There has been a flurry of activity in the Watson Island court case over the past month.
Watco claims that it has a binding agreement to buy Watson Island for $5.7 million, which the City denies. Watco and the City had negotiated a Conditional Letter Agreement and exchanged term sheets and an option agreement that Watco says amounted to a binding agreement.
On October 6 the City applied for a declaration that there is no binding agreement and asked the Court to cancel Watco’s Certificate of Pending Litigation (CPL). The CPL effectively blocks a sale to Watson Island LNG Corporation (WILNG) for an undisclosed price.
Watco also claims damages for breach of contract, bad faith and tortious conduct. Those issues will be heard when the case eventually goes to trial, next year or later. Under the exclusivity agreement entered into in mid-2012 Watco paid the City $90,000 a month. The City terminated the agreement by refusing the February 2014 payment.
The Mayor and council subsequently resolved at a closed meeting on March 10 to reject the option agreement. The City says that since council approval was a condition, an agreement was not concluded, so Watco has no rights to the land and the CPL ought to be cancelled.
The City also argues that the CPL is causing “hardship and inconvenience” by impeding a sale to WILNG. The City points out that the land does not need to be tied up because “There is no concern that a municipality will not be able to pay damages should the plaintiff ultimately be successful”. A municipality can raise funds through taxation.
The City asked for a hearing on October 22 to consider cancellation of the CPL. On October 14 Watco replied that it needed more time because the City had “refused” to provide adequate disclosure of documents and the material provided to date totalled some 7,500 pages.
The Court ruled that the City’s application will be heard on November 26-27, essentially as Watco had requested.
The City’s October 16 response to Watco’s request for more time contains some of the more interesting information in the Court submissions.
The City notes that in July it entered into an exclusivity agreement under which WILNG is “contractually bound” to pay the City $500,000 for exclusivity until the December 31 expiry. The Mayor and council have not disclosed that arrangement.
The City also says that WILNG is willing to buy the land “as is where is” and take full responsibility for remediation. There is no mention of WILNG having an approved remediation plan from the Province. Has the City lowered the bar for WILNG?
Mayor Mussallem said at the April 14 council meeting that the sale to Watco failed “because they could not come up with a remediation plan that was approved by the province” < thenorthernview.com/news/255357831.html >.
Perhaps the City eventually realised that there is no provision under the Environmental Management Act for approving a remediation plan submitted by a prospective owner (only a current or past owner is responsible for remediation).
The City also says that WILNG has financing in place, but the sale must be completed before the end of December. If the sale is delayed because of the CPL “the City risks losing a serious prospective 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.”
WILNG evidently gets its’ money back if a sale is not completed. What precipitated the Watco court case was that after rejecting the option agreement the City kept the $2 million that Watco had paid.
What can we conclude from all of this?
It seems clear that the current Mayor and council are taking a considerably different approach to WILNG than they took to Watco. What happens, though, if the City is not able to complete the sale by WILNG’s deadline. Do the Mayor and council have a ‘Plan B’? Or will the City be left with a second failed land deal and an ongoing court case?
There can be no doubt that if the City succeeds in having the CPL removed so that a sale to WILNG can proceed, the City will still have to contend with a substantial damages claim from Watco.
The most recent development is that on October 24 Watco applied for a court order that the City disclose all legal advice that the Mayor and council received that influenced its’ decisions about Watco.
Legal advice is usually protected by solicitor-client privilege. Watco has cited precedents to argue that the City waived the privilege when Ms Bomben and a City lawyer referred to legal advice in their affidavits. That matter will be heard later this week.
The Watson Island court case is far from over.