Watson Island: a legal "hell hole"

In his closing remarks, outgoing Mayor Mussallem said of Watson Island “what a hell hole it can be” (for an account of the last meeting see: < northcoastreview.blogspot.ca/201 … ls-at.html >). That was on Monday. If he had waited until Thursday he would have had even more reason to be discouraged.

WatCo’s court action against the City will no doubt be protracted and complicated, with many twists and turns along the way. The last topic for discussion here was a Court order that the City disclose any written legal advice the council received relating to the exclusivity agreement with WatCo, an unwelcome development no doubt since such information would otherwise be protected by solicitor-client privilege: < More developments in the Watson Island Case >.

Disclosure of such information could be damaging to the City during later stages of the litigation. The order has thrown the proverbial monkey wrench into the City’s plans to request an order that the Certificate of Pending Litigation (CPL) be cancelled. The CPL has been preventing the City from completing a sale for an undisclosed price to the shadowy Watson Island LNG Corporation (WILNG), an entity that has no prior history and has talked about building a ‘small LNG plant’ but has provided no details to the public or made any regulatory filings.

A hearing to consider the City’s request was scheduled for November 26-27, but that was cancelled. The City and WatCo agreed to a Consent Order on November 24 to adjourn that matter indefinitely, and also to stay the disclosure order so that the City can request reconsideration by the Court. According to a filing on November 27, the City has proposed hearings on December 10th and 12th to consider those issues.

The City asks that the disclosure order be confined to the time period from when the original written exclusivity agreement expired on November 30, 2012 to January 31, 2014, when the council refused further exclusivity payments from WatCo. Alternatively the City has requested clarification of the order, and in further alternative the City has filed an appeal of the disclosure order, which may not be necessary depending on the outcome of the reconsideration hearing.

What can we make of all of this legal jockeying?

In an October 16 filing the City said that WILNG was prepared to buy Watson Island and has financing in place, but the CPL must be removed before end of December because (para 69):

“If the City’s application is delayed past December 31, 2014 the City risks losing a serious purchaser and will be required to reimburse the $500,000 exclusivity payment, which is used by the City to offset the City’s significant holding costs.”

We now know that the City’s application to remove the CPL will not be heard before WILNG’s deadline. The City said in its’ latest filing that the CPL issue cannot be heard until February at the earliest.

The next month will consequently provide a serious test of the City council’s decision to terminate negotiations with WatCo in February 2014 and subsequently enter into an exclusivity agreement with WILNG.

If WILNG is taken at its’ word, the purchase offer will expire on December 31, the City will refund them $500,000 and the City will be left without a prospective purchaser, other than perhaps WatCo if a settlement of the court case can be reached, the likelihood of which is unknown.

If WILNG extends the December 31 deadline the credibility of the City’s submission that the CPL should be cancelled because it has been causing hardship would be weakened.

Whichever way one looks at it the City is indeed in a situation that fits outgoing Mayor Mussallem’s assessment that Watson Island is a “hell hole”.

As a final note, if the publisher and editor of Northern View can tear themselves away from bashing MLA Jennifer Rice, maybe they could provide some coverage of the Watson Island litigation, a topic that might be of some interest to their readers. Their latest double barreled blast against our rookie MLA is really a bit tiresome, even to someone like me who is not a fan and in fact did not vote for her:
< thenorthernview.com/opinion/283749531.html >
< thenorthernview.com/opinion/283749781.html >

Perhaps in the interests of balanced coverage they might have reported that she succeeded in convincing the government to direct that BC Ferries stop charging disabled people a $30 fee to take their wheelchairs onboard: < northcoastreview.blogspot.ca/201 … id-to.html >. One would hope that a good news story like that would be worth a couple of column inches at least.

It’s time for an update on that largely forgotten saga, the City’s ongoing court battle with Watco over ownership of Watson Island, an issue that former mayor Jack Mussallem once described as a “hell hole”.

News about Watson Island of late has been dominated by the City’s announcement that a contract has been awarded to dismantle the mill, an issue that was apparently in the works for quite some time. The details are sketchy, but it seems that Sunwave, another name from the past, will be participating in whatever bounty comes from selling off scrap metal and sundry equipment, under the terms of an undisclosed settlement agreement resulting from their court actions against the City.

Last May, Mayor Brain gave a radio update saying that the end to the Watson “situation” will come later this year or “actually very soon”
< northcoastreview.blogspot.ca/201 … sland.html >. Reading over the latest court decision it seems clear that whatever else may happen the Watco court case is not likely to be ending anytime soon.

Late last year the City applied to the court for an order to cancel a Certificate of Pending Litigation that was blocking a sale to Watson Island LNG, a shadowy company that had expressed an interest in building a ‘small’ LNG plant at the site. According to court documents, the City was to receive $500,000 for exclusive rights to negotiate the purchase of the site. That deal, the $500,000 and WILNG all appear to have gone away.

The City was also seeking a declaration from the court that there was no binding agreement between Watco and the City.

Watco had been paying $90,000 a month for exclusivity until informed that the City council had decided not to sell them the property, which prompted the filing of a writ. About $2.1 million in maintenance fees had been paid to the City over the course of many months of negotiations.

The City’s applications to cancel the CPL and for a declaration that there was no binding agreement were to be heard months ago, but there was a delay after Watco got a court order that the City was to disclose information that is normally protected by solicitor-client privilege. That was an unusual development.

The City eventually got its day in court, but it was not successful. The court declined to cancel the CPL and declare that there was no binding agreement. Those issues are still up in the air pending the outcome of a full trial. Until then Watco is to pay $3,240,000 into court as security. Whether Watco forfeits or is refunded that money will depend on the outcome of the trial.

Although why the planned sale to Watco went off the rails is still unclear, the court decision does provide some insight into what happened. According to the City, Watco presented a definitive agreement to the City on February 17, 2014, which the City council rejected.

Watco countered that there is a Letter Agreement under which it would purchase the land for $5 million and added that the agreement has never expired. The court also quoted the following statements from an affidavit from Watco’s COO (at paragraph 33 of the decision):

g) "… there is an email from the City’s manager, Robert Long, to Tanner Elton dated August 15, 2013 wherein Mr. Long states to Tanner Elton “After your comment yesterday can I tell Council that the new deal with Watco is $5.7 that will help all this go along without too much rethinking”. A further email from Robert Long on August 20, 2013 that “I advised the Council that our soon to be new lease to purchase for $5.7 Mil with Watco is substantial (sic) agreed too (sic) but is awaiting your investigation of the settlement agreement.”

h) “Our lawyer communicated to the City that Watco accepted all of the terms the City had proposed and shortly after a contract was sent to the City for execution. We executed our version of the contract. We were eventually advised through the City’s lawyers that the City rejected that there had been acceptance of an offer and that the City had resolved to reject what had been proposed."

In view of the conflicting evidence the court declined the City’s applications to cancel the CPL and declare that there was no agreement. Decisions about those issues will have to await the hearing of more evidence at a full trial, which is apparently scheduled for February 2017. While progress appears imminent on the dismantling of the mill, it does not look like the Watco court case will be ending later this year or very soon.

A copy of the latest court decision is available here: < courts.gov.bc.ca/jdb-txt/SC/ … SC1474.htm >.

and round and round it goes time to turn the mill saga into a soap opera and sell the rights to the movie :stuck_out_tongue:

Thanks for the update. the $17.9 million that the City has parked in the so-called “Legacy Fund” that the City received from Shell Oil is going to come in handy…