Fort Frances v. Boise Cascade Canada Ltd., [1983] 1 SCR 171

Supreme Court of Canada

Fort Frances v. Boise Cascade Canada Ltd., [1983] 1 S.C.R. 171

Date: 1983-02-08

The Corporation of the Town of Fort Frances Appellant;

and

Boise Cascade Canada Ltd. and Her Majesty The Queen in right of Ontario Respondents;

and between

Boise Cascade Canada Ltd. Appellant;

and

Her Majesty The Queen in right of Ontario and The Corporation of the Town of Fort Frances Respondents;

and

The Attorney General of Canada Intervener;

and between

Her Majesty The Queen in right of Ontario Appellant;

and

Boise Cascade Canada Ltd. and The Corporation of the Town of Fort Frances Respondents.

File Nos.: 16822, 16823 and 16844.

1982: December 13 and 14; 1983: February 8.

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.

Present: Laskin C.J. and Dickson, Beetz, Estey, McIntyre, Chouinard and Lamer JJ.

Contracts—Interpretation—Power to be supplied to town at fixed price—Determination of price and quantity of electricity to be supplied—An Act respecting the Ontario and Minnesota Power Company (Limited), 1905 (Can.), c. 139, s. 2—An Act respecting “The Ontario and Minnesota Power Company, Limited”, 1906 (Ont.), c. 132, ss. 1, 3—An Act respecting the Ontario and Minnesota Power Company, Limited, 1911 (Ont.), c.7.

The Province of Ontario and the predecessor in title of Boise Cascade Canada entered an agreement in 1905; Fort Frances was not a party to it. In return for a grant of land, water‑power rights and development privileges, the company agreed to supply power to the Canadian side of the Rainy River, and in particular agreed to

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supply Fort Frances with electrical power at a rate not exceeding $14 per horsepower per year. The agreement created a reserve of 4,000 horsepower for use on the Canadian side, and any power not in permanent use could be “leased” for use on the Canadian side. Fort Frances was given no pre-emptive right to either the reserve or the unused power exceeding the reserve. The Town’s energy consumption eventually exceeded 4,000 horsepower reserve and the company’s energy requirements greatly exceeded the excess energy produced. Although the agreement made some provision for arbitration of disputes arising under the contract, the issue here—whether, and to what extent Boise Cascade Canada was obligated to provide Fort Frances with electricity at $14 per horsepower per annum—was referred to the Courts.

Held: The appeals of the Corporation of the Town of Fort Frances and Her Majesty The Queen in right of Ontario, are dismissed, and the appeal of the Boise Cascade Canada Ltd. is allowed.

The issues stood to be settled entirely on the 1905 agreement. The company, pursuant to that agreement, was to provide Fort Frances with electrical power from its generating facilities on the Rainy River at Fort Frances, to the extent of 4,000 horsepower per annum, at the contract price of $14 per horsepower per annum. This energy was to be used for the Town’s purposes, including ordinary municipal distribution and delivery to commercial premises, but excluding large, self-contained industrial establishments. The balance of the output from the Canadian side was to be made available to users on this side of the border to the extent that that balance had not been committed. Neither party had the right to unilaterally terminate the contract by notice, and, as the company had specified the extent of its obligation to the Town, the agreement continued to be binding in the circumstances that later developed.

It was not necessary to answer the constitutional question of whether or not the Ontario and federal statutes relating to the Ontario and Minnesota Power Company Limited were in conflict because neither statute had a direct bearing on the issues on appeal. The issue of res judicata, too, did not require in depth consideration because the $14 per horsepower per annum was concluded to be the rate firmly established by the agreement. The facts did not give rise to the doctrine of promisory estoppel.

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British Movietonews Ld. v. London and District Cinemas Ld., [1952] A.C. 166; Town of Fort Frances v. Fort Frances Pulp and Paper Co. (1925), 28 O.W.N. 402; Grasett v. Carter (1884), 10 S.C.R. 105; Conwest Exploration Company Limited v. Letain, [1964] S.C.R. 20; Hughes v. Metropolitan Railway Co. (1877), 2 App. Cas. 439; John Burrows Ltd. v. Subsurface Surveys Ltd. and Whitcomb, [1968] S.C.R. 607; Canadian National Railway Co. v. Beatty (1981), 34 O.R. (2d) 385, 128 D.L.R. (3d) 236; Pentagon Construction (1969) Co. Ltd. v. United States Fidelity and Guaranty Co. (1977), 77 D.L.R. (3d) 189, referred to; Staffordshire Area Health Authority v. South Staffordshire Waterworks Co., [1978] 3 All E.R. 769, distinguished.

APPEALS from a judgment of the Ontario Court of Appeal (1981), 126 D.L.R. (3d) 649, 34 O.R. (2d) 18, allowing an appeal from a judgment of Saunders J. Appeals of the Corporation of the Town of Fort Frances and of Her Majesty The Queen in right of Ontario dismissed and appeal of Boise Cascade Canada Ltd. allowed.

Royce Frith, Q.C., B.A. Crane, Q.C., and Henry S. Brown, for the appellant the Corporation of the Town of Fort Frances.

T.H. Wickett, Q.C., for the appellant Her Majesty The Queen in right of Ontario.

P.C.B. Pepper, Q.C., and D.J.T. Mungovan, for the respondent Boise Cascade Canada Ltd.

E.A. Bowie, Q.C., and Peter Doody, for the intervener the Attorney General of Canada.

The judgment of the Court was delivered by

ESTEY J.—The issue in this appeal is:

Whether, and to what extent, the respondent Boise Cascade Canada Ltd. is obligated under the terms of the 1905 agreement to provide the appellant Town of Fort Frances with its requirements for power at a price of $14.00 per horsepower per annum.

Central to the disposition of this appeal, in my view, is the interpretation of the agreement entered into between the predecessor in title of the respondent Boise Cascade Canada Ltd. and His Majesty the King in right of the Province of Ontario on January 9, 1905, relating to the estab-

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lishment on the Rainy River of an electrical generating facility. Apart from some light which may be shed on certain specific terms in the agreement, the long and somewhat complex history of the relationship between the parties is not of much assistance.

The appellant Corporation of the Town of Fort Frances (for convenience hereinafter referred to as the “Town”) is not a party to the agreement, but it is one of the prime beneficiaries of the works which were established under the agreement by the predecessors in title of the respondent Boise Cascade Canada Ltd. (hereinafter referred to as the “Company”).

The purpose or object of the agreement was the establishment on the Rainy River, along which runs the international boundary which separates the Province of Ontario and the State of Minnesota, of an electrical power-generating facility whose output, according to the preamble to the agreement:

might be utilized for Municipal purposes and for manufacturing and milling in the said Municipalities, thereby assisting in the development of the said Municipalities and of the surrounding District.

The installation consists of a dam from bank to bank and a power generating station on each end of the dam, one in Ontario and the other in Minnesota. Originally the power take-off equipment at the Minnesota end provided direct mechanical power rather than electrical power. The Company had undertaken this works with a view to establishing one or more paper mills in Fort Frances and International Falls, the settlement on the Minnesota end of the dam. In 1905 when the agreement took form and was executed, the Town of Fort Frances on the Ontario side of the river was a very small settlement, and there was no settlement on the American side of the boundary at that point. Later, the community of International Falls was established on the United States side.

The hydro-electric facility was complete and operating by 1911. The paper mill on the Canadian side did not commence operations until 1914.

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The electrical consumption of the Town was, for many years, very small. From 1910 until the end of World War II its consumption never exceeded 765 horsepower, and indeed, for the first ten years did not exceed 100 horsepower. I should say, to put this in perspective, that the installed capacity of the Canadian generating plant was 14,000 horsepower, as was the installed capacity of the facility on the American side of the river. The record does not reveal when the electrical generating facilities were built on the United States side, but this fact is not important in these proceedings. The actual average output from the generating facilities on the Canadian side is, for all practical purposes, 9,000 horsepower. Unfortunately, energy was expressed in terms of horsepower when the agreement was drawn and the works installed. In later years, the industry came to refer to electrical capacity in terms of kilowatts and kilowatt hours. For convenience I will refer throughout to energy as expressed in horsepower. By the end of the 1920’s the total output of GS1 was being absorbed. In 1924 the Town consumed 450 horsepower, 3,500 horsepower was being exported, and the Company’s Canadian mill used the remainder. By 1971 the average energy consumption of the Town had exceeded the 9,000 horsepower produced by the generators on the Canadian side, which are designated as GS1. In 1925, in order to make sufficient power available to allow the mill to be expanded, generating stations were constructed on the Seine River (which is in the same locality), and the electricity produced was transmitted to the mill in Fort Frances. In 1958, the distribution system of Ontario Hydro reached the Company’s facilities, and power has been supplied by Ontario Hydro to the Company since that time. In the same year, the Town’s consumption reached 4,000 horsepower. The mill’s power requirements in 1958 greatly exceeded the amount of the excess production of GS1 after supplying the Town. The facilities of the power utility in the State of Minnesota did not reach the community of International Falls on the American side until 1980.

The history of this power development must, for the purposes of this appeal, include a reference to certain special statutes enacted by the Parliament

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of Canada and the Legislature of Ontario. These statutes, all of which are entitled, An Act respecting the Ontario and Minnesota Power Company, Limited, are as follows:

(a) Statutes of Canada 1905, c. 139;

(b) Statutes of Ontario 1906, c. 132;

(c) Statutes of Ontario 1911, c. 7.

(a) The 1905 federal statute authorized the development of the water power of the Rainy River at Fort Frances and directed, in s. 2, that the Company provide electrical power:

for use on the Canadian side… concurrently as it provides power or electrical energy for use in the United States, so that… there shall not be less of the said power or electrical energy available for use on the Canadian side of the international boundary line than on the American side…

It was also provided that the generators, etc. required for the development of power for use on the Canadian side of the boundary should be built in Canada, and that no part of the power to be provided under the Act for use on the Canadian side should be diverted to or used in the United States without an order of the then Board of Railway Commissioners.

Section 2 of the Act continues from the passage set out above with a curious provision:

…and, subject to the provisions of this Act, such power or electrical energy shall be delivered on the Canadian side as and when demanded.

There is no other provision in the Act which refers to the use of power on the Canadian side of the boundary. It may be that the statute intended to cover power generation on both sides of the boundary as a single entity, and to direct that the power generated in Canada should equal that generated in the United States. The statute does not go on to provide how or by whom a demand for the Canadian generated power is to be made.

Finally, the statute includes an arbitration clause which refers, to the aforementioned Board of Railway Commissioners on the application of

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any user of power, the Company or the Town, any dispute as to the price for power, methods of distribution of power, or the time within or the conditions upon which power should be delivered. There is no reference to a referral of a dispute concerning the amount of electrical energy to be delivered to the Town or any other consumer.

It is to be noted that while the statute was enacted some seven months after the agreement was executed, there is no reference in the Act to the agreement between Ontario and the Company.

(b) The 1906 Ontario statute, after referring to the enactment of the Canadian statute, recited:

…and whereas notwithstanding the provisions in the said Statute contained, it is contended that the company are not bound thereby, but are entitled to deal with the said water power freed from the restrictions in respect thereof imposed by the said Act…

There is another somewhat surprising recital:

…and whereas it is claimed the said agreement [of 1905] was entered into without the consent of the Corporation of the Town of Fort Frances and without any notice to them although the same interferes most seriously with the rights of the said town…

Unlike the federal statute, the Ontario Act makes specific reference to the 1905 agreement, and indeed says in s. 1:

1. Notwithstanding the provisions to the contrary (if any) contained in the said agreement… the company shall from the water power now or hereafter existing on the Rainy River… provide power… for use on the Canadian side of the international boundary line concurrently as it provides power…for use in the United States; so that from time to time, except as provided for by order of the Lieutenant-Governor in Council, there shall not be less of the said power or electrical energy available for use on the Canadian side of the international boundary line than on the American side, and subject to the provisions of this Act such power or electrical energy shall be delivered on the Canadian side as and when demanded.

The other provisions of the Ontario statute, apart from the requirements that the permission of the Lieutenant-Governor in Council, as opposed to the Board of Railway Commissioners, be obtained

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before power to be provided for use on the Canadian side can be exported, are similar to those contained in the federal Act. One significant difference, however, is found in s. 3, the arbitration provision, which provides as follows:

3. In case of any dispute as to the price for power or electrical energy in use or to be provided for use upon the Canadian side of the said international boundary line or the methods of distribution thereof or the time within which or the conditions on which the same shall be furnished for use, such dispute shall be settled by the Lieutenant‑Governor in Council on the application of any applicant for power or of the company or of the Town of Fort Frances.

It will be observed that the authority settling disputes thereunder is the Lieutenant-Governor in Council rather than the federal Commission, but the specified matters for referral when in dispute are the same in both Acts, namely, the price for power, distribution methods and the conditions upon which it is provided. In neither statute is there any mention of arbitration as to the quantity of power to be made available to any particular purchaser. There are provisions in the Ontario legislation relating to the transfer of lands to the Company and the retention of certain lands in the Crown for industrial and other development, but no issue arises in these proceedings to which they are relevant. As in the case of the federal Act, there is no precise mention of the establishment by the Company of a pulp or paper mill on the Canadian side of the boundary.

(c) The 1911 Ontario statute confirmed an agreement entered into between the Company and the Province of Ontario in June 1910. The purpose of this agreement is revealed in its first recital where it is stated that:

…there was not a reasonable prospect of the utilization within a reasonable time of power or electrical energy unemployed, though actually available for use on the Canadian side of the Rainy River…

Hence, the Company applied for and was given the right to export such amounts of power as might from time to time be authorized by the

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Lieutenant-Governor in Council. The evidence reveals that, in fact, permits authorized the diversion to the United States of 3,500 horsepower. An anomaly appears in this agreement in an unnumbered paragraph midway through the agreement:

It is further agreed that the price for power or electrical energy supplied or to be supplied to applicants for or users of power, or to prospective applicants or users by the Company on the Canadian side and the time within which, and the conditions on which the same shall be furnished for use and the methods of distribution thereof shall from time to time be fixed by the Hydro-Electric Power Commission of Ontario upon the application of any such user, applicant, prospective user or applicant, of the Town of Fort Frances, of the Township of Mclrving, or on the application of any municipality, person, firm or corporation interested; and the price, time, terms, conditions and methods may be so fixed by the said Commission at any time either before or after a request or demand for power or electrical energy has been made upon the Company by any person, firm, corporation or municipality.

Again the authority to establish conditions with reference to the power generated by GS1 refers to the price for power but not to quantity. The picture is further complicated by the appointment of the Hydro-Electric Power Commission of Ontario, commonly referred to as Ontario Hydro, as the agency authorized to establish the price for power.

The parent instrument, from which all other documentation appears to have flowed, is the contract entered into between the Province of Ontario and the predecessor in title of the Company on January 9, 1905. It is clear from the record in this appeal that the power project formed part of a general development conceived by one Edward Wellington Backus, a Minneapolis lumber man. The objective of the plan was the exploitation of the timber resources of the areas straddling the international boundary in the vicinity of Fort Frances, Ontario. At the time of the agreement, this area was isolated from the rest of North America in that there were no roads, railroads, power distribution facilities, or any other transportation or communication connections on either side of the international boundary, except, of course, as

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afforded by navigation on the Rainy River itself. The agreement with the Province of Ontario followed the completion of arrangements made by Backus with authorities in the United States for the establishment of power generating facilities on the American side of the Rainy River. After reciting that the Town and its residents had earlier importuned the Government of Ontario to develop the water power in the Rainy River: “so that the same might be utilized for Municipal purposes and for manufacturing and milling in the said Municipalities, thereby assiting in the development of the said Municipalities and of the surrounding District”, the agreement went on to recite:

AND WHEREAS application has been made by the Purchasers [the Company] for a grant in fee simple of such lands adjacent to the said River, and of such lands covered by the said River, and of such privileges as are necessary to enable the Purchasers to develop the said water power and to render the same available for municipal, manufacturing and milling purposes:

AND WHEREAS the said water power can be more advantageously developed, and more power produced, by works embracing the entire width of the River and dealing with it as a whole, than by an independent development on the Canadian side of the International Boundary, and it is therefore in the public interest to adopt such plan of development;

AND WHEREAS the Purchasers are the owners in fee simple of the lands and water power on the Minnesota side of the International Boundary opposite the said Town of Fort Frances, and are desirous of obtaining from the Government of the Province of Ontario a grant in fee of the lands and power on the Canadian side of the International Boundary, for the purpose of developing the water power to the full capacity of the stream from side to side at high water mark, and of utilizing such storage facilities as may be available for maintaining the River at such high water mark, thereby rendering available a large amount of power on the Canadian side of the River, for municipal purposes and for the operation of pulp or paper mills, flour and grist mills and other manufacturing establishments;

...

AND WHEREAS the construction of the said dams and the maintenance of the waters of Rainy Lake at a higher level during the low water period will be of greater advantage to navigation;

AND WHEREAS it is expedient and desirable in the interests of the Town of Fort Frances, of the said

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Township of Mclrvine and of the public generally, that the said water power be speedily developed to its full capacity and that an Agreement be entered into to that end, upon the terms and subject to the conditions and stipulations herein contained;

Obviously the generation of power on the Rainy River required a dam spanning the width of the river from bank to bank, built on lands situated in both countries. Equally obvious is the impact such a dam would have on navigation and the sequential requirement of the installation of a by-pass canal for the continuance of transportation up and down the river. No doubt this was the essential reason for the involvement of the Government of Canada.

The operative paragraphs of the contract which are relevant to these proceedings are:

1. THE GOVERNMENT agrees to sell and the Purchasers [the Company] agree to buy the following lands and lands covered by water, being ALL AND SINGULAR those certain parcels or tracts of lands and premises situate, lying and being in the Town of Fort Frances and adjacent thereto, and being composed of the lands and lands covered by the waters of the Rainy River shown and set out in the Plan and description hereunto attached, bearing the signature of the Commissioner of Crown Lands for Ontario, which said plan and descriptions are hereby made part of this Agreement, the lands in question being colored red on the said Plan, together with the lands or lands covered by water heretofore conveyed by the Town of Fort Frances to His Majesty, The King, for the purposes of this Agreement, together with all water powers and privileges, and all rights, easements and appurtenances thereto belonging and appertaining, for and in consideration of the sum of five Thousand dollars ($5,000) of lawful money of Canada, payable in cash on the execution and delivery of this Agreement, and in further consideration of the covenants and requirements hereinafter contained and of the special agreement to supply power or electrical energy to the Town of Fort Frances and the Township of Mclrvine, as hereinafter set out, to such an extent as the said Town or Township may require;

...

4. THE PURCHASERS covenant and agree to commence the said dam and other works forthwith after the approval of the plans, drawings and specifications by the Lieutenant‑Governor in Council, and to fully complete the said dam and works in accordance with said plans, drawings and specifications, by the First day of January, 1907, and to develop and render available for the use on

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the Canadian side of the River, by the said date, the total amount of horse power to be capable of development,…

5. THE PURCHASERS covenant and agree that they will from and after the said First day of January, 1907, deliver power to the said Town of Fort Frances and to the Township of McIrvine, by the method A, B or C hereinafter described, at the election of such Municipalities or either of them for Municipal purposes and for public utilities, but not for commercial purposes, which said power shall be kept constantly in operation and available twenty-four hours each day (save and except such time as may be necessary to replace machinery or for repairs),… The Corporations shall be entitled to take such portion or portions of the said power as the Corporations may desire by any of the methods of delivery above mentioned, and for such purpose the Purchasers shall install all water wheels, electrical and other machinery, shafting, motors, connections and appliances, with other attachments necessary to deliver the said power as required by either or all of the methods above mentioned, excepting that the Corporation or the public users may be required to furnish the electrical motors for propelling the machinery on or within their own premises, and the said power shall be supplied to the said Municipal Corporations for the purposes aforesaid at a specially favorable rate, which shall not in any event exceed Twelve Dollars ($12.00) per Horse Power per annum, where the same is taken under method A, or Fourteen Dollars ($14.00) per Horse Power per annum, where the same is taken under method B… PROVIDED that the Purchasers shall not be required to deliver power to the said Municipalities in less quantities than Fifty Horse Power at any one time, or by any one of the above mentioned methods. PROVIDED FURTHER, and it is specially agreed, that should the Corporations at any time deem the price demanded by the Purchasers excessive, or more than sufficient to allow the Purchasers a fair profit, and in the event of the Corporations or either of them being unable to agree with the Purchasers as to such prices, or as to any other matter arising in respect of the carrying out of these presents, the same may be referred to the Lieutenant-Governor in Council, who may settle and determine the same, and his findings shall be final and binding upon the parties in the same manner and to the same extent as if it were included in and a part of the Agreement. PROVIDED, however, that such prices and conditions as may be determined or agreed upon from time to time shall remain in force for at least five years before being subject to readjustment. PROVIDED, also, that the Corporations shall in all cases give the Purchasers three months’ notice in writing of the amounts of

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power required and of the method of delivery by which it is desired the same shall be delivered;

6. THE PURCHASERS further covenant and agree that they will at all times sell or rent and distribute to any person, firm, Company or Corporation making application therefor, any power or energy reserved for use on the Canadian side of Rainy River and not already in use, at such prices and on such conditions as may be agreed upon between the parties, or in case of disagreement, at such prices and on such conditions as may be fixed by the Lieutenant-Governor in Council,…

7. IT IS FURTHER AGREED by and between the parties hereto that the fixing of the maximum price herein provided for delivery of power to the said Municipalities of Fort Frances and McIrvine forms a part of the consideration for this Agreement, and for the transfer of the said lands, power and privileges,…

8. IT IS FURTHER COVENANTED AND AGREED that they will at all times retain and reserve for use on the Canadian side of the International boundary line Four Thousand Horse Power and will render the same permanently available for use on the Canadian side: PROVIDED FURTHER that when and so soon as the said Four Thousand Horse Power so reserved shall be leased or in permanent use, the Purchasers will lease to any person, firm or Company on the Canadian side of the said boundary line any further power which may be required on the Canadian side and which may be unleased or not in permanent use:

...

13. IT IS FURTHER COVENANTED AND AGREED that any matters of dispute not herein especially provided for, between the Purchasers and the said Municipalities of Fort Frances and McIrvine, or between the Purchasers and Lessees or Purchasers from them of water power, shall be subject to the determination and direction of the Lieutenant-Governor in Council;

From the outset the agreement looked to the development of power at Fort Frances “for Municipal purposes and for manufacturing and milling…”; and since the antecedents of the Company were already the owners of the necessary “lands and water power” in Minnesota, application was made to the Government of Ontario for similar grants on the Canadian side of the river so as to allow the development of “the entire width of the River… dealing with it as a whole”. The recitals cite, as the quid pro quo for the Ontario grants to

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the Company of land and water power rights, the future availability of “a large amount of power on the Canadian side of the River, for municipal purposes and for the operation of pulp or paper mills, flour and grist mills and other manufacturing establishments”. This is the only mention of pulp or paper mills in the entire agreement, although that was apparently to be the principal industrial undertaking of the Company. There is also a statement in the recitals of the benefits of these works “to navigation”.

In the operating clauses of the agreement itself, the grant of lands and of “all water power and privileges” was in consideration of “the special agreement to supply power or electrical energy to the Town… to such an extent as the said Town… may require”. All the power-generating facilities required to develop “the Canadian side of the River” were to be built on the Canadian side of the boundary. There is some ambiguity in the contract as to the source of the power to be made available by the Company on the Canadian side, but all the relevant terms of the agreement indicate that the parties were dealing in the agreement with the development and disposition of power developed by the Company on the Canadian side of the river only.

The right of the Town to call for the delivery of power is expressed as being “for Municipal purposes and for public utilities”. Neither term is defined but the agreement does go on to provide that the Town may not ask for power “for commercial purposes”. The matter is further complicated by the modes provided for the delivery of power requested by the Town. The Town may call for the “power” in either mechanical or electrical form at $12 or $14 per horsepower per annum, respectively. Since the plans called for the installation of electrical generators on the Canadian side and mechanical power-generating facilities on the United States side, the reference to the taking of power in either mode is somewhat confusing. In fact, however, all the power purchased by the Town from the Company was in electrical form generated on the Canadian side. Thus, the agreement has been performed in accordance with the

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clear intent of the parties that it deal only with power generated on the Canadian side. Under paragraph 5 of the agreement, supra, the Town is “entitled to take such portion… of the said power as the… [Town] may desire by any of the methods of delivery…” specified. These words must be read in the context of the power delivery provisions in which they are found and cannot be read as modifying, in any way, the term of the contract which grants to the Town the right to purchase power from the Company.

The scheme for the distribution of power within the community of Fort Frances is rather vaguely described in the contract. The use to which electricity will be put by the purchasers is also discussed in nebulous terms. It must be remembered, however, when one is attempting to ascertain the meaning of the expressions employed in the contract, that electricity in usable form had been developed only about twenty years before the agreement was drawn and executed. Niagara Falls had delivered electrical power to nearby communities a scant nine years prior to the signing of this agreement; Toronto received electrical power only a few years prior to the Town of Fort Frances. It is not, therefore, surprising to see a provision in the agreement for the “renting [of] power or energy”. The only thing certain about the generating and distributing arrangements specified in the agreement is that the parties thought that the price charged for the power was “specially favourable” to the Town.

Before examining the arbitration provisions contained in the agreement, a word should be said about the specified arrangements for the disposal of the electrical power generated by the Company in Canada. By paragraph 8, the Company agrees to “reserve for use on the Canadian side… Four Thousand Horse Power… the same permanently available for use on the Canadian side”. This clause does not give the Town any priority or pre-emptive right to the four thousand horsepower so reserved, or to any power in excess thereof. Indeed this clause goes on to state that when the four thousand horsepower “shall be leased or in permanent use” the Company “will lease to any person, firm or Company on the Canadian side…

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any further power which may be required on the Canadian side and which may be unleased or not in permanent use”. It is most extraordinary that this agreement, which the Company executed in order to launch a pulp and paper venture in northwestern Ontario, makes no mention of any use of the hydro-electric power in the mills of the Company on either side of the international boundary. The Company completed construction of the first stage of its Canadian pulp and paper mill in 1914. From that time on, until overtaken by the Town, the Company mills took the greater part of the output of the generators on both sides of the boundary.

Further provision for the use of electricity produced on the Canadian side is found in paragraph 6. By its terms the Company agrees to sell “to any person, firm, Company or Corporation making application therefor, any power or energy reserved for use on the Canadian side [and this must refer to paragraph 8]… not already in use”. Again no priority is given to the Town for the purchase of power. Any such right in the Town must be found in paragraphs 1, 5 and 7 of the agreement, and paragraphs 4, 6 and 8 must somehow be reconciled.

Paragraph 7 describes the price for electricity taken by the Town, presumably under paragraphs 1 and 5, as the “maximum price” and goes on to state that the fixing of such price “forms a part of the consideration for this Agreement, and for the transfer of the said lands, power and privileges…”

We come then to the arbitration provisions in the 1905 agreement. There are four clauses which make provision for what might be described as the arbitration of questions or differences arising under the agreement. Two of these provisions are clearly directd to disputes as to price between the Company and purchasers of power, while the other two are of more general application. Again it must be said that the agreement directly affects persons who are not parties to the agreement as its provisions, including the arbitration clauses, extend beyond actual parties and their conduct under the

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agreement. One unusual feature is that the arbitrator specified in these clauses is the Lieutenant-Governor in Council which, of course, is the Crown in right of the Province of Ontario, one of the two parties to this agreement.

We find these provisions for the settlement of disagreements in paragraphs 5, 6, 7 and 13. Paragraph 5 establishes the $14 per horsepower per annum rate without any mechanism for variation. The contract is without term, and as we have seen the power reserved under paragraph 8 must be “permanently available”. The price is referred to in paragraph 7 as the “maximum price” and by paragraph 5 the price “shall not in any event exceed… Fourteen Dollars ($14.00)”. By a proviso to paragraph 5, the Town, should it deem the price charged by the Company under paragraph 5 to be excessive “or more than sufficient to allow the [Company] a fair profit”, may, should it be unable to settle on a new price with the Company, refer the matter to the Lieutenant-Governor in Council. The rate determined by the Lieutenant-Governor in Council is binding upon the parties “to the same extent as if it were included in and a part of the Agreement”. Clearly, all this relates to a downward revision of the $14 rate if the Lieutenant-Governor in Council, at the request of the Town, determines such a revision to be appropriate. All this is included in a single sentence attached as a proviso to paragraph 5. That same sentence includes a right in the Town to refer to the Lieutenant‑Governor in Council in the same way “any other matter arising in respect of the carrying out of these presents”. Bearing in mind the setting in the agreement in which this provision occurs, as well as the presence of the more general arbitration procedure contained later in the agreement, it is not reasonable to give a wide interpretation to these added words, and certainly not a meaning which would authorize the Lieutenant-Governor in Council on the Town’s request to determine matters expressly covered in paragraph 8 of the agreement, for example, relating to the quantity of electricity to be reserved for specific uses or users. Nor should these general words, as they appear in the proviso to paragraph 5, be extended to apply to the extent of the Town’s rights to request power under paragraph 1. In

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short, I would read this proviso to paragraph 5 as relating only to matters specified in paragraph 5, that is the price payable for power properly requested by the Town and the manner of its delivery, subject always to the ceiling price expressly established by paragraph 5.

In paragraph 6, the Company agrees to sell to any person making application therefor, “any power or energy reserved for use on the Canadian side”, which presumably is a reference to the power reserved under paragraph 8. Paragraph 6 further limits the quantity of such power available to that “not already in use”. Such power is to be delivered at prices and on conditions as may be agreed upon between the parties, “or in case of disagreement, at such prices and on such conditions as may be fixed by the Lieutenant-Governor in Council”. With respect to price, paragraph 6 expressly relates only to differences arising as to the price to be recovered by the Company for the sale of power reserved for distribution on the Canadian side of the boundary. There is no priority given in the clause to the Town as against other persons applying for such power. While the provisions of paragraph 6 do not refer to the prices established under paragraph 5, there is certainly, no indication that the terms of that clause would not be binding upon the parties if the arbitration related to power to be delivered to the Town under a combination of paragraphs 5 and 8. Consequently, this arbitration provision is of no assistance in solving the problem raised in this appeal.

Similarly, the provision for the referral of disputes as to price in paragraph 7 is limited to arbitrations otherwise authorized under the agreement, and no doubt refers to arbitrations under the terms of paragraph 6, already discussed. Paragraph 7 provides for the determination by the Lieutenant-Governor in Council of the prices at which “power shall be sold to other consumers” which clearly refers, in the context of paragraph 7, to consumers of electricity other than the Town. As a result, this clause is of no assistance in this appeal.

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That takes us to paragraph 13 which is an arbitration provision expressed in the broad terms: “any matters of dispute not herein especially provided for”. Those very words, of course, beg the question before the courts in these proceedings; is the dispute which now has arisen between the Town and the Company “especially provided for” in the aforementioned sections of the agreement? To answer that question we must examine, in greater detail, the statutes and the contract. It is only in the event the question is answered in the negative that we must return to the construction and application of paragraph 13.

Faced with this array of inconsistent if not conflicting terms in the contract and the ambiguities already noted, the learned trial judge concluded:

(a) the Company had no right to amend or terminate the contract;

(b) the maximum price recoverable for power delivered to the Town under the contract is $14 per horsepower per annum;

(c) the Company is not bound under the agreement to supply to the Town all its power requirements for municipal purposes and for public utilities up to the entire output of the Canadian side of the river;

(d) “the Court has no power to refer the allocation issue to arbitration either under the 1905 Agreement or under the statutes and has not been asked to do so”;

(e) in any case:

(i) the statutes do not supercede or replace the arbitration provisions of the 1905 agreement; and,

(ii) the amount of power from the Canadian side that the Town is entitled to “cannot be determined by an interpretation of the 1905 Agreement”.

The majority of the Court of Appeal took a somewhat different view and concluded that either party could refer the dispute as to the Town’s share of the power produced on the Canadian side

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of the river and the price payable therefor, to the Lieutenant-Governor in Council for determination. In the result, paragraph 13 of the agreement was found to be applicable, not as an arbitration clause, but as a “contract supplementation clause” by which the Lieutenant‑Governor in Council may “write the next chapter in the ongoing relationship between the parties”.

There was some difficulty in settling the formal order in the Court of Appeal. In their reasons, the majority agreed with the trial judge that under the terms of the agreement, $14 per horsepower was “the maximum price” payable by the Town for power delivered. In the words of Thorson J.A., with whom Brooke J.A. concurred:

The purchasers’ obligation to supply the Town with power at the specially favorable [sic] rate lay at the very heart of the “special agreement” set out in paragraph 5, and that paragraph operated to set what was manifestly a maximum price.

In spite of this, however, the majority concluded that “the issue of quantity is inextricably bound up with the issue of price”, and directed in the formal order that the price payable by the Town could be submitted to arbitration by the Company or the Town. Again in the reasons of the majority, the conclusion of the trial judge that the Company is not bound to deliver all the Canadian output to the Town, is approved. However, no such potential limitation on quantum is included in the formal order.

In dissent, Wilson J.A., as she then was, concluded that “any power generated on the Canadian side over and above the amount required to service… [the Company’s] own plant on the Canadian side must be supplied to the Town…” without any reference to other supply commitments which may have arisen before the Town’s request was made for power in excess of the 4,000 horsepower reserved for use on the Canadian side under the agreement. The $14 per horsepower per annum ceiling price applied only to power supplied from the amount reserved for use in Canada by paragraph 8 (4,000 horsepower) less the amount

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required by the Company for its plant on the Canadian side. The price that the Town had to pay for any additional power was not provided for in the agreement and either party could direct a reference under paragraph 13 to have it determined. Presumably the dissent would provide no power to the Town, either below or above the 4,000 horsepower reserved under paragraph 8, if the Company’s requirements exceeded the output on the Canadian side, which on the evidence is the fact.

The one issue which now appears to be accepted as settled by the parties to this appeal concerns the right of either party to the agreement of 1905 to terminate it unilaterally by notice. Both courts below found no such right existed in law, and that issue was not argued at any length in this Court, both parties conceding that it is difficult to contemplate the termination of an agreement where the terminating party cannot restore the other party to the position enjoyed prior to the execution of the agreement. Here, the Company could not, on termination, turn back to the Province the grant of water power rights under the 1906 statute and the 1905 agreement unless at the same time it closed down its operations on both sides of the river associated with the power-generating facilities. Similarly the Province of Ontario could not terminate the agreement so as to recall the grant of water power rights because to do so would, in effect, terminate the associated operations established by the Company pursuant to the terms of the 1905 agreement. The learned trial judge observed that what the Company was in fact seeking was not termination of the agreement as a whole, but only of the provisions dealing with the price and quantity of power to be delivered to the Town. In his words:

…the Company is asking for a right to amend rather than terminate the 1905 Agreement on the basis that certain terms are no longer reasonable.

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Referring to this statement, Thorson J.A., with whom Brooke J.A. concurred, said:

In my opinion, these observations constituted a fair comment on the position taken by the appellant on this issue, which appeared to be that it was seeking to be relieved of the burden of its bargain while still retaining its undoubted benefits.

In fairness to the Company, I should mention that it advanced its argument that the agreement was terminable only as a final alternative to be considered by this Court in the event that its submission that the Town was not entitled to the entire output of the Canadian generating plant at $14 per horsepower per annum was rejected. The question of the terminability of the agreement is, of course, inextricably linked to the issue of the extent of the Company’s obligation to provide power to the Town at the $14 rate, which in turn depends upon the interpretation given to the operative terms of the Agreement.

In British Movietonews Ld. v. London and District Cinemas Ld., [1952] A.C. 166, at p. 185, Viscount Simon, with whom the other members of the House of Lords concurred, summarized the law as follows:

The parties to an executory contract are often faced, in the course of carrying it out, with a turn of events which they did not at all anticipate—a wholly abnormal rise or fall in prices, a sudden depreciation of currency, an unexpected obstacle to execution, or the like. Yet this does not in itself affect the bargain they have made. If, on the other hand, a consideration of the terms of the contract, in the light of the circumstances existing when it was made, shows that they never agreed to be bound in a fundamentally different situation which has now unexpectedly emerged, the contract ceases to bind at that point—not because the court in its discretion thinks it just and reasonable to qualify the terms of the contract, but because on its true construction it does not apply in that situation.

As will be seen, I am of the opinion that the parties have specified the extent of the Company’s obligation to the Town in the terms of the agreement. It cannot be said, therefore, that they did not agree to be bound in the circumstances that have arisen. I find it unnecessary, therefore, to

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consider the controversial decision of the English Court of Appeal in Staffordshire Area Health Authority v. South Staffordshire Waterworks Co., [1978] 3 All E.R. 769, where it was held that a forty-nine year old contract for the supply of water to a hospital for a small fixed price was determinable on reasonable notice. That decision, which was relied upon by the Company in support of its terminability argument, has no application to the facts involved in these proceedings. I turn, therefore, to the question of the extent of the Town’s right to call for power and the related issue of the price to be paid for power received. In order to resolve these issues, the interrelationship and application of the statutes considered above must be determined.

This Court, on granting leave to appeal, issued directions with respect to the following constitutional question:

Are the arbitration provisions of Section 4 of An Act Respecting the Ontario and Minnesota Power Company Limited, 4-5 Edward VII, (Can.) Chapter 139, and Section 3 of An Act respecting “The Ontario and Minnesota Power Company, Limited” 1906 S.O. Chapter 132 in conflict, and if so, which prevails?

The essential features of the two statutes together with the 1911 Ontario statute have already been set out above. There are no provisions in any of these statutes which purport to revise or amend or alter the performance of the agreement of 1905. Indeed, the federal statute of 1905 does not mention, even in recital, the agreement between Ontario and the Company. The need for the federal statute is obvious and is apparent from the terminology employed by Parliament in the statute itself. The works proposed by the Company would constitute a serious interference with navigation on the international waterway and accordingly a permit or authorization from the Government of Canada was essential to the undertaking. The only difference between the federal and provincial statutes arises in connection with the arbitration clause and then only because the arbitrator nominated in the federal Act is different from that nominated in the provincial Act. Of course, if arbitration is not open to the parties in law, then

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that aspect of the statutes is not relevant to the disposition of this appeal. As already observed, the federal Act makes no mention of the quantity of power to be directed to any particular use or user. Section 2 alone refers to the distribution of power on the Canadian side, and it requires only that the Company deliver power “as and when demanded” without any reference to the power distribution arrangements made under the agreement between the Province and the Company. Essentially, the federal enactment requires that the power installation and equipment for harnessing the energy of the Canadian side of the river be in Canada, and establishes a mechanism to control the diversion of power so generated in the United States. Neither issue arises in these proceedings. The Ontario statute of 1906 was of course required in order to obtain the dedication of the necessary land and land covered with water to the project proposed by the Company. The land in question was either owned or controlled by the Province as were the water rights in the river. Both of these matters were dealt with by the statute. As to the distribution of power generated by the proposed facilities, the statute simply requires that the Company provide power for use on the Canadian side of the boundary “concurrently as it provides power… for use in the United States, so that… there shall not be less of the said power… available for use on the Canadian side of the international boundary line than on the American side” unless otherwise provided for by order of the Lieutenant-Governor in Council. Section 1 concludes, as already noted, “and subject to the provisions of this Act such power or electrical energy shall be delivered on the Canadian side as and when demanded”. There is no provision in the Act which revises in any way the terms of the 1905 agreement, and hence it would not appear to have any application to the issue now arising. The only relevance the 1911 statute would appear to have in these proceedings is the historical value of certain recitals to the agreement appended to the statute, including the recognition that at that time, electrical energy was available on the Canadian side “in excess of what is required for use at present on the Canadian side”. Accordingly, arrangements were made for the export of electricity under that Act. It should

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be recalled, however, that the Company’s Canadian mill did not begin operation until 1914. As already mentioned above, one clause dealing with the price of electricity supplied on the Canadian side was injected into the midst of the agreement approved by the 1911 Act. This provision does not, however, purport to amend either the earlier statute or the agreement of 1905. Its appearance in the agreement is anomalous and neither the Town nor the Company relies upon this provision as conferring, or not conferring, upon the Town any additional right to call for energy from the Canadian facilities, or as a basis for establishing the price to be paid in a manner inconsistent with the terms of the agreement of 1905. In the end, therefore, it appears, upon hearing full argument of the issues, that the statutes of Canada and Ontario have no direct bearing on the questions raised in this appeal, and accordingly, it is unnecessary to answer the constitutional question. The issues arising here, in my view, stand to be settled entirely on the interpretation of the 1905 agreement and it is to that document that I now turn.

As we have already seen, the agreement makes detailed provision for the establishment of the necessary facilities to harness the water power of the river on both sides of the international boundary. The power from the falls, both mechanical and electrical, was, in the mind of Backus, the key to the unlocking of the forest resources in this vast, isolated tract of Minnesota and northwestern Ontario. Indeed, in the second recital, as we have seen, reference is made to the utilization of this water power for “Municipal purposes and for manufacturing and milling in the said Municipalities, thereby assisting in the development of the said Municipalities and of the surrounding district”. The specific operation of pulp or paper mills is also mentioned in the recitals, but in the main the contract is directed to the establishment of power-generating facilities and certain aspects of the distribution of the power so developed. The public utility concept, which must have been in a most rudimentary state in the planning of the communities of the day, is touched upon only in

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paragraph 6 of the agreement, partially quoted above. The portion dealing with the distribution of power reads as follows:

…and the Purchasers [the Company] shall provide and maintain all such generators and transmitters, machinery and appliances as may be requisite for the delivery of such power or energy by any of the methods A, B or C referred to in paragraph Five hereof, and shall afford to parties buying, or renting power or energy from them all reasonable and necessary access to their buildings, lands and premises for the purpose of erecting and maintaining wires, cables, or other means of carrying or conveying such power or energy, and shall erect such poles, wires and other appliances as may be necessary for the distribution of power by the method C, provided that the Purchasers shall not be obliged to erect new appliances, or to extend their appliances, for the purpose of delivering power by the method C to any party declining to accept any [sic] pay for at least one hundred horse power, or declining to furnish, if required, reasonable security for the payment of the purchase price or rent for such horse power for such period as may be necessary to recoup the Purchaser’s outlay in providing such appliances, the method of distribution of such power and the appliances to be used to be subject to the approval of the Lieutenant-Governor in Council, and the streets, squares, lanes or other public places along or across which such power is to be carried, to be subject to the approval of the Municipal Council of the Town… PROVIDED that parties requiring power from the Purchasers shall give them three months’ notice in writing of the amount of power required and of the method of delivery by which it is desired the same shall be delivered.

While these provisions are somewhat vague and inarticulate by today’s standards, nevertheless, it is clear that the Town is entitled to receive electrical energy for its own purposes and the balance of the energy would be used for the recited purposes in paragraph 5 and elsewhere in the agreement. What is by no means clear is whether the Town is thereby empowered to call for electricity on behalf of its residents for the purpose of household lighting and the other uses to which electricity is today put in the homes of the country. Neither party to these proceedings has presented any argument on this issue, and I proceed, therefore, on the basis that the Town has the right under the agreement to call for electrical energy for municipal purposes which shall include the ordinary municipal electri-

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cal distribution that we now know, including the delivery of electrical energy to commercial premises throughout the municipality, but probably not including large, self-contained industrial establishments such as the Company’s pulp and paper mill. Paragraph 7, as we have already seen, deals with “other consumers”, and this vast, grey area in the agreement has not been the subject of argument here or apparently below.

The agreement also makes provision for the development of power at Kettle Falls in addition to the International Falls project, which was the principal purpose for the agreement. We are not here concerned with the Kettle Falls development, but the terminology used in the agreement in relation to that project is of some interest. Again, the principal concern of the Province at that time seems to have been the retention for use on the Canadian side of power generated from the river on the Canadian side so as to be available when needed. A proviso to paragraph 12 states:

PROVIDED FURTHER that if the Purchaser [the Company] shall at any time develop a water power at Kettle Falls, the total amount of power so developed on the Canadian side shall be retained for use on the Canadian side and shall not at any time be diverted or used elsewhere, and all the terms and conditions herein contained, with reference to power at Fort Frances, shall apply to the said power at Kettle Falls, save and except the conditions as to supplying power to the Town…

This, therefore, is the agreement to which we must turn in order to answer the question as to the extent of the Company’s obligation to supply power to the Town at $14 per horsepower per annum. The opening words of paragraph 6 and all of paragraph 8 provide the key to solving this problem. Paragraph 6, the operative and opening part of which I repeat here for convenience, provides:

6. THE PURCHASERS [the Company] further covenant and agree that they will at all times sell or rent and distribute to any person, firm, Company or Corporation making application therefor, any power or energy reserved for use on the Canadian side of Rainy River and not already in use, at such prices and on such conditions as may be agreed upon between the parties, or in case of disagreement, at such prices and on such

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conditions as may be fixed by the Lieutenant-Governor in Council,…

This paragraph deals with all the power developed on the Canadian side to the extent that it is “reserved” and to the extent that it is not already “in use”. It can hardly be argued that this refers to power generated on the United States side or to any more than the quantity “reserved” for Canadian use. Only paragraph 8 speaks of power “reserved” for “use on the Canadian side”. I also repeat this section here for convenience:

8. IT IS FURTHER COVENANTED AND AGREED that they will at all times retain and reserve for use on the Canadian side of the International boundary line Four Thousand Horse Power and will render the same permanently available for use on the Canadian side: PROVIDED FURTHER that when and so soon as the said Four Thousand Horse Power so reserved shall be leased or in permanent use, the Purchasers will lease to any person, firm or Company on the Canadian side of the said boundary line any further power which may be required on the Canadian side and which may be unleased or not in permanent use:

This section raises many questions not the least important of which is the meaning of “use on the Canadian side”. If this includes “use” by the Company’s Canadian mill, then no power would be available to the Town over and above that part of the reserved 4,000 horsepower which was in use by the Town prior to the point when the combined use of the Town and the Canadian mill exceeded the 4,000 horsepower so reserved for use on the Canadian side. That is to say, some time in the early 1920’s when the Town’s demand was very tiny, the demand of the mill for electrical energy had so increased as to exceed, when combined with the small Town consumption, the 4,000 horsepower reserved under paragraph 8. The Company did not seriously advance this rather extreme position but took the stand that the Town was entitled to all of the 4,000 horsepower at the special rate but no more. This view, in essence, assigns a limited meaning to the words “use on the Canadian side” so as to include use by third parties, here the Town, but not the use of power on the Canadian

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side by the Company itself.

This then takes one to the proviso at the end of paragraph 8 which makes no reference to the Town or any right of the Town to call upon the Company for any power beyond the 4,000 horsepower so reserved and dealt with in the opening of paragraph 8. The proviso refers to the “use” of electric power. It might be argued that this excludes any power “used” by the Company. In any event, the right of “any person, firm or Company on the Canadian side” to demand power is limited in amount to such power as “may be unleased or not in permanent use”. This terminology is foreign to the community today, but its meaning is not ambiguous. Electrical energy generated on the Canadian side of the river in excess of 4,000 horsepower which is not in use in the Canadian market, is available for claim under the proviso to paragraph 8 by anyone, including the Town. The uncontroverted evidence is, however, that there is no such power available from the Canadian generators. Those generators, on the average, produce the equivalent of 9,000 horsepower. Expressed in today’s terminology, the average annual generation of the Canadian plant is 58 million kilowatt hours. As previously mentioned, the installed capacity is 14,000 horsepower but the average output of the Canadian plant is but 9,000 horsepower. The evidence further records that the balance of the 9,000 horsepower, after subtracting the 4,000 reserved horsepower, has for many, many years been consumed by the Company’s Canadian mill. Indeed, the Company has been purchasing power for its own purposes on the Canadian side of the boundary from Ontario Hydro since 1958 when that supply of electrical energy first became available. Thus, there was no electrical energy produced by the works in question which was “unleased or not in permanent use” within the meaning of paragraph 8 at the material times here in question. There is no power, therefore, available for arbitration as to quantity or price, assuming for the moment that both issues may be assigned to arbitral resolution. There is no evidence to indicate that any part of this absolute

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absence of availability of electrical energy, has been occasioned by a continuance of the export permit issued in 1910. Indeed the evidence is that even that permit was never fully utilized. As a matter of interest, the evidence indicates that the demand for power by the Canadian mill operated by the Company expressed in the same terms as the 1905 agreement, is 69,000 horsepower, which, of course, vastly exceeds the generating capacity of the facilities installed pursuant to the agreement of 1905.

There is, of course, an inherent conflict between the general language employed in paragraph 1 and the specific language employed in paragraphs 6 and 8 of the agreement. I cannot read the general provision in paragraph 1, which purports to entitle the Town to call upon the Company to provide electrical energy “to such an extent as the said Town… may require” as overriding the precise distribution arrangements made in paragraphs 6 and 8. Nor is it realistic to construe the agreement, in light of the circumstances in which the agreement was entered into by the parties, as envisaging a situation where the founder of the pulp and paper mill to which the generating facilities were ancillary and supportive, would lose all access to the power so generated in the event that the Town’s appetite equalled or exceeded the generating capacity of the river. Paragraphs 4 and 5 do not expressly or by implication support a broad interpretation of the words employed in paragraph 1. Those paragraphs simply require the Company to establish facilities to develop the power potential of the Canadian side of the river to the fullest extent possible, and to make the electricity so produced available for use on the Canadian side. Furthermore, the pricing arrangements established in paragraph 5 deal only with the quantity of electricity delivered to the Town by the Company under the terms of the agreement. Thus paragraph 5 is not itself determinative of the quantitative distribution of the output of the Canadian generating facility. What is required, therefore, in my view, is a simple reconciliation of the terminology employed in paragraph 1 with that employed by the authors of the agreement in paragraphs 6 and 8, and I find no difficulty in construing the agreement so as to promote the evident intent of the

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parties to the agreement at the time this pioneering project was established in northwestern Ontario. Paragraphs 6 and 8 deal expressly with the situation which would arise when the power expressly reserved for use on the Canadian side became fully used. The terminology used may be archaic and may raise minor difficulties of interpretation or translation, but the essence of the provisions is clear. The Canadian side of the boundary was protected by a reserve of 4,000 horsepower. At the time of the agreement this far and away exceeded any foreseeable use by the Town and its inhabitants of the electricity to be produced. Accordingly, the terms of paragraph 8 providing for the power reserve do not expressly refer in any way to the Town, either as an exclusive or joint user. It simply is a dedication of 4,000 horsepower for use on the Canadian side of the boundary. The balance of the output from the Canadian side was made available to users on this side of the boundary to the extent that the balance had not been committed.

Finally, I should make reference to two arguments advanced by counsel for the Province of Ontario as well as by the Town. The first argument is that the issue of the price to be paid by the Town for power received is res judicata, having been put in issue by the Company in earlier court proceedings. In 1923, an action was brought by the Town against the Company for arrears of taxes. The Company counterclaimed for payment, on a quantum meruit basis, for power supplied. The counterclaim was referred to a Local Master who held that the Town was liable to pay the Company for the power it had received at a rate of $14 per horsepower per annum. This decision was affirmed on appeal in Town of Fort Frances v. Fort Frances Pulp and Paper Co. (1925), 28 O.W.N. 402. Be it noted that the parties to this litigation are not the parties to the 1905 agreement. It is difficult to determine the actual issue decided in those proceedings, but, in any event, in view of my conclusion that $14 per horsepower per annum is firmly established in the agreement as the rate to be paid by the Town for power, I find it unnecessary to consider this issue further.

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The second argument advanced by counsel for the Province of Ontario and by the Town is that, as a result of statements made by representatives of the Company in the early years of the agreement relating to the supply of power to the Town, the Company is now estopped from claiming that it is not obliged to provide the Town with all the power it needs. In April of 1927, for example, in the course of seeking water power leases on another Ontario river, the president of the Company wrote to the Minister of Lands and Forests stating that:

…the Town of Fort Frances is entitled to power for municipal purposes and public utilities without restriction as to amount and at the rate of $14.00 per H.P.

The conditions in which the doctrine of promissory estoppel operates to prevent a party from insisting upon strict legal performance of a contract remain, in some respect, uncertain. It seems clear, however, that the principle which allows a party to raise a promise or representation that was made to him as a defence, is based upon the inequity of allowing the other party to resile from his statement where it has been relied upon to the detriment of the person to whom it was directed: see, Grasett v. Carter (1884), 10 S.C.R.105. In Conwest Exploration Company Limited v. Letain, [1964] S.C.R. 0, at pp. 27-28, Judson J., for the majority, applying the principle which he drew from the judgments of Lord Cairns in Hughes v. Metropolitan Railway Co. (1877), 2 App. Cas. 439, said:

There was an unambiguous representation of intention made by Letain which was intended to be acted upon and was acted upon by Conwest, with the result that Conwest’s position in relation to Letain was prejudiced if Letain’s interpretation of what constituted performance under this contract is correct.

As a result, the Court held that Letain was estopped from asserting an interpretation of the contract that would have placed Conwest in breach of its obligations when, through his acts, he had led Conwest to believe that he was accepting the steps Conwest was taking as performance under the contract.

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The principle is further elaborated upon in the judgment of Ritchie J. in John Burrows Ltd. v. Subsurface Surveys Ltd. and Whitcomb, [1968] S.C.R. 07, at p. 615:

It seems clear to me that this type of equitable defence cannot be invoked unless there is some evidence that one of the parties entered into a course of negotiation which had the effect of leading the other to suppose that the strict rights under the contract would not be enforced, and I think that this implies that there must be evidence from which it can be inferred that the first party intended that the legal relations created by the contract would be altered as a result of the negotiations.

See also: Canadian National Railway Co. v. Beatty (1981), 34 O.R. (2d) 385, 128 D.L.R. (3d) 236 (Ont. Div. Ct.); and, Pentagon Construction (1969) Co. Ltd. v. United States Fidelity and Guaranty Co. (1977), 77 D.L.R. (3d) 189 (B.C.C.A.).

It is my opinion that the facts of the present case are not such as to give rise to the operation of the doctrine of promissory estoppel. It is difficult to identify any act on the part of the Town which could constitute the necessary element of reliance upon the statements made by the representatives of the Company. The Town, both before and after the statements were made, continued to claim its power requirements under the agreement. Further, it is my opinion that the statements relied upon to support the alleged estoppel do not demonstrate the presence of an intention in either the Company or the Town to alter the strict terms of the agreement. In 1927, the year in which the last statement relied upon in support of an estoppel was made, the power consumption of the Town was only 650 horsepower. There was, at the time the statement was made, therefore, in effect, no restriction on the amount of power that the Company would provide. That is not to say, however, that the Company, or indeed the Town, intended that the specific terms of the proviso in paragraph 8 of the agreement, which would come into effect in the distant future when the power consumption of the Town rose to 4,000 horsepower, should cease to have legal effect.

I therefore would determine the issues as to the extent of the Company’s obligation by declaring

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that its commitment under the 1905 agreement, which remains in effect, unqualified as regards the issues herein raised by the legislation of Canada and Ontario, is to provide electrical energy produced from its generating facilities on the Rainy River at Fort Frances to the extent of 4,000 horsepower per annum, such electricity to be made available to the Town at the contract price of $14 per horsepower per annum.

While these proceedings originated in an action by the respondent Company against the appellant Town, and a proceeding by way of petition of right between the respondent Company and Her Majesty The Queen in right of the Province of Ontario, the appeals from the judgment of the Court of Appeal in the two proceedings were presented as a single appeal before this Court. The Company was also granted leave to appeal and its appeal was heard and considered together with the appeals of the Town and Her Majesty The Queen in right of the Province of Ontario. The issues raised by all parties were the same, though the Company, of course, sought a different order as to the Town’s entitlement to power. In the result, the appeal of the respondent Company is allowed and the declaration set out above substituted for the order of the Court of Appeal. The appeals of the appellant, the Corporation of the Town of Fort Frances, and the appellant, Her Majesty The Queen in right of the Province of Ontario, are dismissed. All parties and the intervener have agreed that there should be no order as to costs.

Appeals of the Corporation of the Town of Fort Frances and of Her Majesty The Queen in right of Ontario dismissed and appeal of Boise Cascade Canada Ltd. allowed.

Solicitors for the Corporation of the Town of Fort Frances: Perry, Farley & Onyschuk, Toronto.

Solicitors for Boise Cascade Canada Ltd.: Fraser and Beatty, Toronto.

Solicitor for Her Majesty The Queen in Right of Ontario: Attorney General for Ontario, Toronto.