SCC Confirms A 'Deal Is A Deal': Party Not Allowed To Re-Negotiate A Contract Because It No Longer Liked The Terms

In the recent Supreme Court of Canada ("SCC") case, Churchill Falls (Labrador) Corp v Hydro-Québec ("Hydro- Québec"),1 the Court upheld the terms of a nearly 50 year old contract and confirmed the adage, "a deal is a deal."

In 1969, after lengthy negotiations, Hydro-Québec and the Churchill Falls (Labrador) Corporation ("CFLCo") entered into a contract to build a hydroelectric power station located on the Churchill River. Under the terms of the agreement, Hydro-Québec assumed the majority of the risk associated with the contract including the cost of construction overruns. Hydro-Québec also agreed to purchase most of the electricity generated by Churchill Falls at fixed prices regardless of need. Fast forward 50 years and, by 2009, electricity prices were significantly higher than they were in 1969. As a result, the fixed prices that at one time represented a significant risk to Hydro-Québec, now saw Hydro-Québec reaping substantial profits.

In a 7-1 decision affirming the decisions of the lower courts, the SCC found that, despite the disproportionate amount of profit, the parties nonetheless got what they bargained for. The Court determined that it had no basis to force Hydro-Québec to renegotiate the contract in the absence of any wrongdoing.

While the case was decided on principles found in Quebec's civil law regime, this decision nevertheless features some important reminders for corporate clients across Canada regarding commercial contracts and the laws that govern them.

Reminder #1: You can't get out of a contract just because it turned out to be a bad deal

Contracts between commercial parties are typically carefully negotiated with each side taking on varied levels of risk in return for something of value. Often, parties must make educated guesses when considering "known unknowns" such as price fluctuations and changes in the market that can impact the level of risk or reward they are taking on. Sometimes, as was the case in Hydro-Québec, those decisions turn out to be poor business decisions and one party is stuck with the losing end of the deal.

In Hydro-Québec, the SCC acknowledged that parties often accept risks when entering into a commercial contract, including the risk that unforeseen circumstances could affect the profitability or financial outcomes of a business arrangement. Importantly, the SCC's decision confirms that a party who, in hindsight, has made a "bad" deal is stuck with that bargain. The SCC articulated this...