Killing green energy contracts
https://law.queensu.ca/sites/webpub... contracts _ Financial Post - 14 May 2014.pdf
Hudak’s Ontario Conservatives can easily and legally negate the giveaways the Liberals had lavished on renewables developers
Tim Hudak says the Ontario Conservatives, if elected, will cancel lucrative wind and solar contracts put in place under the Liberals’ green energy program. Can he do so without racking up huge compensation costs?
The answer is yes – if he does it the right way.
The wrong way is to direct the Ontario Power Authority to simply terminate existing contracts, which have robust compensation clauses. The liabilities would dwarf the $1.1-billion paid out by the Liberals for cancelled gas plants.
The right way is to legislate: to enact a statute that declares green contracts to be null and void, and the province to be free from liability. The compensation clauses in the contract will be rendered inoperative if the statute says so.
Statutes can override iron-clad provisions in a contract because that is the nature of legislative supremacy: Legislatures can pass laws of any kind, as long as they are within their jurisdiction and do not offend the constitution. Legislating on electricity production is clearly a provincial power, as are “property and civil rights.”
Since the Canadian constitution does not guarantee property or contract rights, there are no obvious constitutional limitations on a provincial legislature’s ability to change any contract as it likes. Unlike the U.S. Constitution, in Canada there is no constitutional right to compensation for property expropriated by government.
Courts interpret ambiguous statutes as implicitly requiring compensation be paid to the owner of expropriated property. But if the statute is clear that no compensation shall be paid, the words of the statute govern. Where a statute and a contract are in conflict, the statute prevails. Although unilateral and retroactive changes to established contracts might seem to offend the rule of law, the Supreme Court of Canada has said that prospectivity is not a constitutional requirement for legislation.
What about NAFTA? Could a U.S. or Mexican firm with a cancelled green energy contract in Ontario seek compensation for discriminatory expropriation under Chapter 11? If government action singled out a specific party’s contract for termination, it could well be characterized as discriminatory. But if Hudak’s statute cancelled large numbers of contracts for a public policy objective and treated domestic and foreign firms similarly, then NAFTA protections are unlikely to apply.
So, done the right way, a new PC government could indeed rip up green energy contracts with no liability. Should they? While legislatures can cancel contracts, they rarely do so because it penalizes parties who have done business with government, and therefore creates a disincentive to do so in the future. It erodes economic confidence and credibility. For Conservatives and their supporters, cancelling energy contracts may depend on what they find more offensive: Rich subsidies for the production of solar and wind energy, or unilateral changes to valid contracts. No renewable energy contracts have been cancelled in Ontario yet, but in Europe this line has been crossed: Spain, France, Italy and Belgium have all stepped back from their original terms for the production and purchase of renewable power, to the detriment of their domestic renewable energy industries.
The McGuinty Liberals did not pass a statute to escape the bill for cancelled gas plants. It is difficult to know why without all the facts. Perhaps they thought $1.1-billion in costs and erased records would not come to light. Perhaps they feared that legislation would have required disclosure of facts they wanted hidden. Perhaps refusing to pay compensation would have crippled their ability to enter into future contracts with the same or similar companies. Perhaps there were foreign firms involved that could, in fact, have claimed under NAFTA for discriminatory expropriation. Perhaps they judged the political and economic costs to be too high – it is one thing to roll back a program created by a previous government, especially if you have campaigned on the issue, and quite another for a long-standing government to arbitrarily cancel its own contracts. Or perhaps they did not have an opportunity until after they lost their majority, which made it politically untenable.
Contracts are safe when both parties are bound in law to follow them. Contracting with government means that one party has the power to change the rules after the contract is made. Buyers and sellers beware: At the end of the day, the protection in a government contract is not legal but political.
Bruce Pardy is a law professor at Queen’s University.
