ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 05-CV-303048 PD3
DATE: January 4, 2012

BETWEEN:

Rio Algom Limited
Plaintiff

‑ and ‑

The Attorney General of Canada
Defendant

COUNSEL:

• Peter L. Roy, J Adam Dewar, and Sean Grayson for the Plaintiff

• Peter Southey, James Gorham, and Roger Flaim for the Defendant

HEARING DATES: December 8, 9, and 10.

PERELL, J.

REASONS FOR DECISION

A. INTRODUCTION

[ 1 ] During the Cold War, the United States and the Soviet Union were engaged in a nuclear arms race, and the United States Atomic Energy Commission (“USAEC”) had an urgent need for huge quantities of Canadian uranium oxide so that the American military establishment could have a secure supply of uranium from which to build a nuclear arsenal. A major problem, however, was that there was very little of a uranium industry in Canada. Canadian mining companies and their financers were not motivated to develop uranium mines because of the prospects of unprofitability, which was understandable given the enormously high start-up costs and the high entrepreneurial risks of a limited market and low prices for uranium.

[ 2 ] The Americans found a solution for their urgent need for uranium oxide. Between 1954 and 1972, Eldorado Nuclear Mining and Refining Ltd., which is a Crown Corporation, purchased multimillion lbs. of uranium oxide from Canadian mining companies that had been encouraged to create a uranium industry in Canada. Eldorado purchased this uranium so that it could be sold contemporaneously to USAEC.

[ 3 ] Among the suppliers to Eldorado were several Canadian mining companies that amalgamated to become the Plaintiff, Rio Algom Canada. Between 1954 and 1972, Rio Algom sold in excess of 65 million lbs. of uranium oxide to Eldorado, which, in turn, and for no profit sold the uranium to USAEC.

[ 4 ] The contracts between Eldorado and the Rio Algom companies, which the parties describe as the “Cold War Contracts” stipulated the price of the uranium, fixed the quantities, and set a firm deadline for deliveries.

[ 5 ] In negotiating the fixed price for uranium in the Cold War Contracts, the contracting parties used a formula that had initially been suggested by USAEC. Although the formula set a maximum price that USAEC was prepared to pay, it was designed to encourage the Canadian mining companies to develop the nascent uranium industry and for them to achieve a recovery of the capital investment, pre-production costs and 70% of operating costs over five years plus a profit from the sale of the uranium oxide provided that the companies delivered the stipulated amount of uranium oxide to USAEC within five years.

[ 6 ] The Rio Algom companies’ Cold War Contracts were a great success. Rio Algom’s capital investment was returned, and it earned in excess of $72 million (1960's dollars) in profit on the sales of uranium oxide.

[ 7 ] This happy story, however, took an unfortunate turn over thirty years later. One unfortunate consequence of producing uranium oxide under the Cold War Contracts was that the mining companies also produced an enormous amount of tailings, the solid waste which remains from the process of milling extracted minerals. During the 1960’s and 1970’s, the radioactive tailings were treated to neutralize acidity but with contemporary hindsight, it is now known that the treatment of the tailings was inadequate to protect the environment from a very hazardous waste product.

[ 8 ] In the late 1990's, Canada - which it needs to be emphasized is the principal of Eldorado - approved the enactment of regulations that required uranium mine operators, including those who had sold uranium oxide to Eldorado under Cold War Contracts, to remedy the environmental harm caused by the radioactive waste created by uranium mining. Much of this expense, or at least the duration and extent of it, had not been foreseen by anyone at the time of the negotiation of the fixed-price Cold War Contracts.

[ 9 ] At considerable expense, Rio Algom has complied with its regulatory obligations, and it has and will incur considerable expense in perpetuity. As these expenses began to be incurred, Rio Algom asked Canada, Eldorado’s principal, to pay for the costs.

[ 10 ] Canada refused to do so, and in 2005, Rio Algom sued to recover the expenses it was incurring from complying with the government’s environmental regulations with respect to the uranium tailings from the Cold War Contracts. Rio Algom’s action is against the Attorney General, but he is a nominal defendant standing in for the substantive defendants who are the Government of Canada and its Crown Corporation, Eldorado.

[ 11 ] In its action, Rio Algom claims that Eldorado has breached an implied term of the Cold War Contracts or breached its obligation to perform these contract in good faith or is liable for unjust enrichment for its failure to indemnify Rio Algom for the expenses it has occurred or will incur in perpetuity to comply with the environmental regulations.

[ 12 ] Rio Algom submits that it was an implied term of the Cold War Contracts that if Canada took any unilateral action that retroactively and/or prospectively increased Rio Algom’s cost of having produced and sold uranium oxide at a fixed price, then Canada would provide an indemnity for the increased costs.

[ 13 ] Rio Algom submits that it is a breach of Canada’s duty of good faith in contractual performance to negotiate and enter into a contract for the production and sale of uranium oxide on the understanding that the fixed price would recover the cost of production and then later to unilaterally, retroactively and prospectively increase the cost of producing that uranium oxide without providing an offsetting indemnity.

[ 14 ] Rio Algom submits that as a matter of fundamental fairness it should not be required to bear the burden of the ongoing uranium tailings management costs from the Cold War Contracts. Rio Algom submits that the Crown’s action in retroactively increasing the costs of producing the uranium sold under these contracts, without indemnifying the Plaintiff for those increases is a breach of the implied term of the Cold War Contracts.

[ 15 ] Eldorado and Canada submit that there is no basis to imply any terms to the contracts between Eldorado and Rio Algom, which Canada submits were clear and unambiguous contracts that do not provide for a price adjustment for future costs. They submit that the implication of terms is inconsistent with the express terms of the Cold War Contracts, which did not envision any contractual relationship beyond the stated duration of the Cold War Contracts. Canada submits that the proposed implied term would be illegal as an indirect fetter on the legislative authority of Parliament.

[ 16 ] Canada denies that its refusal to indemnify Rio Algom unjustly enriched Canada or that its refusal to indemnify Rio Algom constitutes a breach of a duty of good faith. Canada and Eldorado also submit that if there was any enrichment, there are juristic reasons for it. Further still, they state that all of Rio Algom’s claims are statute-barred and that the equitable doctrine of laches also applies to bar any equitable claims.

[ 17 ] Canada moves for a summary judgment to have Rio Algom’s action dismissed,

[ 18 ] Rio Algom brings a cross-motion for a partial summary judgment against Canada. It seeks a declaration that Canada is required to indemnify it for the past and future tailings management costs, and it seeks an order directing a reference to determine the amount of the indemnity.

[ 19 ] Both Canada and Rio Algom agree that this action is appropriate for a summary judgment. In other words, they both agree that the tests recently articulated by the Court of Appeal in Combined Air Mechanical Services Inc. v. Flesch , 2011 ONCA 764 are satisfied in the case at bar and that there are no genuine issues requiring a trial.

[ 20 ] I agree that this is an appropriate case to decide by way of a summary judgment. It is now a document case because there are no living witnesses to testify about the negotiation of the Cold War Contracts.

[ 21 ] Accordingly, applying the law about summary judgment and for the reasons that follow, I grant the Attorney General’s motion, and I dismiss Rio Algom’s summary judgment motion and its action.

... (caselaw text continues verbatim as provided) ...