Churchill Falls (Labrador) Corporation Limited Appellant v. Hydro-Québec, 2018 SCC 46

SUPREME COURT OF CANADA Citation: Churchill Falls (Labrador) Corp. v. Hydro- Québec, 2018 SCC 46, [2018] 3 S.C.R. 101 Appeal Heard: December 5, 2017 Judgment Rendered : November 2, 2018 Docket: 37238 Between: Churchill Falls (Labrador) Corporation Limited Appellant and Hydro-Québec Respondent Official English Translation: Reasons of Gascon J. Coram: McLachlin C.J. * and Abella, Moldaver, Karakatsanis, Wagner, Gascon, Côté, Brown and Rowe JJ. Reasons for Judgment: (paras. 1 to 139) Gascon J. (Abella, Moldaver, Karakatsanis, Wagner, Côté and Brown JJ. concurring) Dissenting Reasons: (paras. 140 to 190) Rowe J. * McLachlin C.J. took no

part in the judgment. Churchill Falls (Labrador) Corp. v. Hydro-Québec, 2018 SCC 46, [2018] 3 S.C.R. 101 Churchill Falls (Labrador) Corporation Limited Appellant v.

Hydro-Québec Respondent Indexed as: Churchill Falls (Labrador) Corp. v. Hydro-Québec 2018 SCC 46 File No.: 37238. 2017: December 5; 2018: November 2.

Present: McLachlin C.J. * and Abella, Moldaver, Karakatsanis, Wagner, Gascon, Côté, Brown and Rowe JJ. on appeal from the court of appeal for quebec Contracts — Performance — Good faith and equity — Duty to renegotiate — Doctrine of unforeseeability — Contract between company and Hydro-Québec respecting construction and operation of hydroelectric plant — Take-or-pay undertaking by Hydro-Québec to buy fixed quantity of electricity produced by plant at fixed prices for 65 years — Hydro-Québec reaping substantial profits from resale of electricity as result of changes in market — Company bringing action for order that Hydro-Québec renegotiate contract and agree to reallocation of benefits — Whether party to contract can require other party to renegotiate contract because of allegedly unforeseeable changes in market since it was signed — Civil Code of Québec , arts. 1375, 1431, 1434.

In 1969, the Churchill Falls (Labrador) Corporation Limited and Hydro-Québec signed a contract that set out a legal and financial framework for the construction and operation of a hydroelectric plant on the Churchill River in Labrador. In the contract, Hydro-Québec undertook to purchase, over a 65-year period, most of the electricity produced by the plant, whether it needed it or not, which allowed Churchill Falls to use debt financing for the construction of the plant. In exchange, Hydro-Québec obtained the right to purchase electricity at fixed prices for the entire term of the contract.

After the contract was signed, there were changes in the electricity market, and the purchase price for electricity set in the contract is now well below market prices. Hydro-Québec sells electricity from the plant to third parties at current prices, and this generates substantial profits for Hydro-Québec. In the circumstances, Churchill Falls is asking the courts to order that the contract be renegotiated and that its benefits be reallocated.

Churchill Falls seeks to have the fixed rate being paid by Hydro-Québec replaced with a new rate so as to ensure that the contract reflects the equilibrium of the initial agreement and in order to enforce Hydro-Québec’s alleged duty to cooperate with Churchill Falls on the basis of its general duty of good faith. The Quebec Superior Court concluded that the intervention sought by Churchill Falls was not warranted, and the Court of Appeal dismissed Churchill Falls’ appeal. Held (Rowe J. dissenting): The appeal should be dismissed.

Per Abella, Moldaver, Karakatsanis, Wagner, Gascon, Côté and Brown JJ.: Given the nature of the contract and the duties of good faith and equity, Hydro-Québec did not have a duty to renegotiate the contract when the contract proved to be an unanticipated source of substantial profits for it. In Quebec civil law, there is no legal basis for Churchill Falls’ claim. The Court cannot change the content of the contract, nor can it require the parties to renegotiate certain terms of the contract or to share the benefits otherwise than as provided for in the contract. The

interpretation and characterization of the contract in this case are questions of mixed fact and law. Because the trial judge’s

interpretation and characterization of the contract are based on a particular set of circumstances that are unlikely to have any precedential value, they may not be overturned absent a palpable and overriding error. No error that would justify overturning the trial judge’s findings of fact concerning the paradigm, the characterization and the

interpretation of the contract can be found. The contract cannot be characterized as a joint venture contract or a relational contract. A joint venture contract is formed where businesses choose to become partners and to cooperate in a project by each investing resources and by sharing any profits from the project. In this case, the evidence does not show that the parties intended to enter into a partnership or to jointly assume financial or logistical responsibility for the project beyond the simple cooperation required to perform their respective prestations.

The parties’ relationship thus lacks the characteristics generally associated with the joint venture contract. As for the relational contract, it sets out the rules for a close cooperation that the parties wish to maintain over the long term and puts an emphasis on the parties’ relationship and on their ability to agree and cooperate. It does not define their respective prestations in much detail. As a result, it requires a cooperation that is, in the end, more active than the cooperation required by transaction-based contracts.

The parties’ contract sets out a series of defined and detailed prestations as opposed to providing for flexible economic coordination. Each party’s participation is clearly quantified and defined, and no important prestations are left undefined. This shows that the parties intended the project to proceed according to the words of the contract, not on the basis of their ability to agree and cooperate from day to day to fill any gaps in the contract. The long-term, interdependent nature of the contract does not in itself imply that the contract is relational.

The contract does not contain implied clauses that impose on Hydro-Québec a duty to cooperate and to renegotiate the agreed-on prices. An implied duty may, within the meaning of art. 1434 of the Civil Code of Québec , be incident to a contract according to the nature of the contract if the duty is consistent with the general scheme of the contract and if the contract’s coherency seems to require such a duty. However, such an implied clause must not merely add duties to the contract that might enhance it, but must fill a gap.

In this case, there is no gap or omission in the scheme of the contract that requires that an implied duty to cooperate and to renegotiate the agreed-on prices be read into the contract in order to make it coherent. There is nothing to suggest that the parties’ prestations would be incomprehensible and would have no basis or meaningful effect in the absence of an implied duty according to which Hydro-Québec must either exceed the usual requirements of good faith in cooperating with Churchill Falls or redistribute windfall profits.

The doctrine of unforeseeability cannot serve as a basis for requiring Hydro-Québec to renegotiate the contract. This doctrine is a private law rule that is recognized in some civil law jurisdictions and the effect of which is that parties can be required to renegotiate a contract if, as a result of unforeseen events, performance of the obligations stipulated in the contract would be excessively onerous for one of them.

However, unforeseeability cannot be relied on where it is clear that the party who was disadvantaged by the change in circumstances had accepted the risk that such changes would occur, and it applies only where the new situation makes the

contract less beneficial for one of the parties, and not simply more beneficial for the other. It does not apply where the parties receive the prestations and benefits that are provided for or are allocated to them in the contract. But this doctrine is not recognized in Quebec civil law at this time. Any development of concepts analogous to unforeseeability in Quebec civil law must take account of the legislature’s choice not to turn this doctrine into a universal rule.

Furthermore, even in jurisdictions where the doctrine of unforeseeability is recognized, it applies only in narrow circumstances that quite simply do not correspond to those of the parties in this case. The parties intentionally allocated the risk of electricity price fluctuations to Hydro-Québec, and the changes in the market did not have the effect of increasing the cost of performing Churchill Falls’ prestations or diminishing the value of the prestations it received from Hydro-Québec.

On the contrary, Churchill Falls has continued to receive exactly what it was owed under the contract, as well as the related benefits. The principles of good faith and equity do not impose a duty to renegotiate on Hydro-Québec. The introduction of the duty of good faith into the Civil Code of Québec shows that the legislature intended to temper the principles of the binding force of contracts and autonomy of the will of the parties.

Good faith confers a broad, flexible power to create law and serves as a basis for courts to intervene and to impose on contracting parties obligations based on a notion of contractual fairness. It also serves to protect the equilibrium of a contract. However, it cannot be used to violate that equilibrium and impose a new bargain on the parties to the contract. The courts cannot rely on it to order the sharing of profits that have in fact been honestly earned.

Despite its potential scope and its capacity to change the civil law because of its flexible application, the concept of good faith cannot be expanded to include the possibility of penalizing a party whose conduct has not been unreasonable, or a duty to renegotiate the principal obligations of a contract in all circumstances. The duty of good faith does not negate a party’s right to rely on the words of the contract unless insistence on that right constitutes unreasonable conduct in the circumstances.

The duty to cooperate, which flows from the requirements of good faith, can require a party to be proactive in accommodating the interests and legitimate expectations of his or her contracting partner. But for a party to consider only the words of the contract and to refuse to renegotiate a contract or to share profits is not necessarily contrary to the general duty of good faith. The duty to cooperate with the other contracting party does not mean that one’s own interests must be sacrificed.

In this case, Hydro-Québec is entitled to insist on adhering to the words of the contract and maintaining the equilibrium of the prestations the contract establishes for the benefit of the parties, which bound themselves knowing full well what they were doing. Hydro-Québec is not breaching its duty of good faith in exercising its right to purchase electricity from Churchill Falls at fixed prices. Nor does its insistence on adhering to the contract despite the unforeseen change in circumstances constitute unreasonable conduct.

Moreover, Hydro-Québec is considering Churchill Falls’ legitimate contractual interests, given that it is not preventing Churchill Falls from receiving the benefits conferred on the latter under the contract. It has done nothing that threatens to disrupt the contractual equilibrium. Hydro-Québec therefore has no duty to cooperate with Churchill Falls to mitigate the effects of the contract. The magnitude of the profits it earns under the contract does not justify modifying the contract so as to deny it that benefit.

As to equity, it cannot be relied on in support of the relief being sought, since its effect would then be to indirectly introduce either lesion or unforeseeability into Quebec law in every case. To hold that a change in the circumstances of the parties to a contract will always justify its being renegotiated in the name of equity would conflict sharply with the legislature’s intent. Equity is not so malleable that it can be detached from the will of the parties and their common intention.

Nothing about the relationship between Churchill Falls and Hydro-Québec would justify such an intervention in the circumstances of this case. There is neither inequality nor vulnerability in their relationship. Both parties to the contract were experienced, and they negotiated its clauses at length. The relief being sought cannot be granted. There is no legal basis on which a judge could impose a new bargain on Hydro-Québec to which it has not agreed.

Allowing a contract to be modified by a judge at the request of a single party would conflict seriously with the principles of the binding force of contracts and freedom of contract that underlie Quebec civil law. In any event, Churchill Falls’ action is prescribed. The situation in this case does not constitute a breach of an ongoing duty or a continuing fault that is not subject to prescription. On the contrary, the right of action that Churchill Falls seeks to exercise arises when the events that give rise to it occur.

The most recent event to have disrupted the electricity market occurred in 1997 at the latest. It was at that time that Churchill Falls’ right of action arose, and it has therefore been prescribed since the end of 2000 at the latest. Per Rowe J. (dissenting): Properly characterized, the contract binding Churchill Falls and Hydro-Québec is relational in nature and both parties are subject to a duty of cooperation. Hydro-Québec breached this duty. Accordingly, the appeal should be allowed.

The object of contract characterization is to link the contract at issue to a legal category so as to impose on the parties the legal effects of the true nature of their agreement. The aim of this exercise is to identify the essential objective of the contract and to categorize the contract based on the elements that define its nature. The exercise of characterization is a question of law unless consideration of evidence extrinsic to the contract is necessary to identify the true intention of the parties.

In this case, the trial judge did not indicate the necessity of considering elements extrinsic to the contract to establish the nature of its fundamental obligation. Accordingly, characterization — in this instance — remains a question of law, reviewable on a standard of correctness. Relational contracts typically require successive performance, whereby the parties have obligations to perform on a continuing basis. This category of contracts should not be limited to those that leave certain obligations to be defined by the parties at a later date.

Rather than being a necessary condition, undefined obligations are but one indicator of relational contracts. Other indicators include the duration of the contract and the creation of an ongoing economic relationship rather than a one-off transaction. In this case, the contract at issue is not a simple contract of sale. It establishes a cooperative relationship between the parties and it is the framework for an interdependent and long-term relationship. This conclusion is reinforced by its language.

First, the agreement makes clear that both parties saw the project as requiring ongoing interaction and collaboration. Second, the parties committed to offering each other assistance during the execution of the contract in order to ensure its success. Third, the parties explicitly contemplated the need for consultation, joint determination, discussion, and revision. When considering the overall framework of the parties’ rights and obligations, the true nature of the contract becomes apparent: it is relational.

The characterization of a contract determines the legal consequences that attach to it, including certain implied obligations that are necessary complements to the contract and reflect the presumed intention of the parties. The inclusion of an implied obligation is warranted where a reasonable person in the same circumstances would see an important and intrinsic connection between the implied

terms and the nature of the contract. A court does not have to find that a contract would be ambiguous, incomprehensible, withoutfoundation or without useful effect before including an implied obligation. In relational contracts, both good faith and equity provideguidance to defining the scope and content of implied obligations, including the implied duty to cooperate. Good faith implies an attitudethat maximizes, for each party, the advantages of the contract.

In circumstances where the parties must work together to achieve theobject of their agreement over a long period of time, the relational nature of the contract imposes a heightened duty of good faith.Likewise, equity is a means to remedy the imperfections of a contract and re-establish an equilibrium where its division of burdens andbenefits do not align with its intended scheme. While courts may not modify or revise contracts, they can enforce what appears to beequitable.

Based on the relational nature of the contract at issue and how it informs the requirements of good faith and equity, theparties had an implied obligation to cooperate in establishing a mechanism for the allocation of extraordinary profits. This obligationflows from the fact that a profit imbalance of this nature and magnitude is beyond what the parties intended when they concluded theagreement. The parties’ choice not to include a price adjustment mechanism was premised on shared assumptions about the nature andvalue of hydroelectric power at the time of the formation of the contract.

It cannot be seen as excluding an obligation to cooperate shouldthese shared assumptions no longer reflect reality. As the contract contains no mechanism for the allocation of profits that are beyondwhat was envisioned, the parties have an implied obligation to cooperate in defining the terms of their allocation. Hydro-Québec hasbreached this duty by refusing to establish a price adjustment formula for these extraordinary profits by way of mutual agreement.Hydro-Québec must therefore be held to its obligation, and should be ordered to cooperate with Churchill Falls for this purpose.

Where a fault continues in time and causes continuing damages, prescription starts running anew each day. By persistentlyrefusing to enter into negotiations to establish a mechanism for allocating unforeseen profits, Hydro-Québec has been in continuousbreach of its obligation to cooperate. As Churchill Falls’ right of action is grounded in this continuous breach, its claim is not barred byprescription.

On the question of remedy, while judges should refrain from ordering specific performance of obligations that requirepersonal participation of the parties, the imposition of such an order here would not amount to an improper constraint on the parties’capacity to act. Cases Cited By Gascon J. Distinguished: Provigo Distribution inc. v. Supermarché A.R.G. inc., ; considered: Uniprix inc. v.Gestion Gosselin et Bérubé inc., 2017 SCC 43, [2017] 2 S.C.R. 59; referred to: Newfoundland (Attorney General) v. Churchill Falls(Labrador) Corp. (1985), (NL CA), 56 Nfld. & P.E.I.R. 91; Newfoundland (Attorney General) v.

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Construction Kiewit cie, 2014 QCCA 947; Warner Chappell Music France v. Beaulne, 2015 QCCS1562; Société d’énergie Foster Wheeler ltée v. Montréal (Ville de), 2008 QCCS 4670; Éco-Graffiti inc. v. Francescangeli, 2016 QCCS6242; Miller v. Syndicat des copropriétaires de “Les résidences Sébastopole centre”, ; St. Lawrence Cement Inc. v.Barrette, 2008 SCC 64, [2008] 3 S.C.R. 392; Gourdeau v. Letellier de St-Just, (QC CA), [2002] R.J.Q. 1195; Rabinv.

Syndicat des copropriétaires Somerset 2060, 2012 QCCS 4431, [2012] R.L. 548; White Birch Paper Holding Company (Arrangementrelatif à), 2015 QCCS 701, leave to appeal refused, 2015 QCCA 752; Laberge v. Villeneuve, ; Picard v. Picard, 2015QCCS 5096. Statutes and Regulations Cited Act respecting the implementation of the reform of the Civil Code, s. 4. Civil Code of Lower Canada, arts. 1020, 1024. Civil Code of Québec, arts. 6, 7, 1375, 1380, 1431, 1434, 1497, 1507, 1590, 1601, 2186 para. 1, 2199, 2251, 2253 to 2255, 2880 para. 2,2925. Code civil (France), art. 1195.

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APPEAL from a judgment of the Quebec Court of Appeal (Thibault, Morissette, St-Pierre, Schrager and Mainville JJ.A.), 2016 QCCA 1229 , [2016] AZ-51310795, [2016] Q.J. No. 9073 (QL), 2016 CarswellQue 8574 (WL Can.), affirming the decision of Silcoff J., 2014 QCCS 3590 , [2014] AZ-51096311, [2014] Q.J. No. 4813 (QL), 2014 CarswellQue 8025 (WL Can.). Appeal dismissed, Rowe J. dissenting. Douglas Mitchell , Audrey Boctor , Daphné Wermenlinger and Patrick Girard , for the appellant. Pierre Bienvenu , Andres C. Garin , Sophie Melchers , Horia Bundaru and Lucie Lalonde , for the respondent.

English version of the judgment of Abella, Moldaver, Karakatsanis, Wagner, Gascon, Côté and Brown JJ. delivered by Gascon J. — TABLE OF CONTENTS Paragraph I. Overview 1 II. Background 7 A. Origin of the Development Project 8 B. Negotiations, Letter of Intent and Power Contract 11 C. Situation of the Parties After They Entered Into the Contract 17 III. Judicial History 25 A. Quebec Superior Court, 2014 QCCS 3590 25 B. Quebec Court of Appeal, 2016 QCCA 1229 30 IV. Issues 37 V. Analysis 40 A. Claim for Renegotiation of the Contract 40

(1) The Contract: Paradigm, Characterization and Content 45 (

a) Paradigm of the Contract 54 (

b) Characterization of the Contract 59 (

c) Unforeseeability of the Changes in the Electricity Market 77 (

d) Conclusion on the Factual Analysis 82

(2) Unforeseeability and Good Faith 83 (

a) Doctrine of Unforeseeability 86 (

b) Unforeseeability in Quebec Civil Law 93 (

c) Good Faith and Equity 102

(3) Conclusion on the Principal Question 126 B. Relief Sought and Prescription 129 VI. Conclusion 136 I. Overview [ 1 ] The Churchill River basin in Labrador is one of the areas with the greatest hydroelectric potential in the world. In 1969, following several years of negotiations, two sophisticated entities, the Quebec Hydro-Electric Commission (“Hydro-Québec”) and the Churchill Falls (Labrador) Corporation Limited (“CFLCo”), signed a contract (“Power Contract” or “Contract”) that set out a legal

and financial framework for harnessing that potential by building a hydroelectric plant (“Plant”) on the river. It was a huge project involving a substantial amount of money. The parties chose to allocate the risks and benefits of the Contract over a 65-year period. [ 2 ] The Power Contract signed by the parties made the project viable and attractive for each of them. On the one hand, Hydro-Québec undertook to purchase most of the electricity produced by the Plant, whether it needed it or not, and to protect CFLCo from any cost overruns incurred in the construction of the Plant.

This assured CFLCo of a stable return on its investment and allowed it to use debt financing for the construction of the Plant, which is now estimated to be worth $20 billion. On the other hand, Hydro-Québec sought and obtained the right to purchase electricity at fixed prices for the entire term of the Contract.

This protected it from inflation and assured it that it would benefit from low prices in the event of an increase in market prices for electricity. [ 3 ] Nearly 50 years after the Contract was signed, there have been changes in the electricity market whose effect is that the purchase price for electricity set in the Contract is well below market prices. As a result, Hydro-Québec sells electricity to third parties at current prices while continuing to pay CFLCo the price agreed on in the Contract in 1969.

This generates substantial profits for Hydro-Québec. [ 4 ] CFLCo argues that given this reality, which in its view was unforeseen, Hydro-Québec can no longer avail itself of the benefits conferred on it by the words of the Contract. In CFLCo’s opinion, these circumstances, which it characterizes as new and unforeseeable, mean that for Hydro-Québec to do so is contrary to the equilibrium established by the initial agreement and to the principle of good faith in contracting.

CFLCo argues that, because the possibility that Hydro-Québec would within the space of a few years find itself in so advantageous a position for the sale of electricity at very high prices was unthinkable in the late 1960s, the Contract as initially contemplated cannot be found to apply in such circumstances.

CFLCo submits that because the parties’ agreement dealt first and foremost with the creation of a cooperative, sharing relationship, the words of the Contract do not reflect that primary intention of the parties and the application of the Contract now creates a situation that bears no resemblance to the contractual relationship contemplated in 1969. [ 5 ] In the circumstances, CFLCo is asking the courts to order that the Contract be renegotiated and that its benefits be reallocated.

Specifically, CFLCo seeks to have the fixed rate per kilowatt hour paid to it by Hydro-Québec replaced with a new and more advantageous rate. It submits that this change is necessary for two reasons: first, to ensure that the Contract reflects the initial equilibrium it is relying on and, second, to enforce Hydro-Québec’s alleged duty to cooperate with its long-time partner on the basis of its general duty of good faith. [ 6 ] The Quebec Superior Court and Court of Appeal both ruled against CFLCo. I agree with their conclusion. In Quebec civil law, there is no legal basis for CFLCo’s claim.

This Court cannot change the content of the Contract, nor can it require the parties to renegotiate certain terms of the Contract or to share the benefits otherwise than as provided for in the Contract. All of CFLCo’s arguments, which are based on the nature of the Contract and its implied duties, the general duty of good faith, or a variation on the doctrine of unforeseeability ( imprévision ), must fail. Moreover, all of them require questioning the trial judge’s determinative findings of fact, which are tainted by no palpable and overriding error. I would therefore dismiss the appeal. II.

Background [ 7 ] To clarify what is in issue, it is important to clearly determine what the parties intended and expected at the time they entered into the Contract and how their relationship has evolved since then. This review of the factual background is based essentially on the trial judge’s reasons. Since the courts below have already reviewed the relevant evidence thoroughly and in detail, I will limit myself to the salient aspects of that evidence that are determinative of the appeal. A.

Origin of the Development Project [ 8 ] In 1961, the Government of Newfoundland and Labrador [1] signed a lease with the Hamilton Falls Power Corporation Limited (which later changed its name and became CFLCo), a subsidiary of the British Newfoundland Corporation Limited (“Brinco”). Brinco was a consortium of industrial, banking and mining companies whose directors were, according to the trial judge, elite titans of industry at the time. The lease conferred on CFLCo the right to make use of the watershed of the Churchill Falls site to produce hydroelectric power.

The lease, which was for a fixed rent, had a term of 99 years, renewable for a further 99 years. It provided that royalties were to be paid to the Government of Newfoundland and Labrador, but prohibited the province from raising taxes or increasing the amount of the royalties. [ 9 ] At the time, Brinco wanted to exploit the watershed and build a hydroelectric plant there, but it was apparently unwilling either to finance the plant by issuing shares in CFLCo or to commit its own funds. Instead, it tried to secure debt financing for the construction of the Plant.

For that purpose, CFLCo, its subsidiary that was to develop the project, sought customers that could guarantee that they would purchase large quantities of electricity on a long-term basis, in part to assure its future creditors that the project was financially viable. The customers it sought would also need to have the technology required to transmit the electricity produced by the Plant to consumers.

In the trial judge’s opinion, there was nothing to suggest that, at the time, CFLCo was in any way dealing with an urgent situation that forced it to undertake the project in such circumstances. [ 10 ] Hydro-Québec, a state-owned enterprise created in 1944 that has had a monopoly on electricity in Quebec since 1963, met these criteria. Furthermore, it was at that time facing an increase in the demand for electricity in Quebec. This did not make it the perfect partner, however, as it was capable of developing its own hydroelectric projects.

Hydro-Québec therefore had to be convinced that it would be worth its while to participate in the construction of plants owned by third parties and to purchase their electricity rather than producing its own. B. Negotiations, Letter of Intent and Power Contract [ 11 ] CFLCo approached Hydro-Québec immediately after the 1961 lease was signed, but Hydro-Québec rejected its initial offers. It was not until 1966 that the parties agreed on a development project. At that time, they signed a Letter of Intent setting out

the terms of the project, although those terms required the approval of the governments of Quebec and Newfoundland and Labrador.Article 2.0 of the Letter of Intent stipulated that a final contract remained to be signed. The Letter of Intent stated that CFLCo would beresponsible for building the Plant, and Hydro-Québec for building the transmission lines to Quebec. The parties expected Hydro-Québecto purchase a fixed quantity of electricity from the Plant for 40 years at fixed prices that would decrease every 5 or 10 years and wouldbe based on the cost of building the Plant.

That purchase guarantee took the form of a “take-or-pay” undertaking that would requireHydro-Québec to buy and pay for a fixed quantity of electricity whether it needed it or not. The Letter of Intent also provided thatCFLCo would have the right to receive 300 megawatts of electricity on request: this was the right of “recapture”. The parties also agreedthat Hydro-Québec would guarantee up to $100 or $109 million in construction cost overruns. [12] Construction of the Plant began immediately, but both CFLCo and Hydro-Québec quickly realized that the work wasproving to be more costly than had been anticipated.

In addition, potential creditors were hesitant and were asking for additional security.This required the parties to make changes to their respective prestations, with the result that a new contractual equilibrium wasestablished following further negotiations. The 1969 Power Contract, which superseded and replaced the Letter of Intent, thereforediffered fundamentally from the latter on certain key points. For example, Hydro-Québec now guaranteed any cost overruns for thePlant.

As well, the parties retained the initial 40-year term, but agreed to add a clause providing for automatic renewal of the Contract foran additional 25 years. [13] In his rigorous analysis of the evidence, the trial judge reviewed the negotiations on this last point in detail. Henoted that, because the electricity prices were based directly on the Plant’s construction costs, cost overruns had increased those pricesand made the project less attractive for Hydro-Québec.

He observed that, at the time, Hydro-Québec had therefore requested — in whatthe executive committees of the boards of directors of Brinco and CFLCo perceived as a “very firm” position — an option to renew theContract for 25 years at a single fixed price slightly lower than the rate it was to pay at the end of the initial term of the Contract.

It wasclear, however, that Hydro-Québec would still be required to buy and pay for a fixed quantity of electricity. [14] The minutes of a joint meeting of those two committees indicate that they were of the view that such a commitmentwould produce significant annual revenue, that there would be no debt outstanding for CFLCo at the time of the renewal and that,although hydroelectricity was an attractive source of power at the time of the negotiations, it was conceivable that it would be lesseconomical than nuclear power 40 years later.

Ultimately, CFLCo acceded to Hydro-Québec’s request, although it thought that it wouldbe better off with an automatic renewal clause, a point on which Hydro-Québec conceded in the end. The Government of Newfoundlandand Labrador was consulted before the final agreement was signed: Newfoundland (Attorney General) v. Churchill Falls (Labrador)Corp. (1985), (NL CA), 56 Nfld. & P.E.I.R. 91 (C.A.), at paras. 16 and 26. [15] When the Power Contract was signed, it reflected the parties’ legitimate expectations and seemed to them to bemutually beneficial.

The paradigm of the Contract, its organizing principle, can be easily summarized. On the one hand, Hydro-Québecassumed the risks associated both with the Churchill River development project and with the uncertainty of market prices for electricity.On the other, because CFLCo was receiving a Plant that it would not be paying for itself and was acquiring the certainty and stabilitythat resulted from having a long-term customer, it agreed in exchange to sell the electricity produced by the Plant to Hydro-Québec atlow prices, and over a very long period. [16] In these proceedings, CFLCo is challenging that paradigm.

C. Situation of the Parties After They Entered Into the Contract [17] CFLCo argues that this challenge is justified because of some fundamental and unforeseeable changes that haveoccurred in the electricity market. After the Contract was signed, the price of electricity in fact rose significantly, in part because of theoil price shocks of the 1970s and the decline in public confidence in nuclear power due to an accident in a plant that happened in 1979.The relative market positions of CFLCo and Hydro-Québec are alleged to have changed as well.

Technologies for transporting anddistributing electricity are more efficient. Furthermore, since 1996, the United States Federal Energy Regulatory Commission hasrequired any company that sells electricity in that country, including Hydro-Québec, to give any interested third party access to itstransmissions systems. [18] In CFLCo’s view, these changes have essentially disrupted the equilibrium of the Contract. The prestations owed toHydro-Québec now have a much greater value than the parties could have foreseen when they entered into the Contract.

CFLCo arguesthat this disproportion between the parties’ prestations cannot be tolerated. Hydro-Québec should be required to renegotiate the Contract,and more specifically the sale price for electricity, so that the substantial profits generated by the resale of the electricity produced by thePlant are shared more equitably. [19] That being said, there were other changes in the circumstances of the parties subsequent to the conclusion of theContract that must also be considered here.

First, in 1974 and 1975, Newfoundland and Labrador Hydro (“NLH”), a Crown corporation,acquired Brinco’s shares and the shares of another minority shareholder of CFLCo, but not those of Hydro-Québec. What theGovernment of Newfoundland and Labrador hoped to gain with respect to the Churchill Falls project then quickly became apparent. In1976, it tried to force CFLCo to “recapture” more electricity than CFLCo was entitled to under the Contract.

CFLCo responded that theinevitable result of doing so would be a failure to perform the prestations it owed Hydro-Québec, and it declined to comply, which led tothe dispute being brought before the courts of both provinces. This Court heard and summarily dismissed appeals from the two series ofdecisions that had followed, in which the lower courts had agreed with Hydro-Québec on all points: Newfoundland (Attorney General) v.Churchill Falls (Labrador) Corp., (SCC), [1988] 1 S.C.R. 1085; Hydro-Québec v.

Churchill Falls (Labrador) Corp., (SCC), [1988] 1 S.C.R. 1087. [20] Second, in 1980, the province’s legislature enacted a statute that provided for reversion to the government of therights that had been assigned to CFLCo in 1961. Another court challenge ensued.

The Newfoundland and Labrador Court of Appealdeclared the legislation to be valid, but this Court unanimously held that it was ultra vires the province, because its pith and substancewas to interfere with rights that, under the Contract, were situate in Quebec, that is, the place where a party could bring an action for theenjoyment of those rights: Reference re Upper Churchill Water Rights Reversion Act, (SCC), [1984] 1 S.C.R. 297.

[ 21 ] At that same time, Hydro-Québec and CFLCo began negotiations to settle their differences. The negotiations continued sporadically for several years, but the parties never reached an agreement to reopen the 1969 Contract. Instead, they chose to enter into other contracts parallel to it. [ 22 ] Thus, in 1991, Hydro-Québec undertook to purchase the balance of the Plant’s production capacity for a limited time.

In 1998, the parties changed the conditions for the exercise of CFLCo’s “recapture” right by agreeing that, for a period of time, CFLCo would sell the electricity in question to NLH, which would resell it at a profit to Hydro-Québec under terms that were kept confidential. Since 2009, the electricity to which the conditions respecting the recapture right apply has been resold in other markets and exported through Hydro-Québec’s transmission lines.

Finally, in 1999, the parties signed the Guaranteed Winter Availability Contract, under which Hydro-Québec received the assurance that the Plant’s production capacity would be available during the winter months in exchange for substantial additional revenue for CFLCo. Significantly, these last two contracts will expire at the same time as the Power Contract, in 2041. [ 23 ] Despite all these changes, the performance of the prestations provided for in the Contract was generally problem-free. There is no mention in the record of any default by the parties or any disagreement over the

interpretation or application of the words of the Contract. The trial judge’s understanding was that CFLCo had received what it asked for at the time of the negotiations.

The development strategy it had at the time was implemented smoothly: Brinco was able to complete the Plant without having to invest its own funds and also remained CFLCo’s majority shareholder, a strategy of which NLH is today the beneficiary, and CFLCo received the return it anticipated and expected on its investment as well as the other benefits conferred on it by the Contract. [ 24 ] The foregoing is the backdrop to the proceedings now before the courts. This appeal is in fact the third one that has come before this Court with respect to the scope of the Power Contract.

In this regard, the trial judge noted that the Government of Newfoundland and Labrador had undertaken to pay all costs of the litigation, and that the proceedings had been commenced shortly before CFLCo had repaid in full the debt that had until then been guaranteed in part by Hydro-Québec for the Plant’s construction costs. In his view, these proceedings were ultimately another unjustified attempt by the province to escape its contractual obligations and to deprive Hydro-Québec of the benefits to which it was entitled under the Contract. III. Judicial History A.

Quebec Superior Court, 2014 QCCS 3590 [ 25 ] On the basis of CFLCo’s arguments, Silcoff J. identified four issues. He dealt with the first two issues together, framing them as follows: In the circumstances of the negotiation and signature of the Power Contract and in light of subsequent events, was Hydro-Québec, in refusing to renegotiate the price for electricity, in breach of its duties of cooperation and good faith?

If so, was it open to the court to intervene? [ 26 ] After canvassing the textbooks that review the [ translation ] “new contractual morality” that flows from the application of the Civil Code of Québec (“ C.C.Q. ” or “ Code ”) and from the obligations associated with the general duty of good faith, Silcoff J. made note of Hydro-Québec’s objections that the binding force of contracts remains a central principle of Quebec law and that the duty of good faith cannot give rise to an obligation to share a profit that has been received legitimately.

He expressed the view that, to answer the first two questions, he had to define the nature of the parties’ relationship as well as their legitimate expectations, and to consider the possibility that those expectations had not been met. [ 27 ] Silcoff J. found that CFLCo had not discharged its burden of proof in this regard. In his opinion, neither the Contract itself nor the circumstances in which it was signed indicated that the parties’ relationship was based on an equitable sharing of risks and benefits and required a tremendous level of cooperation, trust and compromise.

Although the parties’ attitude was one of cooperation after they signed the Letter of Intent, their final bargain was crystallized in the Contract, not in the Letter of Intent. In Silcoff J.’s view, the will of the parties was to fix electricity prices without permitting any renegotiation or adjustment of prestations in the future based on unexpected events that might occur in the course of the project. The fixed nature of the prices was precisely the benefit that Hydro-Québec derived from the Contract and that it legitimately expected to receive.

CFLCo could not therefore ask a court to deprive Hydro-Québec of that benefit now. Hydro-Québec had acted in good faith and in a spirit of fair play in complying with the Contract, and there was no justification for reading in an implied duty to renegotiate and for disregarding the will of the parties.

Silcoff J. concluded from this that the intervention sought by CFLCo was not warranted. [ 28 ] Having so decided, Silcoff J. turned to the remedies being sought by CFLCo, including an order that the Contract quite simply be resiliated, a declaration that Hydro-Québec had a duty to renegotiate the Contract or an order revising the Contract to include in it an indexing formula for electricity prices suggested by CFLCo. He found that, in light of his conclusions on the first two issues, CFLCo was entitled to none of the remedies it was seeking.

He also observed that it would have been necessary to reject the proposed indexing formula at any rate because of methodological deficiencies and inconsistencies. [ 29 ] Finally, Silcoff J. found that, in any event, CFLCo’s action was prescribed. He rejected CFLCo’s argument that Hydro-Québec’s refusal to renegotiate the Contract was a continuing fault. Because CFLCo was asserting a personal right that allegedly arose out of changes in the electricity market, the most recent of which had occurred at the latest in 1997, the action had been prescribed since 2000. B.

Quebec Court of Appeal, 2016 QCCA 1229 [ 30 ] A panel of five judges of the Quebec Court of Appeal unanimously dismissed CFLCo’s appeal. [ 31 ] The Court of Appeal began by finding that Silcoff J. had made no palpable and overriding error in assessing the evidence. It rejected CFLCo’s argument that the expectations of parties to a long-term contract must be established in light of what is foreseeable. In this case, the evidence showed that the parties had set electricity prices on the basis not of the electricity market and the foreseeability of long-term trends in that market, but of other factors.

These factors included the cost of construction of the Plant, the fact that production costs for hydroelectricity are low and stable once a plant has been built, which Hydro-Québec wanted to be reflected in

the prices it would pay, and CFLCo’s need for a substantial inflow of money at the beginning of the Contract. [ 32 ] The Court of Appeal added that the trial judge’s findings that the parties had decided to have Hydro-Québec bear the risks related to fluctuations in electricity prices and had intentionally chosen not to include a price adjustment clause in the Contract were firmly supported by the evidence.

It accordingly rejected the argument that the equilibrium of the Contract had been disrupted by unforeseeable changes in the market: the parties’ prestations were not defined by reference to market conditions, and the Contract clearly allocated the risks associated with possible changes in those conditions. In short, the Court of Appeal found that the alleged unforeseeability was not relevant to the case and had not in fact been established. [ 33 ] Next, the Court of Appeal pointed out that the two parties had articulated the central question of law in the case in very different ways.

CFLCo argued that good faith tempers the principle of the binding force of contracts and that the parties to a relational contract have a duty to cooperate, which may, in certain circumstances, give rise to a duty to modify the contract. Hydro-Québec contended that CFLCo was in reality relying on the doctrine of unforeseeability.

That doctrine, according to which a party can be required to renegotiate a contract should a sudden change in circumstances make the contract too onerous for the other party, is not recognized in Quebec civil law. [ 34 ] On this subject, the Court of Appeal reviewed the debates that had led up to the enactment of the Code . It noted that the Civil Code Revision Office had suggested introducing the doctrine of unforeseeability as part of a series of recommendations made to the legislature that were intended to make contract law fairer and more equitable, but that this suggestion had not been accepted.

The doctrine is accordingly not provided for in the Code .

However, the Court of Appeal found that there is nothing to prevent the development of judge-made law on unforeseeability in specific cases where the legislature has left the door open for a court to intervene to deal with abuse or unreasonable conduct. [ 35 ] With this in mind, the Court of Appeal, noting that CFLCo was arguing that good faith sometimes requires one contracting party to help the other party remedy his or her problems, recognized that there may occasionally be situations, hypothetical at least, in which good faith and unforeseeability overlap.

In the instant case, however, the court found that Hydro-Québec had met the obligations flowing from its general duty of good faith. There was no indication that it had acted in bad faith. Looking out for the interests of the other contracting party does not require a party to sacrifice his or her own interests.

Because Hydro-Québec had not derived an unfair advantage and had not committed an abuse of right by insisting on adhering to the words of the Contract, the Court of Appeal found that it could not intervene. [ 36 ] Finally, as a matter of doctrinal interest, the Court of Appeal considered the characteristics of the doctrine of unforeseeability as it exists in other civil law jurisdictions. But the court pointed out that, in any event, the doctrine would not apply in this case without an increase in CFLCo’s costs of performance or a decrease in the value of the counterprestation it received.

In the final analysis, the Court of Appeal found that CFLCo was essentially arguing that the Contract was lesionary on the basis that it resulted in an excessive benefit for Hydro-Québec. There is quite simply no support for that argument in Quebec civil law, as lesion is generally available only to minors and protected persons of full age. IV. Issues [ 37 ] The appeal ultimately raises one central question: Can CFLCo require Hydro-Québec to renegotiate the Power Contract because of “unforeseeable” changes in the electricity market since the Contract was signed?

On this point, CFLCo argues that the trial judge erred in characterizing and interpreting the parties’ contractual relationship and in assessing the role of good faith in contractual matters. [ 38 ] If this principal question is answered in the affirmative, two subsidiary questions arise: Can this Court grant the relief sought by CFLCo? If so, is CFLCo’s action nonetheless prescribed? [ 39 ] In my opinion, CFLCo’s arguments with respect to both the basis for its claims and the relief it seeks find no support either in the evidence the trial judge considered and accepted or in Quebec civil law.

I am also of the view that CFLCo’s action in this case is prescribed. In short, the appeal must be dismissed no matter what approach is taken to it. V. Analysis A. Claim for Renegotiation of the Contract [ 40 ] CFLCo argues that, given the nature of the Contract and the parties’ duties of good faith and equity, Hydro-Québec had a duty to renegotiate the Contract when the Contract proved to be an unanticipated source of substantial profits for it. CFLCo adds that the Contract must be renegotiated so as to allocate the profits more equitably between the parties.

It therefore seeks an order that, at a minimum, the Contract be renegotiated and modified on the basis of a price adjustment formula it itself has devised in order to force Hydro-Québec to share part of the profits Hydro-Québec earns in reselling the electricity purchased under the Contract or, in the alternative, that the Contract be resiliated. [ 41 ] In support of its position, CFLCo begins by raising factual arguments relating to the characterization, the content and the

interpretation of the Contract. It submits that the Contract is a relational contract akin to a joint venture. In its opinion, the parties always intended to prioritize cooperation and the equitable sharing of the risks and benefits associated with the project, but a number of unforeseen events fundamentally altered the nature of the electricity market and, as a result, the equilibrium of the parties’ prestations.

CFLCo adds that the Contract cannot be considered to have dealt with the risk of electricity price fluctuations as radical as the ones that have occurred since the 1980s: such fluctuations were impossible to foresee in 1969. [ 42 ] As will be shown below, however, this characterization conflicts with the words of the Contract and disregards some crucial facts relating to the intention of the parties at the time they entered into it.

The evidence does not show that the parties intended to jointly assume responsibility for the project or to create a flexible legal relationship; rather, it shows that they intended to agree on specific prestations. The evidence also shows that the parties clearly intended Hydro-Québec to bear most of the risks associated with the

development of the Plant, including the risk of electricity price fluctuations, however large they might be. On this point, as the Court of Appeal correctly noted, the trial judge made no palpable and overriding error that might warrant intervention.

His determinative finding concerning the paradigm of the Contract, namely that its fixed prices and long term were precisely the benefits Hydro-Québec was seeking in 1969, is strongly supported by the evidence he considered. [ 43 ] Next, CFLCo submits that, as a matter of law, Hydro-Québec cannot receive such profits without being required to distribute part of them to the other contracting party, relying in support of this argument sometimes on the general duty of good faith that is recognized in Quebec civil law and sometimes on implied duties under the Contract based on equity.

CFLCo maintains that there is a general duty to cooperate recognized by commentators and by the courts that gives rise to a duty to renegotiate the Contract and, by extension, a duty for Hydro-Québec to share the profits it makes under the Contract. But as Hydro-Québec rightly notes, CFLCo is thus essentially asserting a right to require the renegotiation of a contract on the basis of unforeseeability.

With respect, none of CFLCo’s legal arguments on this point withstand scrutiny or are persuasive, and none of them can refute the inescapable conclusion that the Contract entitles Hydro-Québec to insist on adhering to the words of the Contract and maintaining the equilibrium of the prestations it establishes for the benefit of the parties, which bound themselves knowing full well what they were doing.

To accept CFLCo’s argument would be to deprive Hydro-Québec of the principal benefits it derives from the Contract. [ 44 ] Before I discuss this central question in the appeal any further, there is a comment about the applicable law that must be made. The Power Contract, which provides for its automatic renewal 40 years after the Plant has been installed and is in service at full capacity, was entered into in 1969.

At issue, therefore, is a contractual situation that existed at the time of the coming into force of the Code in 1994: s. 4 of the Act respecting the implementation of the reform of the Civil Code (“ AIRCC ”). This means that the Contract is not governed entirely by the “new legislation”. Among other things, the supplementary rules that serve to determine the scope of the parties’ obligations — including arts. 1431 and 1434 C.C.Q. , on which CFLCo relies to guide the

interpretation of the Contract — do not apply: s. 4 para. 1 AIRCC . However, those two articles are substantially similar to the antecedent articles of the Civil Code of Lower Canada , arts. 1020 and 1024. The analysis of the parties’ legal situation is therefore the same under the former Code as under the current one. Because the parties agree on this point, I will refer only to the articles of the Code in this regard. The provisions of the Code governing the exercise of rights and the performance of obligations do apply to the Contract, however: s. 4 para. 2 AIRCC .

These include the articles that provide for the duty of a party to act in good faith in exercising rights and performing contractual obligations.

(1) The Contract: Paradigm, Characterization and Content [ 45 ] Where the factual analysis is concerned, CFLCo’s arguments are predicated on the importance — which in its view has been underestimated — of the circumstances in which the parties entered into the Contract. CFLCo submits that the difference between the electricity market of the late 1960s and the electricity market of today is so significant and so radical that it is appropriate to describe the transition from one to the other as a true paradigm shift. The entirety of its reasoning revolves around this, the key point in its case.

CFLCo argues that this paradigm, which it describes as a regulatory and market paradigm, meant that Quebec was in the late 1960s the only electricity market to which Newfoundland and Labrador had access, that electricity was seen as a public good rather than a source of profits and that, given the low cost of energy in the marketplace, a substantial increase in the price of electricity was not really conceivable for the parties.

Also, it would have been difficult for the parties to the Contract to imagine a different regulatory and market paradigm. [ 46 ] In CFLCo’s view, this reality dictated the project’s financing structure and the model for allocating the risks and benefits contemplated in the Contract. The parties really intended to create a relational joint venture contract. They agreed on a Contract that would have given each party a fair share of the value of the hydroelectric power produced at Churchill Falls had the circumstances not changed so radically.

CFLCo argues that it is only because of the radical shift in the market paradigm that the true nature of the Contract is now obscured and that its words seem to allocate the risks and benefits as determined by Silcoff J. If Silcoff J. had characterized the Contract in light of the regulatory context and market conditions, he would have recognized that the parties had entered into a relational joint venture contract.

Given the very nature of such contracts and the resulting implied duties under the Power Contract, CFLCo believes that Hydro-Québec had a duty to renegotiate the Contract and to agree to a redistribution of the profits it earns under it. [ 47 ] This reasoning leads CFLCo to argue that, because a paradigm shift in the electricity market could not have been imagined at the time the Contract was signed, Silcoff J. also erred in finding that the parties might even have formed a common intention that their Contract would govern the sale of electricity produced at Churchill Falls in this new context.

By failing to draw the proper inferences from these key facts, Silcoff J. once again erred in interpreting the Contract. [ 48 ] I wish to mention, first of all, that neither party is alleging any defect in the formation of the Contract. And CFLCo acknowledges that it is not pleading lesion, given that the parties’ respective prestations were in equilibrium at the time they entered into the Contract. Indeed, raising lesion would serve no purpose, as the Code , like its predecessor I might add, clearly provides that lesion generally vitiates consent only with respect to minors and protected persons of full age.

Moreover, the fact that the Contract is clearly a contract by mutual agreement means that CFLCo cannot argue that the Contract contains abusive clauses or require that the Contract be interpreted in its favour. [ 49 ] That being said, it should be borne in mind that, in this case, both the

interpretation and the characterization of the Contract are questions of mixed fact and law: Uniprix inc. v. Gestion Gosselin et Bérubé inc. , 2017 SCC 43 , [2017] 2 S.C.R. 59, at paras. 41-42 ; see also Sattva Capital Corp. v. Creston Moly Corp. , 2014 SCC 53 , [2014] 2 S.C.R. 633, at para. 50 . Because the trial judge’s

interpretation and characterization of the Contract are based on a particular set of circumstances that are unlikely to have any precedential value, they may not be overturned absent a palpable and overriding error: Housen v. Nikolaisen , 2002 SCC 33 , [2002] 2 S.C.R. 235, at paras. 28 and 36 . [ 50 ] My colleague maintains that this is not so. In his opinion, the characterization of the Contract having regard to a relational component is in this case a pure question of law. On this basis, he substitutes his own

interpretation of the parties’ intention for that of the trial judge, even assessing the evidence himself. In so doing, my colleague ultimately rejects Silcoff J.’s assessment of the documentary, testimonial and expert evidence on which the latter relied in defining the central paradigm of the Contract, which in Silcoff J.’s view, repudiates the existence of this relational component alleged by CFLCo.

[51] I disagree with the underlying premise of my colleague’s analysis. In this Court’s recent decision in Uniprix, themajority reviewed the principles applicable to the characterization of a contract in Quebec civil law.

For the purposes of this appeal, itwill suffice to consider the following points: (1) “. . . it is [the] classification of the contract — based on the rules that apply to it, the conditions that apply to its formation, itsobject and how it is performed — that makes it possible to define the nature of the contract and thereby determine how it should becharacterized” (para. 27; citations omitted); (2) “it is . . . inappropriate to view this characterization of the contract as a purely objective exercise[, as t]his [translation]‘crucial operation for the judge’ can . . . be accomplished only by ‘seek[ing] to identify the parties’ true intention in this regard’”(para. 28; citations omitted); (3) “[t]o characterize a contract, the court must thus consider not only [translation] ‘the obligations and other effects of thecontract that [the parties] have stipulated’, but also ‘in some cases the circumstances of its formation and how they have applied it’”(para. 29; citation omitted); and (4) “. . . the characterization of a contract can depend on evidence of the parties’ common intention as regards its nature and itscontent[, and w]hen it is necessary to consider evidence of that intention, the Quebec Court of Appeal rightly recognizes that, in suchcases, the characterization of the contract is a question of mixed fact and law” (para. 42; citations omitted). [52] This is the very type of thorough exercise that the trial judge carried out in the instant case and that the Court ofAppeal reviewed in detail in its decision.

To say that the courts below did not consider the evidence — whether intrinsic or extrinsic tothe Contract — in order to define the nature of the parties’ contractual relationship on the basis of their common intention would be todisregard dozens of paragraphs of the reasons of the Superior Court and the Court of Appeal. I will merely observe that Silcoff J.’scontextual analysis runs from paras. 450-541 of his reasons, and it served as the basis for his subsequent discussion on the nature of theparties’ contractual relationship: paras. 542-69.

The conclusions he drew from it, including those set out in paras. 553 and 556, werelargely based on the whole of that evidence. [53] In my view, CFLCo’s various arguments relating to the context of the Contract do not reveal any error on Silcoff J.’spart that would justify overturning his findings of fact concerning the paradigm, the characterization and the

interpretation of theContract. The same can be said, contrary to CFLCo’s contention, with respect to the trial judge’s conclusion, on assessing the evidence,that the alleged unforeseeable changes had not taken place. Regardless of whether one accepts that the changes in question were radical,CFLCo’s arguments are inconsistent with Silcoff J.’s findings of fact on the issue of the choices made by the parties to manage the risksand uncertainties associated with the project. It follows that the first, factual aspect of CFLCo’s position on the central question in theappeal must fail. (

a) Paradigm of the Contract [54] On completing his review of the content and the clauses of the Contract, the trial judge concluded that the Contractspecifically allocated the risks and benefits of the project. After considering all the relevant facts, he quoted a passage from the report ofan expert, Mr. Lapuerta, to describe the contractual paradigm, the central vision of the transaction model, as follows: “. . .

Hydro-Québecaccepted significant risks, but enjoyed cost certainty and protection against inflation, while CFLCo secured the ability to raise largeamounts of debt and to earn a relatively secure return on investment, and Brinco retained a majority equity position” (para. 488 (emphasis deleted)). [55] In short, Silcoff J. found as follows on the fundamental obligations that characterize this innominate contract, whichincludes Hydro-Québec’s right to fixed costs.

Hydro-Québec agreed to assume the risks associated with the project so that Brinco couldfinance the Plant by raising debt rather than issuing shares and CFLCo could obtain long-term revenue security to reassure its creditors.In agreeing to provide financing to CFLCo in the event of cost overruns and to purchase electricity whether it needed it or not,Hydro-Québec afforded CFLCo the possibility of being relatively well protected against the risk of lower returns on its investment andlower electricity prices.

In exchange for the risks it assumed, Hydro-Québec obtained prices that were lower on average than the prices itwould have had to pay had it had to pursue other projects. Hydro-Québec would receive that benefit at the end of the Contract inparticular, as the prices were higher at the beginning to satisfy CFLCo’s need for cash at that time, but this decreasing price structuresuited Hydro-Québec, which in this way obtained a long-term guarantee of fixed prices.

The clear result was therefore thatHydro-Québec would bear any losses or receive any profits flowing from fluctuations in electricity prices. [56] CFLCo in fact argued at trial, and argues again in this Court, that the meaning of the clause of the Contract that fixeselectricity prices is unclear, which would mean that the Contract is essentially ambiguous. Silcoff J. resolved this alleged ambiguity byconsidering, in particular, the evidence presented by the two parties on the circumstances in which the Contract was concluded.

Hisinterpretation rested on a determinative finding of fact, namely that the parties had intentionally chosen not to include a price adjustmentformula in the Contract. That finding was based in part on the minutes of the joint meeting of the executive committees of the boards ofdirectors of Brinco and CFLCo, at which Hydro-Québec’s request that the Contract be renewed for 25 years was discussed.

Thoseminutes indicate that the members of the two committees believed that it would be impossible for CFLCo to try to limit the scope of therenewal by suggesting that the price of electricity be adjusted by way of indexation without depriving the extension of any meaningfuleffect for Hydro-Québec.

Silcoff J. also found that there was no evidence to support the opposite position — advanced by CFLCo — thatthe absence of such a formula had instead resulted from the parties’ failure to consider the possibility of a change in the market. [57] The choice to fix electricity prices and to have Hydro-Québec assume the risk that those prices would after sometime be higher or lower than market prices helped to shape a final agreement that, as the parties saw it, properly allocated the risks andbenefits associated with the project.

Silcoff J. noted that the evidence, which was not in fact seriously contested by CFLCo, led to theconclusion that the terms fixing the prices to be paid for electricity reflected the risks assumed by Hydro-Québec under the Contract.One of CFLCo’s experts even described this allocation of risks and benefits as reasonable, and Silcoff J. found, “based upon theuncontradicted credible evidence”, that the parties had agreed to this allocation, believing it to be mutually beneficial: para. 469.

[ 58 ] Given the absence of any palpable and overriding error by the trial judge on this key point, the fundamental premise for CFLCo’s position with regard to the nature of the Contract cannot be accepted. To accept CFLCo’s view that the words of the Contract are based on the regulatory and market considerations it has identified and do not reflect the parties’ intention outside those specific circumstances would be inconsistent with the trial judge’s

interpretation of the evidence in determining his understanding of the Contract. Yet the trial judge’s understanding of the Contract, which the Court of Appeal accepted, is what must guide the analysis. (

b) Characterization of the Contract [ 59 ] In this Court, CFLCo argues, as it did in the Court of Appeal, that the Contract is a relational contract. It also submits that the parties’ agreement created a common project, which is characteristic of a joint venture. I do not accept these submissions. They are not supported by the evidence, nor do they overcome Silcoff J.’s findings of fact concerning the paradigm of the Power Contract. (

i) The Contract Is Not a Joint Venture [ 60 ] CFLCo argues that, because the parties intended to combine their resources to carry out a major project and intended to share the benefits of the venture equitably, they entered into a contract akin to a joint venture. In Quebec civil law, the joint venture, which is a common law concept, is sometimes referred to in French using the term “ coentreprise ”, “ groupement momentané d’entreprises ” or “ consortium ” of businesses: B. Larochelle and C. Bouchard, Contrat de société et d’association (3rd ed. 2012), at p. 100; see also V.

Karim, Le consortium d’entreprises, joint venture: nature et structure juridique, rapports contractuels, partage des responsabilités, modes alternatifs de règlement des différends: médiation et arbitrage (2016), at para. 23. However, this concept does not necessarily reflect a particular legal form. Swan, Bala and Adamski define a joint venture as “a business relation which may take a variety of legal forms or structures”: A. Swan, N. C. Bala and J. Adamski, Contracts: Cases, Notes & Materials (9th ed. 2015), at §7.243; see also C.

Bouchard, “Les rapprochements entre la société de personnes et le partnership : une étude de droit comparé canadien” (2001), 42 C. de D. 155, at p. 184. According to some, a joint venture in the common law context is in fact merely a partnership — an entity that resembles the civil law partnership — that is limited in time to a single project: R. Flannigan, “The Legal Status of the Joint Venture” (2009), 46 Alta. L.

Rev. 713, at pp. 715 and 720. [ 61 ] As some authors explain, t he Quebec courts therefore tend to liken a joint venture contract to a contract of undeclared partnership: see Bouchard, at pp. 188-89; M. Guénette, Les différentes formes d’entreprises au Canada (2015), at p. 233. But the Code provides that the essential elements of a contract of partnership are the combining of resources to carry on an activity and the sharing of any resulting profits: art. 2186 para. 1.

A joint venture is thus formed where businesses choose to become partners and to cooperate in a project by each investing resources and by sharing any profits from the project. A separate partnership is then created until, among other possibilities, the project is completed, and the partners can be held liable for one another’s undertakings and debts: arts. 2253 to 2255 C.C.Q. [ 62 ] That being the case, the absence of facts indicating that the parties intended to enter into a partnership is fatal to CFLCo’s argument that equates the Contract with a contractual relationship of that nature.

Moreover, although CFLCo and Hydro-Québec each invested resources in the project, the evidence does not show that they transferred the ownership or enjoyment of those resources to anyone or that the resources were placed at the complete disposal of the other party to the Contract: arts. 2199 and 2251 C.C.Q. [ 63 ] It is true that some authors support the existence of a sui generis contract of joint venture in Quebec law.

For example, Professor Karim states that a contract in which an intention to enter into a partnership is not expressed but that otherwise signals an intention to combine resources and share responsibility for a project is precisely what defines a joint venture: see Karim (2016), at paras. 41 and 46-47; see also Larochelle and Bouchard, at p. 102.

However, he notes that care must be taken to distinguish this sui generis contract from other types of contracts, such as the subcontract: [ translation ] The fact that each of two or more businesses takes on part of the work for a specified price while cooperating as needed to carry out the various parts of the project will not suffice to justify a finding that they have agreed to a joint venture.

It is an intention to jointly assume the responsibility involved in carrying out the proposed project that is the determining factor in establishing that such an agreement exists. [Emphasis added; para. 47.] [ 64 ] This other definition of the joint venture concept is of no assistance to CFLCo in this case, given that the evidence also does not really show that the parties intended to jointly assume financial or logistical responsibility for the project beyond the simple cooperation require

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