GUEST POST WRITTEN BY CABOT MARTIN
However,
the most recent Uncle Gnarley posts building on revelations first made by a
former Muskrat Falls project engineer (aka the Unknown Engineer) on UncleGnarley on January 30, 2017 must have shocked even the most cynical.
Seriously
- are we talking about someone playing fast and easy with the numbers?
If true,
would be big time shit.
Then came
last Wednesday’s stellar CBC St. John’s Morning Show interview by Anthony
Germain featuring the disguised voice of the “Unknown Engineer” repeating on
the public airwaves his astounding assertions ending with a call for a
“Forensic Audit” of the manner in which the Muskrat project costs were
prepared.
The next
day Mr. Germain followed up with an extended interview on the mechanics of a
Forensic Audit with financial wiz Larry Short – all of which served to turn up
the heat on this issue in dramatic fashion.
Said to
have been an act of conscience, the Unknown Engineer detailed a frightening
scenario wherein someone or some group (to work must have been a group) within
the Muskrat project team supposedly deliberately or recklessly ignored reality
in presenting the Project’s costs to their shareholder the Provincial Government.
The
parading of these lower than reasonable costs served to convince an
ill-informed and naïve Provincial Cabinet that the Muskrat project, that Nalcor
was so fervently promoting, made sense – when patently, to use some Nalcor
jargon, the “business case” was built on sand.
The
Newfoundland and Labrador Cabinet’s final and complete swallowing of the bait
can be precisely dated to the Muskrat Falls Sanction Decision of December 17, 2012.
But that
was “merely” when the final fatal step was taken. How far should a Forensic
Audit go back? If not then, then when?
How far
back should our Forensic Audit team, a band of financial sleuths with all the
latest gear, start hauling things apart? Looking at the "why" in
addition to the "what"; following the money; examining who knew what
and when.
These are
decidedly not the sorts of questions that the current Auditor General's review
and approach would involve. This makes The St. John's Telegram's Editorial
"Leave it to the AG" of last Friday (May 12th) all the
more inexplicable.
The
Unknown Engineer's "argument" did not "suggest" a Forensic
Audit to the CBC, he at some risk pleaded for one.
His
"argument" was not that "the numbers used to justify the project
were unrealistic from the start" but that those numbers were part of a
deliberate scheme to get the project going.
To quote
him as reported in Uncle Gnarley - in a follow up piece on February 6 (essential
reading) “
“I could not put up with falsifying information anymore.
To begin with, the original cost of $6.2 billion on which the
project was approved was a complete falsification. The estimate was
deliberately kept low — below $7 billion, so as to appear favourable relative
to the cost of thermal power generation.
The likely costs were
known about three years ago, but Nalcor Management kept it a secret,
steadfastly denying that there were major schedule delays and cost overruns,
until it was no longer possible to hide the true status with the election of a
new Provincial Government.”
In spite
of this incredible statement, the whole Unknown Engineer matter is dismissed in
the Telegram's words with "At the moment, though, overweening political
pride is not a crime".
Did the
Unknown Engineer say anything about politicians? As far as I can tell he was
saying our elected politicians were duped from the beginning.
The
Telegram Editorial ends with a candidate for The Museum for the Morally Bankrupt:
"But
how much more blame can we afford? “
All of
which basically overlooks the "Forensic" in "Forensic
Audit"- like settling for an X-Ray when a CAT Scan is in order in the face
of a life threatening problem.
It's all just
a small step from the Telegram's position to "Move along; Move Along; Nothing
to see here Folks".
But I
digress into the weeds of God knows what and must return to matters of
substance.
A good
grasp of the history of any project is essential to any real Forensic Audit.
Consequently,
it is essential for one go back to the beginning, to the Williams Government’s
engagement of SNC-Lavalin in 2006 to prepare not only a technical feasibility
study of Muskrat Falls as a “stand alone” project but also, at the same time, a
financing plan for it’s development.
This
SNC-Lavalin study was evidently keystone, a point when an apparently
unstoppable momentum was created.
The
SNC-Lavalin Study Report has never been made public and the present Government
as a token of it’s sincerity in this matter should do so immediately.
One can
only speculate as to its contents but lacking, for now, a better starting
point, this SNC-Lavalin study and the process by which it was commissioned
would seem a good point at which to start any Forensic Audit.
And, of
course, we cannot forget that the Sanction Decision of December 17, 2012 itself
was followed by a series of Nalcor commercial decisions.
Such as
the awarding of construction contracts and equipment purchases with their
attendant cancellation clauses and penalties payable by Nalcor (i.e. us).
All of
which supposedly served to make it “too late” for this Province to reverse
course even when the abyss loomed.
Chief of
these entanglements was the triggering of Nalcor’s complex contractual
relationship with Emera – a corporate name that, it is safe to say, residents
of this Province will come to invoke with the same virulence as “Hydro Quebec”.
So the
Forensic Audit should properly cover all those Emera contract negotiations,
indeed must cover those negotiations, including the Emera-Nalcor dance before,
during, and as a consequence of regulatory hearings in Nova Scotia before their
Utility and Review Board (UARB).
Halifax
based Emera was, and is, of course, Nova Scotia’s “Chosen Instrument’ to not
just access our hydro power but more fundamentally to take advantage of this
Province’s billions in oil royalties.
So that’s
the problem, and in spite of some opinion more skeptical about our legal system
than this writer, I suggest that, as the man said, “There’s got to be a law
against that.”
If, for
discussion purposes, we take our Unknown Engineer to be correct, the next
obvious question has to be –
Did Emera
know (or should have known) that this egregious Nalcor behavior was going on
over on the other side of the negotiating table (more or less unknown to the
Newfoundland Government) when Emera entered into their vast and bewildering web
of Muskrat contracts with Nalcor?
The
jaded, demoralized reader might well ask:
“What difference would that make? Sure if it happened, it was all
Nalcor’s, thus our, fault. One Province is not another’s keeper.”
Well, by
virtue of Nalcor’s practice of secrecy from the start, not just from the public
but also from their supposed Provincial Government “masters”, Nalcor and the
Province for these purposes do not equate.
In any
event, if you will bear with me (with the caveat that this is in no way meant
as a “legal opinion”), I’d say maybe Emera’s role makes a lot of difference.
For some
basic wisdom in the matter, we should go back to ancient Greece, to the
oft-quoted words uttered by the great
Greek philosopher Sophocles (496 BC – 406 BC):
“Things gained
through unjust fraud are never secure.”
In other
words, when you are doing business with someone, don’t be surprised if when you
take advantage of that person’s patent mistake it comes back to bite you.
And, to
the main point, we could with Muskrat have a situation when all contracts based
on such behavior by Emera would be unenforceable by the courts and thus “voidable”
at the option of this Province.
If such a
case can be made, we could cancel all or any part of the Emera deal; like get
off (at least in part) the multi-barbed hook that has been so carefully
constructed.
Like “Not
Too Late”.
And this
might even go, if they were “in on it” like Emera, for those Muskrat bank loans
too.
If such a
case can be made, the cost of walking away at this stage may not be as drastic
as some have portrayed.
Now
Mister Short in his interview with Anthony Germain made a very good point –
when you are thinking about doing a “Forensic Audit” , you should always first ask
yourself what are you going to get out of it – it does cost money.
But if
someone could prove to me that there is definitely, without a shadow of a doubt
definitely, nothing, absolutely nothing, to what I am about to say regarding a
legal case of civil deceit against Emera, I would still support a Forensic
Audit.
Getting
to the bottom of what has happened here with Muskrat is like a test – a test
for all of us - it is where we grow up as a society - or not.
There is
no way we can build a decent and successful society, now or ever, with this
matter left unexamined in full.
The very
rocks cry out for a Forensic Audit.
By now,
of course, certain of the legal fraternity are rolling their eyes; Greek
philosophers indeed.
And we
are admittedly talking about the law of “civil fraud” – waters our courts are
normally reticent to wade into.
I hasten
to add that such “civil fraud” is not your run of the mill, Nigerian scam
letter fraud, nor qualifies as “fraud” contrary to the Criminal Code of Canada.
No, I am
talking about a “civil” matter, something that is often studied in Law Schools
as “Fraudulent Misrepresentation” and an “Action of Deceit”.
In spite
of the harsh sound of it, civil fraud is pretty mild stuff; no one goes to jail
as a result of such an action.
It comes
under the old English Common Law concept of an action in “tort” which sounds
like some sort of medieval torture but again as the law goes mostly pretty mild
stuff; nuisance is a tort; trespass is a tort ; obnoxious neighbour dumps
garbage over the fence onto your land – tort.
One
classic legal text on the Law of Contract makes plain the objective nature of a
civil legal action based on “Fraudulent Misrepresentation” or “deceit”:
Quote:
“Motive is irrelevant in an action of deceit. Once it has been proven that the
Plaintiff [that’s us – Newfoundland - the aggrieved party] has acted upon a false
representation which the defendant did not believe to be true, liability
ensues, although the defendant may not have been actuated by any bad motive.”
Now all
this would be worth the predictable cries of skepticism in certain St. John’s
and Halifax office towers -- but for the leading Supreme Court of Canada case
in the matter – a very recent one too and binding on lower Canadian courts.
It’s
known as Bruno Appliance and Furniture, Inc against Hryniak and can be found at
2014 Supreme Court of Canada Reports starting at page 8.
In that case, the Supreme Court of Canada set out clearly the
requirements necessary to establish the tort of civil fraud (or tort of deceit).
The Bruno case dealt with a far different fact situation from
Muskrat but it’s
the underlying basis, the core of the Supreme Court’s thinking as expressed in
its judgement that is important and clear.
Justice Karakatsanis, writing for a unanimous Supreme Court,
outlined the four elements of the tort of civil fraud:
Quote:
"From this jurisprudential history, I summarize the
following four elements of the tort of civil fraud:
(1) a false representation made by the defendant;
(2) some level of knowledge of the falsehood of the
representation on the part of the defendant (whether through knowledge or
recklessness);
(3) the false representation caused the plaintiff to act; and
(4) the plaintiff's actions resulted in a loss.” Unquote
So would a
Muskrat action by the Province against Emera meet such a four part test?
To start
we must note that the Supreme Court is aware of the need for caution in this
area which is so key in business relations. At the same time, the court knows
that egregious behavior is not a proper basis for a properly working business
climate.
One
possible basis of an action in deceit could be stated thus:
“Emera
knew (or should have known) that Nalcor’s numbers were ridiculous and reckless
and nevertheless took part with Nalcor in an elaborate public charade to take advantage of an ill-informed and naive Provincial Cabinet to Emera's benefit and to our detriment.”
Importantly,
the Supreme Court said that a defendant (say Emera) can cross the deceit line
“through knowledge or recklessness”.
Recklessness.
If there
is one thing that we should have no problem proving is that in its actions,
well known to, if not actively colluded in by, Emera, that Nalcor set the Gold
Standard for economic recklessness.
Nalcor
and Emera/Emera and Nalcor – this pair could well be the Bobbsey Twins of
Muskrat Recklessness.
Emera
knew that Nalcor was not keeping it's shareholder (the Government) properly
informed and were selling them a load of hogwash - and the Supreme Court of
Canada seems to be saying that in such circumstances Emera should not be
allowed to benefit from such actions.
Requirement
4 - that a loss to this province
resulted – would be the easy part.
Move
aside Mr. AG - it's time for the "FA" Team to take over.
Would
make quite the TV series.
