More developments in the Watson Island Case

Master Taylor of the Supreme Court orders the City of Prince Rupert to produce documents related to Watson Island Case … rders.html

Relevant info must be handed in by November 26th

Is that a shredder I hear buzzing non-stop at city hall?

The Court order referred to in the North Coast Review article is a surprising development. The City has been ordered to disclose copies of legal advice that Mayor Mussallem and the council considered in closed meetings, in particular about the Exclusivity Agreement under which WatCo paid about $2 million in “maintenance expenses” while the parties attempted to complete a sale of Watson Island.

Legal advice is usually accorded a high degree of protection from disclosure. WatCo successfully argued that the City had waived the privilege by citing evidence from it’s legal counsel in Court filings. Where a party relies on evidence from a lawyer, justice and fairness may require that the rest of the advice on a contentious issue be disclosed; the client cannot ‘cherry pick’ evidence from its’ lawyer.

The Court ordered that advice related to the Exclusivity Agreement be disclosed. Watco claims that the Exclusivity Agreement was amended orally and by conduct, which the City denies. The Exclusivity Agreement is relevant to Watco’s claim that there is a binding agreement to sell the land, and alternatively that the City unjustly enriched itself by terminating the agreement and keeping the $2 million, rather than continuing to work towards completion in good faith.

The Court did not order that the City disclose legal advice related to 11th hour negotiations of an Option Agreement before the council terminated the relationship.

The judgment and other submissions that have been filed shed some light on what transpired in some of those closed door meetings that were such a common feature of Mayor Mussallem’s council. While this is no doubt a complex case a few issues stand out.

Affidavit evidence quoted by the Court mentions that one of the City’s conditions was that the Province approve a remediation plan. The Mayor focused on that point when explaining why the sale, which had previously been heralded as agreed in principle, had fallen through.

In a November 18 submission WatCo described that as a condition that WatCo could not meet; a prospective purchaser is not a “responsible person” for the purposes of seeking approval of a remediation plan. Only a current or past owner can do that, a point that has been made in this humble forum on a few occasions.

Also interesting is this quote from Ms Bomben’s affidavit, describing the discussion at a February 11, 2014 closed meeting:

“During the meeting it was discussed that over the years, the City had received communications from a number of parties who expressed an interest in purchasing the Lands, but there was no mention of any specific person or entity that had communicated an interest, or any offers or proposals, other than Watco. City Council also heard from the City’s lawyer. City Council did not extend the January 31, 2014 deadline in relation to the exclusivity agreement with Watco. City Council resolved to terminate the exclusivity agreement with Watco, and also resolved to continue negotiating with Watco while entertaining other bidders. City Council directed staff to write to known interested parties to notify them that the City would be advertising the Lands for sale.”

Perhaps the better time to be talking to “known interested parties” was before not after entering into an Exclusivity Agreement and collecting $2 million in maintenance payments. Not surprisingly, if a sale is not completed Watco would like its’ money back. What communications City officials had with those “known interested parties” will also no doubt be a matter for further inquiry.

Also interesting is this quote from the lawyer’s affidavit about how the City conducts business:

“… it is a common practice for City Staff, either directly or through legal counsel, to negotiate and settle terms of a potential agreement that is subject to Council approval. Once the terms of the agreement are settled, the proposed agreement is taken to Council to approve or not, at Council’s discretion. Council’s discretion cannot be fettered by City staff or anyone else.”

That has been a recurring theme in the City’s submissions. The Mayor and council apparently felt that it could enter into agreements, give public notice of an intention to sell the land, and accept money, then walk away for any reason or no reason at all. It may well be that the Mayor and council were free to decide not to sign over title, but that misses the point: failure to use best efforts to compete a sale can result in a substantial damages claim, as is the case today. There is no unfettered discretion to lead people on.

So what are the consequences of this disclosure order? That’s hard to say. On November 26-27 the Court will hear the City’s submission that there is no binding agreement to sell the land to WatCo and that the Certificate of Pending Litigation should be lifted so that the City can sell Watson Island to WILNG, which has apparently set a December 31 deadline for completion. According to the City, if the sale does not complete WILNG will be owed a $500,000 refund of its’ maintenance payments.

Applications to decide major issues before trial are more likely to succeed if there is substantial agreement about the facts and disagreement about the law. If there is one thing that is clear from this judgment and the various filings, WatCo and the City are far apart on their interpretations of the facts.

This is a tough place for Mayor-elect Brain and his ‘change’ councillors to start their term of office. Hopefully they will have the self-confidence to use their own judgment and consider any available options, rather than simply continue the attrition warfare that they inherited from their predecessors.

While this is all going on, does anyone know who is taking care of the pollutants on site?

Under the Environmental Management Act (s46(1)(g)), if a municipality acquired lands “involuntarily”, ie as a result of a tax sale as was the case with Watson Island, it is not responsible for any contamination that was there before it took ownership. The Province cannot issue a remediation order to clean it up.

The City is responsible, though, for any further contamination that it causes or contributes to, and for any contamination that escapes from the property, particularly into the marine environment. … on_d2e7177

The underlying assumption to the exemption is that after acquiring lands involuntarily the municipality will sell the lands as soon as possible and the new owner will become responsible, including for any previous contamination.