities make it clear that it is not competent for a provincial legislature to legislate to impair or destroy the essential status and capacities of a federal company. However, a federal company carrying on business within a province is subject to all laws of general application in the province and as well is subject to all laws of particular application to the business, trade, or function with which the federal company

[Page 325]

is concerned, and the federal company does not acquire any favoured position in relation to other companies or to natural persons or obtain any peculiar advantages by reason only of its federal incorporation. Provincial legislation may license and regulate the activities of federal companies within the field of provincial competence and may impose sanctions for the enforcement of its regulations, but such sanctions may not be such as to strike at the essential capacities and status of a federal company. In exercising its legislative powers, however, the provincial legislature may not venture into the field of company law in respect of the federal company. It may not legislate so as to affect the corporate structure of the federal entity or so as to render the federal company incapable of creating its corporate being and exercising its essential corporate powers as a company. I now turn to a consideration of the facts in the present case.

The Reversion Act on its face does nothing more than expropriate for all practical purposes all of the assets of CFLCo and make certain provisions regarding compensation to shareholders and creditors but no compensation to the Company. While the result of the Act would be to deprive CFLCo of the business it formerly conducted, in my view it cannot be said that the corporate being of CFLCo would be affected. It would still be a corporation in being and its essential structure would remain unchanged. It seems perfectly clear that if the Reversion Act applied to a provincially-incorporated company no challenge could be maintained as to its constitutionality on this branch of the argument. Can it be said then that the mere fact of federal incorporation clothes CFLCo with any immunity from expropriation under valid provincial law not possessed by a provincial company or for that matter a natural person? In addressing this question the Court of Appeal quoted from Abitibi Power and Paper Co. v. Montreal Trust Co., [1943] A.C. 536 at p. 548:

[Page 326]

There appears to be no authority, and no reason for the opinion, that legislation in respect of property and civil rights must be general in character and not aimed at a particular right. Such a restriction would appear to eliminate the possibility of special legislation aimed at transferring a particular right or property from private hands to a public authority for public purposes. The legislature is supreme in these matters, and its actions must be assumed to be taken with due regard for justice and good conscience. They are not, in any case, subject to control by the courts.

A federal company is entitled to establish itself as a corporation in a province and for this purpose it is entitled to raise capital and to create its corporate being without interference from provincial legislation. Having done so, however, it is in no better position with respect to the conduct or continuation of its business than a provincial company or natural person. As has been pointed out in a “Note on the Favoured Position of the Dominion Company Under the B.C. Power Case”, in Laskins Canadian Constitutional Law, 4th ed., 1975, p. 559, at p. 561:

If, as has been held, a federal company dealing only in land is subject to provincial mortmain legislation, it would be equally subject to provincial expropriation legislation. And why would a federal company dealing in shares of provincial companies or in the shares of only one provincial company be in any different position?

It is difficult to conceive how ownership of all the shares of a provincial company as a federal company’s choice of business can go to the matter of its incorporation. The argument of “impairment of the status and capacities of a federal company in a substantial degree” cannot go beyond protection of the federal company’s right to become launched as a corporation by raising capital. Does a federal company by limiting itself to one line of business within provincial competence obtain a constitutional right to be left alone in its ownership, thus enjoying an advantage not open to a natural person?

On the authorities already discussed, the question posed in the Note requires a negative answer. It

[Page 327]

will be evident from what I have said that I do not regard B.C. Power Corporation v. The Attorney General of British Columbia as authoritative on this point. It is not, in my view, in accordance with the governing authorities.

In the case at bar the Legislature of Newfoundland in passing the Reversion Act effectively transferred the assets of CFLCo from private ownership to ownership by the Government. CFLCo is left with its corporate structure intact and with the capability to raise new capital and issue shares. It is my opinion that, whatever attacks may be made on the validity of the Reversion Act under other heads of argument raised in this case, the Legislature in passing the Reversion Act did not contravene the constitutional strictures against interference with the essential status and powers of a federally-incorporated company.

VIII

One of the principal attacks made against the Reversion Act was that the Act interferes with civil rights existing outside the Province of Newfoundland. While no quarrel was made with the proposition that the Legislature of Newfoundland is fully competent to expropriate property within its boundaries, it was argued that when the exercise of expropriation powers derogates from civil rights outside the Province the enactment is ultra vires. On this point the appellants contended that the extrinsic evidence, which has already been discussed, is particularly relevant to show the purpose of the Reversion Act and to show how and where its operation would be effective. It was contended that, while all that would be taken under the Act is physically situated within the Province of Newfoundland, the effect of the Act would be to destroy lawfully acquired civil rights outside the Province.

The Attorney General of Newfoundland contended that the Reversion Act applies only to the Lease Act, the Statutory Lease, and the assets of CFLCo. All of the rights and property to which the Act applies are situated within the Province of Newfoundland. Any effect on rights outside the territorial limits of the Province are therefore

[Page 328]

irrelevant as being merely consequential. Newfoundland argued that the “pith and substance” test employed in division of powers cases has no application to the determination of the territoriality issue.

The appellants argued, firstly, that any provincial legislation that has extraterritorial effect is ultra vires. Alternatively, it was argued that the true purpose and intent of the legislation, its pith and substance, governs in the issue of territorial limitation just as it does in other constitutional cases involving division of powers. The appellants contended that the Revision Act is aimed at the destruction of the rights of Hydro-Quebec under the Power Contract, rights situate outside Newfoundland. Consequently, the Act is beyond the legislative competence of the Province.

The territorial limitation on provincial legislative competence is contained in the Constitution Act, 1867 . The opening words of s. 92  are: “In each Province…”. Subsection (13)  of s. 92  gives the Provinces exclusive legislative authority over “Property and Civil Rights in the Province” (emphasis added), and subs. (16), similarly, is confined to matters of a purely local or private nature in the Province. There is, however, some disagreement in the case authorities as to the test which should be applied in determining the constitutional validity of a provincial statute that has extraterritorial effects.

The appellants relied heavily on the case of Royal Bank of Canada v. The King, [1913] A.C. 283, and the cases which followed it, including Ottawa Valley Power Co. v. Hydro-Electric Power Commission, [1937] O.R. 265 (C.A.); Beauharnois Light, Heat and Power Co. v. Hydro-Electric Power Commission of Ontario, [1937] O.R. 796 (C.A.); and Credit-Foncier Franco-Canadien v. Ross, [1937] 3 D.L.R. 365 (Alta. C.A.). These cases have been considered to be strong authority for the proposition that a provincial legislature may not validly legislate in derogation of extra-provincial rights. In the Royal Bank case the proceeds of a bond issue made by a railway company were held by the appellant Bank.

[Page 329]

The railway company had made default in the payment of interest and in the construction of the railway line, and the Alberta government, which had guaranteed the bonds, enacted a statute ratifying the guarantee and requiring payment of the money from the Bank into the General Revenue Fund of the Province. It was not entirely clear from the report whether the funds were held by the Bank in an account in Montreal or in an account in Alberta, but the judgment seems to proceed on the basis that the monies were, in fact, held in Montreal. The Bank refused to pay on the ground that the right to the money upon default of the railway company revested in the bondholders and this right was a right outside Alberta. The statute was held by the Judicial Committee of the Privy Council to be ultra vires upon that ground.

In the Ottawa Valley Power case, on facts somewhat similar to those at bar, contracts were made between the Hydro-Electric Power Commission of Ontario and Ottawa Valley Power Company, a Quebec company distributing power in Quebec. An Ontario Act which declared the contracts “to be and always to have been illegal, void, and unenforceable as against The Hydro-Electric Power Commission of Ontario” was held to be ultra vires in the Court of Appeal of Ontario as being legislation in derogation of extra-provincial rights. In the Beauharnois case a similar result was reached on similar facts, and in the Credit-Foncier case the Appellate Division of the Supreme Court of Alberta held that an Act affecting interest payable on certain debts, owing by residents of Alberta to creditors outside of Alberta, was ultra vires as derogating from extra-provincial civil rights.

It has been said that the courts in these cases did not differentiate, at least expressly, between statutes which are directed at extra-provincial rights and statutes which only incidentally affect those rights. See, for example, the words of Viscount Haldane, at p. 298 of the Royal Bank case:

[Page 330]

In the opinion of their Lordships the effect of the statute of 1910, if validly enacted, would have been to preclude the bank from fulfilling its legal obligation to return their money to the bondholders, whose right to this return was a civil right which had arisen, and remained enforceable outside the province. The statute was on this ground beyond the powers of the Legislature of Alberta, inasmuch as what was sought to be enacted was neither confined to property and civil rights within the province nor directed solely to matters of merely local or private nature within it.

(Emphasis added.)

There is other authority which is frequently referred to on this question and it was heavily relied on in argument by Newfoundland. The leading case is Ladore v. Bennett, [1939] A.C. 468. This case concerned provincial legislation which amalgamated certain municipalities in Ontario into the City of Windsor. In the process of this amalgamation the securities for the debts of the various component municipalities were replaced by new bonds issued by the new City of Windsor with modifications in interest rates and other terms of the indebtedness. There was no question that the rights of many municipal creditors situate outside of Ontario were affected and, in some degree at least, derogated from. Lord Atkin held that the pith and substance of the Acts was in relation to municipal institutions within the Province and that, in addition, as far as they affected public utility commissions, they were justified as having been passed in relation to local works and undertakings under s. 92(10) of the British North America Act. He rejected the argument of colour-ability with these words, at p. 482:

It was suggested in argument that the impugned provisions should be declared invalid because they sought to do indirectly what could not be done directly—namely, to facilitate repudiation by Provincial municipalities of obligations incurred outside the Province. It is unnecessary to repeat what has been said many times by the Courts in Canada and by the Board, that the Courts will be careful to detect and invalidate any actual violation of constitutional restrictions under pretence of keeping with the statutory field. A colourable device will not avail. But in the present case nothing has

[Page 331]

emerged even to suggest that the Legislature of Ontario at the respective dates had any purpose in view other than to legislate in times of difficulty in relation to the class of subject which was its special care—namely, municipal institutions.

He went on to reject the argument that the legislation was ultra vires as being in derogation of extra-provincial rights by saying, at pp. 482-83:

…and though they affect rights outside the Province they only so affect them collaterally, as a necessary incident to their lawful powers of good government within the Province.

The British Columbia Court of Appeal reached a similar result a year earlier in the case of Day v. Victoria, [1938] 4 D.L.R. 345, and in so doing followed the decision of the Ontario Court of Appeal in Ladore v. Bennett, supra, which was later affirmed by the Judicial Committee of the Privy Council.

It will be seen that there is an apparent conflict between the Royal Bank line of cases and Ladore v. Bennett. In Royal Bank the view expressed by Viscount Haldane (see quotation from p. 298, supra) would appear to be that any provincial enactment not wholly confined in its effect to the Province would on that account be ultra vires. The same reasoning appears to have been applied in Ottawa Valley and Beauharnois as well as in Credit-Foncier. These cases have been criticized as adopting too narrow a view of the territorial limitation on provincial legislative competence. Professor Hogg in his work, Constitutional Law of Canada, supra, said at pp. 209-10:

The general rule of constitutional law is that a law is classified by its pith and substance, and incidental effects on subjects outside jurisdiction are not relevant to constitutionality. No one would quarrel with the proposition that a provincial statute whose pith and substance is the destruction or modification of rights outside the province must be unconstitutional. But where the cases go wrong, as it seems to me, is in refusing to recognize that a statute whose pith and substance is a matter inside the province may incidentally destroy or modify rights outside the province.

[Page 332]

The clash between Royal Bank and Ladore v. Bennett is thus clearly illustrated in the above quotation. The factual basis for the Royal Bank case is not entirely clear from the report. It must be assumed, however, that there was at least an implied finding that the pith and substance of the Act in question was in relation to extra-provincial rights if it is to be accepted today as authority. It should be noted that the other cases referred to above which followed Royal Bank were all decided before Ladore v. Bennett, which case in my view states the law correctly.

Where the pith and substance of the provincial enactment is in relation to matters which fall within the field of provincial legislative competence, incidental or consequential effects on extra-provincial rights will not render the enactment ultra vires. Where, however, the pith and substance of the provincial enactment is the derogation from or elimination of extra-provincial rights then, even if it is cloaked in the proper constitutional form, it will be ultra vires. A colourable attempt to preserve the appearance of constitutionality in order to conceal an unconstitutional objective will not save the legislation. I refer to the words of Lord Atkin quoted above that “a colourable device will not avail”.

The appellants argued that the Reversion Act is colourable legislation aimed at the Power Contract. In support of this argument reference was made to the extrinsic evidence which has already been mentioned. That part of the evidence which I have held to be reliable and therefore admissible indicates the true purpose and intent of the Act. Newfoundland attempted to recall more power than was provided for in the Power Contract, first by a request to Hydro-Quebec and then to the Quebec Premier. These attempts failed. A demand to CFLCo by Order in Council was also refused. A whole section of the government pamphlet, “The Energy Priority of Newfoundland and Labrador”, deals with the price paid by Hydro‑Quebec for Churchill Falls power under the Power Contract and the benefits realized by Hydro-Quebec from its investment. The section concludes:

[Page 333]

The foregoing financial estimates have been included here to illustrate the harsh inequity created by the Power Contract since 1972. This inequity will clearly magnify to unconscionable proportions and amounts over the remaining 61 years of the Power Contract. It is this very Power Contract which Hydro-Quebec is using to deny Newfoundland’s right to access 800 MW of Churchill Falls power at this time. The increasing inequity of the Power Contract adds impetus to the Government’s determination to reach a resolution to its right of access. Such access would only begin to reduce the inequity and to move towards a fair and equitable utilization of the Churchill Falls resource.

Another section is entitled, “Newfoundland’s Case for Fairness and Equity”, and outlines Newfoundland’s attempt to renegotiate the Power Contract in terms of both price and Newfoundland’s access to Churchill Falls power. Even the Reversion Act itself provides for compensation to shareholders and creditors directly, rather than the CFLCo, thus depriving the company of any assets upon which recovery by Hydro-Quebec for breach of the Power Contract could be effected. As soon as the Reversion Act came into force, Hydro-Quebec’s right to receive power according to the terms of the Power Contract would be effectively destroyed. Even if the flow of electricity to Quebec continued at the same rate and for the same price after the coming into force of the Act, it would then be in the form of a privilege rather than an enforceable right. All of this, in my opinion, points to one conclusion: the Reversion Act is a colourable attempt to interfere with the Power Contract and thus to derogate from the rights of Hydro-Quebec to receive an agreed amount of power at an agreed price.

It was also argued by the appellants that the Reversion Act is ultra vires in that it affects the rights of secured creditors outside the Province. In my opinion, there is nothing in the Act itself nor in the extrinsic evidence to indicate that the Act is aimed at the rights of secured creditors. Any effect on these rights would be of an incidental nature and, in accordance with the principle of Ladore v. Bennett discussed above, would not of itself be grounds for declaring the Act ultra vires.

[Page 334]

A finding that the Reversion Act is aimed at the rights of Hydro-Quebec under the Power Contract would render the Act ultra vires only if the rights so attacked are situate in Quebec beyond the jurisdiction of the Legislature of Newfoundland. Little argument was advanced on this issue and the case seemed to proceed on the general assumption that the rights of Hydro-Quebec were situate in Quebec. The fact, of course, is that Hydro-Quebec has the right under the Power Contract to receive delivery in Quebec of hydro-electric power and thereafter to dispose of it for use in Quebec or elsewhere as it may choose. If these facts are not sufficient for the purpose of the constitutional characterization of the Reversion Act, it may be noted in any event that ordinarily the rule is that rights under contracts are situate in the province or country where the action may be brought: see Castel, Canadian Conflict of Laws (1977), vol. 2, p. 347, and Dicey & Morris, The Conflict of Laws, vol. 2, 10th ed., 1980, p. 533, and cases cited therewith. It will be recalled that the Power Contract provided that the courts of Quebec would have jurisdiction to adjudicate disputes arising under it and it is, therefore, the Province of Quebec where enforcement of the contract may be ordered and where the intangible rights arising under the contract are situate.

It was argued by the Attorney General of Newfoundland that control over the power generated at Churchill Falls is essential for the effective management by Newfoundland of its water resources and to meet the energy needs of the Province. However, it is not for this Court to consider the desirability of legislation from a social or economic perspective where a constitutional issue is raised. As Laskin C.J. said in Central Canada Potash Co. v. Government of Saskatchewan, [1979] 1 S.C.R. 42 at p. 76:

Where governments in good faith, as in this case, invoke authority to realize desirable economic policies, they must know that they have no open-ended means of achieving their goals when there are constitutional limitations on the legislative power under which they purport to act. They are entitled to expect that the Courts, and especially this Court, will approach the task of

[Page 335]

appraisal of the constitutionality of social and economic programmes with sympathy and regard for the serious consequences of holding them ultra vires. Yet, if the appraisal results in a clash with the Constitution, it is the latter which must govern. That is the situation here.

It is also the situation in the present case, and it follows that the Reversion Act is ultra vires.

IX

In view of the conclusion I have reached on the issue of extra-provincial civil rights, I do not consider it necessary to deal with the other arguments advanced by the appellants regarding the regulation of interprovincial trade and commerce and interference with an interprovincial work or undertaking.

X

In conclusion, having found that the pith and substance of the Reversion Act is to interfere with the rights of Hydro-Quebec outside the territorial jurisdiction of Newfoundland, it is my opinion that the Act, taken as a whole, is ultra vires of the Legislature of Newfoundland. Question 9 of the Reference must be answered accordingly. It therefore becomes unnecessary to answer the other eight questions.

I would allow the appeal. The appellants, Churchill Falls (Labrador) Corporation Limited, Hydro-Quebec, Royal Trust Co. and General Trust of Canada, are entitled to their costs throughout. There will be no costs by or to the Attorneys General.

Appeal allowed with costs.

Solicitor for the appellant Churchill Falls (Labrador) Corporation Limited: John Sopinka, Toronto.

Solicitors for the appellant Hydro-Quebec: Geoffrion, Prud’homme, Montréal.

Solicitors for the appellant the Attorney General of Quebec: Henri Brun, Jean-K. Samson et Odette Laverdière, Ste-Foy.

[Page 336]

Solicitors for the appellant Royal Trust Co.: Wells and Company, St. John’s.

Solicitors for the appellant General Trust of Canada: Wells, O’Dea, Halley, Earle, Shortall & Burke, St. Johns.

Solicitors for the respondent: Martin, Woolridge, Poole, Althouse & Clarke, Corner Brook.

Solicitor for the intervener the Attorney General of Canada: Roger Tassé, Ottawa,

Solicitor for the intervener the Attorney General of British Columbia: Richard H. Vogel, Victoria.

Solicitor for the intervener the Attorney General for Saskatchewan: Richard Gosse, Regina.

Solicitor for the intervener the Attorney General for Manitoba: Gordon E. Pilkey, Winnipeg.

 



[1] The Chief Justice took no part in the judgment.

 You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.