Central Canada Potash Co. Ltd. et al. v. Government of Saskatchewan

Central Canada Potash Co. Ltd. et al. v. Government of Saskatchewan
Collection
Supreme Court Judgments
Date
1978-10-03
Report
[1979] 1 SCR 42
Judges
Laskin, Bora; Martland, Ronald; Ritchie, Roland Almon; Spence, Wishart Flett; Pigeon, Louis-Philippe; Dickson, Robert George Brian; Pratte, Yves
On appeal from
Saskatchewan
Subjects
Constitutional law
Decision Content
Supreme Court of Canada
Central Canada Potash Co. Ltd. et al. v. Government of Saskatchewan, [1979] 1 S.C.R. 42
Date: 1978-10-03
Central Canada Potash Co. Limited and The Attorney General of Canada (Plaintiffs) Appellants;
and
The Government of Saskatchewan (Defendant) Respondent;
and
The Attorney General of Quebec, The Attorney General of New Brunswick, The Attorney General of Manitoba, The Attorney General of Alberta, The Attorney General of Newfoundland Interveners.
1977: December 6, 7, 8, 9; 1978: October 3.
Present: Laskin C.J. and Martland, Ritchie, Spence, Pigeon, Dickson and Pratte JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR SASKATCHEWAN
Constitutional law—Schemes for prorationing production of potash in Saskatchewan—Fixing of minimum selling price applicable to permitted production quotas—Regulations aimed at production for export market—Regulations, prorationing schemes and all orders, directives, notices and licences pursuant thereto ultra vires provincial legislative authority—The Mineral Resources Act, R.S.S. 1965, c. 50, as amended—The Potash Conservation Regulations, 1969, O.C. 1733/69, Sask. Reg. 287/69.
Intimidation—Potash Conservation Regulations prohibiting appellant from exceeding specified production—Letter from deputy minister calling on appellant to reduce its production or to face possibility of cancellation of its mineral lease—Regulations subsequently held to be ultra vires—Tort of intimidation not committed—Deputy minister seeking to induce conformity with prorationing plan which had been created by legislation which it was his duty to enforce—Legislation unchallenged at time threat made—No evidence deputy minister intended to injure appellant.
The litigation culminating in this appeal was initiated by the appellant company which sought a declaration of the invalidity of the prorationing scheme, established pursuant to The Mineral Resources Act, R.S.S. 1965, c. 50, as amended, and damages in tort. The trial judge gave the relief sought, fixing the damages at $1,500,000. On appeal by the Government of Saskatchewan and a claim by the appellant for a variation in the judgment to increase the amount of damages, the Court of Appeal set aside the judgment at trial in its entirety and, consequently, dismissed the notice to vary.
The Mineral Resources Act, through which the Potash Conservation Regulations, 1969, were promulgated, is skeleton legislation, giving very wide authority to the responsible Minister and wide regulation-making power to the Lieutenant-Governor in Council. The Act itself was not challenged. It was common ground that at the time the Regulations were passed almost all of Saskatchewan-produced potash was sold outside the Province and that the larger part of the production, about 64 per cent, was marketed in the United States. Saskatchewan production, moreover, represented almost half, about 48 per cent, of the United States potash market. The appellant company itself had about 34 per cent of the Saskatchewan share of the United States market.
The Government of Saskatchewan was aware of the course of certain dumping proceedings in the United States affecting Saskatchewan potash, and was concerned about the damaging effect that a tariff levy would have on exports from Saskatchewan. Equally, the authorities in the State of New Mexico, where potash is also produced, were concerned about loss of tax revenue from declining revenues and a federal tariff would not in itself be of any help to them. Both were concerned about overproduction and, in consequence, a drop in world price. There was no doubt that the Potash Conservation Regulations were the product of meetings held in 1969 between representatives of Saskatchewan and New Mexico and were prompted by the economic conditions then affecting the potash market. They were passed on November 17, 1969, under Order in Council 1733/69 and amended on March 8, 1970, under Order in Council 404/70.
The Regulations provided for a prorationing scheme to take effect on January 1, 1970. Under this scheme, known as the ABC scheme, each producer was allowed to produce and sell 40 per cent of its productive capacity. Only after every producer in the Province had produced and sold its quota could a producer apply for a supplementary licence to produce and sell an additional amount. As of July 1, 1972, the ABC prorationing scheme was replaced by a flat prorationing scheme, the so-called FP scheme. A floor price established under the ABC scheme as a licensing condition was retained under the FP scheme.
The appellant, having regard to its supply commitments to a Chicago-based co‑operative association, objected to the FP scheme which, based on productive capacities of the various producers and on allocation formulas involving market sharing, would prevent it from fulfilling its commitments unless it obtained supplementary licences. When its allocation for the 1972-73 fertilizer year was short of its contractual obligation, it sought an increase and, on being refused, brought mandamus proceedings to compel the issue of a licence for a production quota that would enable it to meet its contractual commitment. It failed in those proceedings at first instance, in the Saskatchewan Court of Appeal and in this Court. During those proceedings it was advised by a letter of September 20, 1972, from the Deputy Minister that its production schedule for the year commencing July 1, 1972, was out of line with governmental requirements and that it must reduce its monthly production to conform thereto. This the appellant did but on December 11, 1972, it instituted the action which gave rise to the appeal to this Court.
The letter of September 22, 1972, calling on the appellant to reduce its production or to face the possibility of a cancellation of its mineral lease, was the primary basis of the claim for damages for the tort of intimidation. The lease included a requirement that the appellant, as lessee, would observe, perform and abide by all obligations imposed upon holders of mineral leases by the Act or regulations thereunder in effect from time to time.
The Mineral Resources Act was amended by 1976 (Sask.), c. 36. The amending Act was passed after judgment had been rendered following the trial, but prior to the judgment of the Court of Appeal. The enactment of s. 11A removed any doubt as to the power of the Minister to cancel a production licence. The ratification and confirmation of the Potash Conservation Regulations removed doubt as to whether they had been validly enacted under the provisions of the Act. The amending Act also contained a schedule of production of various companies, including the appellant, fixing the limits of production of each such company from January 1, 1970, to June 30, 1976.
Held: The appeal should be allowed in part; the judgment of the Court of Appeal should be set aside on the constitutional issue but should be affirmed in dismissing the claim for damages. The judgment of the trial judge holding that (1) Orders in Council 1733/69 and 404/70, (2) the Potash Conservation Regulations, 1969, (3) the ABC and FP schemes and (4) the directives and licences issued by the Minister and Deputy Minister for implementing the schemes are ultra vires, should be restored.
While it is true that production controls and conservation measures with respect to natural resources in a province are, ordinarily matters within provincial authority, the situation may be different, however, where a province establishes a marketing scheme with price fixing as its central feature. Indeed, it has been held that provincial legislative authority does not extend to the control or regulation of the marketing of provincial products, whether minerals or natural resources, in interprovincial or export trade: see In re Grain Marketing Act, 1931, [1931] 2 W.W.R. 146; Lawson v. Interior Tree Fruit & Vegetable Committee of Direction, [1931] S.C.R. 357; Re Sheep and Swine Marketing Scheme, [1941] 3 D.L.R. 569.
The present case reduced itself therefore to a consideration of “the true nature and character” of the prorationing and price stabilization schemes in question. This Court could not ignore the circumstances under which the Potash Conservation Regulations came into being, nor the market to which they were applied and in which they had their substantial operation. In Canadian Industrial Gas & Oil Ltd. v. Government of Saskatchewan, [1978] 2 S.C.R. 545, this Court, speaking in its majority judgment through Martland J., said that “provincial legislative authority does not extend to fixing the price to be charged or received in respect of the sale of goods in the export market”. It may properly be said here of potash as it was said there of oil that “the legislation is directly aimed at the production of potash destined for export, and it has the effect of regulating the export price since the producer is effectively compelled to obtain that price on the sale of his product”.
Contrary to the opinion of the Court below, the consequence of invalidating the provincial scheme in this case is not to move to the Parliament of Canada the power to control production of minerals in the Province and the price to be charged at the mine. There is no accretion at all to federal power in this case, which does not involve federal legislation, but simply a determination by this Court, in obedience to its duty, of a limitation on provincial legislative power. It is true that (with some exceptions, not relevant here) the British North America Act distributes all legislative power either to Parliament or to the provincial Legislatures, but it does not follow that legislation of a province held to be invalid may ipso facto be validly enacted by Parliament in its very terms. It is nothing new for this Court, or indeed, for any Court in this country seized of a constitutional issue, to go behind the words used by a Legislature and to see what it is that it is doing. It is especially important for Courts, called upon to interpret and apply a constitution which limits legislative power, to do so in a case where not only the authorizing legislation but regulations enacted pursuant thereto are themselves couched in generalities, and the bite of a scheme envisaged by the parent legislation and the delegated regulations is found in administrative directions.
Where governments in good faith, as in this case, invoke authority to realize desirable economic policies, they must know that they have no open-ended means of achieving their goals when there are constitutional limitations on the legislative power under which they purport to act. They are entitled to expect that the Courts, and especially this Court, will approach the task of appraisal of the constitutionality of social and economic programmes with sympathy and regard for the serious consequences of holding them ultra vires. Yet, if the appraisal results in a clash with the constitution, it is the latter which must govern. That was the situation here.
Attorney-General for Manitoba v. Manitoba Egg and Poultry Association, [1971] S.C.R. 689; Carnation Co. Ltd. v. Quebec Agricultural Marketing Board, [1968] S.C.R. 238; Shannon v. Lower Mainland Dairy Products Board, [1938] A.C. 708; Reference re The Farm Products Marketing Act (Ontario), [1957] S.C.R. 198; Reference re Agricultural Products Marketing Act (Canada), Farm Products Marketing Agencies Act (Canada) and The Farm Products Marketing Act (Ontario), [1978] 2 S.C.R. 1198, referred to.
As to the issue concerning the appellant’s claim for damages, the tort of intimidation is not committed if a party to a contract asserts what he reasonably considers to be his contractual right and the other party, rather than electing to contest that right, follows a course of conduct on the assumption that the assertion of right can be maintained. Also, if the course of conduct which the person making the threat seeks to induce is that which the person threatened is obligated to follow, the tort of intimidation does not arise. In the present case the Potash Conservation Regulations made under The Mineral Resources Act prohibited the appellant from exceeding a specified production of potash. By conforming to the requirements of the Regulations, the appellant would not suffer damage and, therefore, the claim for intimidation was not well founded.
A subsequent finding that the Regulations were ultra vires does not mean that there has been intimidation. The conduct of the Deputy Minister in relation to the tort of intimidation must be considered in relation to the circumstances existing at the time the alleged threat was made. The Deputy Minister was then seeking to induce conformity with the prorationing plan which had been created by legislation which it was his duty to enforce. At the time the threat was made, the legislation stood unchallenged. It would be unfortunate, in a federal state such as Canada, if it were to be held that a government official, charged with the enforcement of legislation, could be held to be guilty of intimidation because of his enforcement of the statute whenever a statute whose provisions he is under a duty to enforce is subsequently held to be ultra vires.
Finally, the tort of intimidation is one of intention. There was no evidence here that the Deputy Minister intended to injure the appellant. The correspondence, and particularly the letter of September 20, 1972, made it clear that his purpose was to induce compliance with an existing scheme.
Rookes v. Barnard, [1964] A.C. 1129, distinguished; Hoffman-La Roche & Co. v. Secretary of State for Trade and Industry, [1975] A.C. 295, applied; Roman Corporation et al. v. Hudson’s Bay Oil & Gas Co. Ltd. et al., [1973] S.C.R. 820, referred to.
APPEAL from a judgment of the Court of Appeal for Saskatchewan[1], allowing an appeal from a judgment of Disbery J. wherein it was declared, inter alia, that the Potash Conservation Regulations, 1969, of Saskatchewan and amendments thereto are ultra vires, and wherein damages were awarded to the appellant. Judgment of the Court of Appeal set aside on the constitutional issue and affirmed in dismissing appellant’s claim for damages.
D.K. Laidlaw, Q.C., J.L. Robertson, Q.C., and A.J. Lenczner, for the appellant, Central Canada Potash Co. Limited. T.B. Smith, Q.C., and Barbara Reed, for the appellant, Attorney General of Canada.
G.J.D. Taylor, Q.C., and Gwen Randall, for the respondent.
For the interveners:
B. Flynn, for the Attorney General of Quebec.
A. Reid and B.A. Crane, for the Attorney General of New Brunswick.
M.S. Samphir and D.D. Blevins, for the Attorney General of Manitoba.
W. Henkel, Q.C., and S.G. Fowler, for the Attorney General of Alberta.
J.A. Nesbitt, Q.C., and Margaret Cameron, for the Attorney General of Newfoundland.
Martland, Ritchie, Spence, Pigeon, Dickson and Pratte JJ. concurred with the judgment delivered by
THE CHIEF JUSTICE—This appeal, which is here by leave of this Court, concerns (1) the validity of what I may compendiously refer to as a potash prorationing scheme, established pursuant to The Mineral Resources Act, R.S.S. 1965, c. 50, as amended, and (2) a claim by the appellants for damages against the Government of Saskatchewan for the tort of intimidation by reason of certain circumstances connected with the establishment of the prorationing scheme.
The litigation was initiated by the appellant, which sought a declaration of the invalidity of the prorationing scheme and damages in tort. Disbery J. gave the relief sought, fixing the damages at $1,500,000. On appeal by the Government of Saskatchewan and a claim by the appellant for a variation in the judgment to increase the amount of damages, the Saskatchewan Court of Appeal, in a unanimous judgment delivered by Culliton C.J.S., set aside the judgment at trial in its entirety and, consequently, dismissed the notice to vary. On leave being given to come here, an order was made for notice to be given of the following constitutional question and an associated evidentiary question:
1. Is the potash prorationing scheme constituted by the Province of Saskatchewan pursuant to the Potash Conservation Regulations 1969 numbered 287/69, and the Orders in Council O/C 1733/69 and O/C 404/70 enacting and amending them, and the Potash Allocation Formula effective January 1, 1970, and the Minister’s Directive PCD‑1, Potash Prorationing, effective July 1, 1972, enacted pursuant to the Mineral Resources Act, R.S.S., 1965, Chapter 50, and the various Notices, Directives, Ministerial Orders and Licenses issued from time to time by the Minister of Mineral Resources for Saskatchewan and his Deputy implementing the schemes, ultra vires the Province of Saskatchewan?
2. Is extrinsic evidence admissible in this case in relation to the constitutional issue and, if so, to what extent and of what kind?
The Attorneys-General of Quebec, New Brunswick, Manitoba, Alberta and Newfoundland intervened to support the judgment in appeal. The Attorney-General of Canada had become a co-plaintiff at the trial in respect of the constitutional question raised by the action and remained a party to the proceedings in the Saskatchewan Court of Appeal and in this Court.
The Mineral Resources Act, R.S.S. 1965, as amended, through which the Potash Conservation Regulations, 287/69, were promulgated, is skeleton legislation, giving very wide authority to the responsible Minister and wide regulation-making power to the Lieutenant‑Governor in Council. The Act itself is not challenged. It is common ground that at the time the 1969 Regulations were passed almost all of Saskatchewan-produced potash was sold outside the Province and that the larger part of the production, about 64 per cent, was marketed in the United States. Saskatchewan production, moreover, represented almost half, about 48 per cent, of the United States potash market. The appellant company itself had about 34 per cent of the Saskatchewan share of the United States market. So far as forecasts of future world con- sumption can be based on present knowledge and on scientific assessment of known or proven reserves, evidence was given that Saskatchewan could supply world demand for potash for almost 1,500 years or for even a longer period. The trial judge relied on this evidence for finding that the Potash Conservation Regulations could not be said to be a response to threatened shortages of the mineral or to conservation needs.
Potash is also produced in the State of New Mexico but production and quality, according to the evidence, did not match that of Saskatchewan and reserves were, apparently, minimal. There was concern about the penetration of Saskatchewan potash into the United States market, and a dumping inquiry was instituted in the United States not only in respect of Canadian exporters but as well in respect of French and West German exporters. A finding of dumping was made by the United States Bureau of Customs in August of 1969 and the matter was referred, as required by United States law, to the United States Tariff Commission, which fixed a hearing for October 7, 1969. Although the hearing commenced on that date and a determination was obligatory by the end of November 1969, in the events that happened the tariff inquiry did not prove damaging to Saskatchewan interests, although a determination of injury and the likelihood of continuing injury was made on November 21, 1969. The Government of Saskatchewan was aware of the course of proceedings in the United States affecting Saskatchewan potash, and was concerned about the damaging effect of a tariff levy on exports from Saskatchewan. Equally, the New Mexico authorities were concerned about loss of tax revenues from declining production and a federal tariff would not in itself be of any help to them. Both were concerned about overproduction and, in consequence, a drop in world price.
In the result, a meeting took place in Santa Fe, New Mexico, on October 6, 1969, between the then Governor of New Mexico and the then Premier of Saskatchewan and their respective associates, at which time a draft of proposed Saskatchewan potash regulations was produced and considered. A follow-up meeting took place in Regina, Saskatchewan, on October 17, 1969. There is no doubt that the Potash Conservation Regulations, 1969, were the product of the two meetings and were prompted by the economic conditions that I have described. They were passed on November 17, 1969, under Order in Council 1733/69 and amended on March 8, 1970, under Order in Council 404/70. I will consider the proration scheme established by the Regulations and the amendment thereof after I deal with the position of the appellant Central Canada Potash Co. Limited in respect of its involvement in the potash industry.
The appellant was born of an agreement between Noranda Mines Limited and Central Farmers Fertilizer Company, a Chicago-based co-operative association which supplied large quantities of fertilizer to numerous co-operative associations and thus to farmer members thereof. Noranda had done exploration work in Saskatchewan in respect of potash mining and proposed to establish a mine if it could find a secure market for the production. It had extensive mineral rights in Saskatchewan under freehold interests and under Crown lease and held options to buy additional mineral lands. Its agreement with Central Farmers, dated July 1, 1965, provided that it would establish a mine with ancillary facilities, with a production capability of not less than one million tons of muriate of potash annually. Central Farmers agreed to buy half a million tons annually over a period of twenty-years, with the right to increase its purchases to one and one-half million tons annually. The price fixed for the purchases was the prevailing commercial price less 15 per cent. Central Farmers was given the option of requiring that the mine and facilities be conveyed to a new company in which Noranda would have a controlling 51 per cent interest and Central Farmers the remaining 49 per cent. The option was exercised, and the appellant was incorporated and took a conveyance of the mine as a going concern at a price just short of $90,000,000. The Crown lease which Noranda held was assigned to the appellant on July 15, 1970, with the consent of the Saskatchewan Government. The lease covered mineral rights under statutory road allowances and, overall, gave Noranda and later the appellant a continuous ore body running through and connected with its other holdings. I should add that the original agreement between Noranda and Central Farmers was amended on July 1, 1970, and on the same day a novation agreement was made between them and the appellant affirming the obligation to supply potash to Central Farmers and the latter’s obligation to buy. Supply under the agreement began in February 1970.
The provisions of The Mineral Resources Act, which were relied on to underpin the Potash Conservation Regulations and orders and directives made thereunder, were ss. 3, 9 and 10, reading as follows:
3. The purposes of this Act are:
(a) to promote and encourage the discovery, development, management, utilization and conservation of the mineral resources of Saskatchewan;
(b) to regulate the disposition of Crown mineral lands;
(c) to protect the correlative rights of the owners of surface rights and of mineral rights;
9. The minister may do such things as he deems necessary to discover, develop, manage, utilize and conserve the mineral resources of Saskatchewan and, without limiting the generality of the foregoing, the minister may:
(a) make geological or mineralogical surveys or examinations of Saskatchewan and carry on such operations as may be considered necessary in connection therewith;
(b) make and carry out investigations, examinations, experiments, tests and analyses of or pertaining to minerals for the purpose of determining their scientific and economic value;
(c) prepare and publish such reports, diagrams, drawings, maps and plans in connection with the mineral resources of Saskatchewan as he deems necessary;
(d) establish and operate facilities for instruction and training in the art of conserving, developing, exploring for or prospecting for minerals;
(e) grant assistance upon such terms and conditions as he deems advisable to promote exploration for, development, management, utilization and conservation of the mineral resources of Saskatchewan;
(f) prescribe the fees to be paid for any information or services and reports, maps and other documents furnished by the department to the public; and
(g) purchase and sell or otherwise dispose of or utilize any product of the mineral resources of Saskatchewan.
10. (1) The Lieutenant Governor in Council may make such regulations and orders not inconsistent with this Act as he may deem necessary for the purpose of carrying out its provisions according to their obvious intent or to meet cases that may arise and for which no provision is made therein and without limiting the generality of the foregoing may make regulations and orders:
…
(k) governing the issue of licences under this Act;
(l) prescribing, in cases not otherwise provided for, penalties for the breach of any regulations or orders made under this Act;
(m) prescribing forms to be used under this Act;
(n) requiring from the holders, owners, occupiers or operators of mines or mineral lands, reports and statements respecting the work and operations conducted at any time or on any mineral land;
…
(3) Every regulation and order made under this section shall be deemed to be a part of this Act.
The Potash Conservation Regulations, passed on November 17, 1969, provided for a prorationing scheme to take effect on January 1, 1970. Sections 2, 3, 4 and 5 of the Regulations, so far as relevant to these proceedings, were as follows:
2. (1) On and after January 1, 1970, the production of potash is prohibited unless a producing licence authorizing the production is granted by the minister which licence shall be in such form and subject to such conditions as the minister may determine.
(2) The minister may issue a producing licence to produce potash in compliance with these regulations in such form as the minister may determine and subject to such conditions as may be stated in the licence, or he may refuse to grant a producing licence. 3. (1) On and after January 1, 1970, the disposal of potash is prohibited unless a licence authorizing the disposal is granted by the minister.
(2) The minister may issue a licence to dispose of potash in compliance with these regulations and subject to such conditions as may be stated in the licence, or he may refuse to grant a disposal licence.
4. (1) For the proper utilization and conservation of potash and for the protection of correlative rights of the owners of mineral rights the minister may, if he deems it advisable, order that a public inquiry may be held at such time and at such place as he may designate for the purpose of determining any or all of the following:
(a) a fair and reasonable price to the producer of potash, free on board at the potash plant gate in Saskatchewan, for all potash produced in the province;
(b) the productive capacity of each potash mining property;
(c) a proportionate share of production, if any, that may be allocated to each potash mining property required to meet the market demand for potash;
(d) the demand for potash or potash products for reasonable current requirements and current consumption or use within and outside the province, together with such amounts as are reasonably necessary for building up or maintaining reasonable storage reserves and working stocks of potash and potash products;
(e) any other matter that the minister deems advisable.
…
5. (1) Where the minister decides that it is advisable to limit the total amount of potash that may be produced in the province he shall allocate the allowable production among the potash mining properties introduction in the province and may, in determining such allocation, consider the following factors:
(a) basic allowables;
(b) definite and bona fide requirements for disposal;
(c) inventory requirements;
(d) any other matter that the minister deems advisable.
(2) The minister may amend, revise or vary the allowable production allocated to any or all potash mining properties in production, with or without an inquiry as he deems advisable, to meet changing conditions or circumstances. The requirement of a disposal licence was abandoned by an amending Regulation 64/70 of March 18, 1970, which repealed s. 3 and substituted a new s. 2 and a new s. 4(1)(a). These amendments were as follows:
2. (1) The production of potash is prohibited unless a producing licence authorizing the production is granted by the minister which licence may be issued on such basis and in such form and subject to such conditions as the minister may deem appropriate to each proposed production.
(2) Where the minister is satisfied that the production proposed by the applicant for a licence to produce is consistent with sound utilization and conservation principles relating to the potash resources of the province he may issue a producing licence, and where not so satisfied he may refuse to issue such licence.
4. (1) …
(a) the economic viability of the proposed production, including such things as cost of production, method of production, reserves for control of pollution, methods of mining, costs of transportation and sale price.
On November 25, 1969, shortly after the Potash Conservation Regulations were promulgated and pursuant thereto, the responsible Minister sent the following notice to Saskatchewan potash producers:
NOTICE UNDER THE POTASH CONSERVATION
REGULATIONS, 1969
To all potash producers in Saskatchewan:
Notice is hereby given that I, Alexander C. Cameron, Minister of Mineral Resources, do hereby declare that a fair and reasonable price to the producer of potash, free on board, at the potash plant in Saskatchewan, shall be not less than thirty-three and three‑quarters cents (33.750) Canadian per unit of potassium oxide equivalent for the purpose of:
(a) determining the demand for potash or potash products for reasonable current requirements, and current consumption or use within and without Saskatchewan on and after January 1, 1970; and
(b) prorationing the production and disposal of potash and potash products in Saskatchewan commencing January 1, 1970; and
(c) issuing producing licences and disposal licences in Saskatchewan. The minimum producer price was thus fixed, for the stated purposes, clause (a) of the notice referring to “current consumption or use within and without Saskatchewan”.
The foregoing notice was followed by a Ministerial directive of February 24, 1970, which elaborated on the minimum or floor price fixed by the notice. It sought to outlaw any device or arrangement that would reduce the established floor price. The directive is reproduced in full in the reasons of the Saskatchewan Court of Appeal, and I reproduce it here as well:
On November 25, 1969, the Minister of Mineral Resources issued a directive concerning the minimum selling price of thirty-three and three-quarter cents (33.75¢) per unit of potassium oxide equivalent, free on board, at the plant gate in Saskatchewan, effective January 1, 1970.
In order that there is a common understanding of the interpretation and meaning of ‘33.75¢ Canadian per unit K2O equivalent f.o.b. Saskatchewan plant’, the Department issues the following clarification:
1. MARKETING STRUCTURE—i.e.
(a) sales by producers with integrated operations for production, marketing, sales and distribution; and
(b) sales by producers through third party or independent brokers, distributors, wholesalers, dealers and other agents.
The established floor price is the minimum net selling price for potash f.o.b. Saskatchewan plant and no discount, commission or other consideration will be allowed out of the established floor price, whether the producer has an integrated operation or employs third party or independent contractors for its sales and distribution.
2. FREIGHT EQUALIZATION
The practice of absorbing freight costs by way of freight equalization is in effect a discount and if such practice reduces the established floor price, it will not be permitted.
3. NATURE OF DISCOUNT AGREEMENTS AND ARRANGEMENTS:
(a) for North American dealers;
(b) for offshore dealers.
No discounts that reduce the established floor price will be allowed in either case. 4. DISCOUNTS ON CASH SALES
The established floor price shall not be reduced by discounts for cash. The floor price is based on cash sales or payment within 30 days of sale. No credit sales for over 30 days that in effect reduce the established floor price will be permitted.
5. ARRANGEMENTS BETWEEN PRODUCER AND PRODUCER TO MEET THE OVERALL PRORATED ALLOWABLES
Subject to prior application to, and approval of, the Minister of Mineral Resources, internal arrangements may be made by a Saskatchewan potash producing company to meet its market requirements from the allocated allowable of another Saskatchewan producer, without regard to the established floor price in so far as such transfer of allowable between one Saskatchewan producer to another Saskatchewan producer is concerned, provided that the sale price of potash so produced complies with the requirements of the established floor price when such potash moves out of Saskatchewan.
6. APPLICATION OF FLOOR PRICE TO ALL GRADES OF POTASH
The established floor price applies to potassium oxide equivalent content, regardless of grades of potash.
7. UNDERESTIMATED COSTS FOR FREIGHT, STORAGE, CONTAINER EXPENSES, ETC.
The department will not make any allowance for errors, miscalculation of unexpected increases in freight, storage and other costs on sales of potash, whether for present or future delivery. Sales contracts must so provide that the floor price for potash f.o.b. Saskatchewan plant will not be violated.
8. CONSIGNMENT SALES
All sales on consignment will be treated as the consignor’s (seller’s) inventory and must comply with the floor price requirement.
9. COST OF LEASING FREIGHT CARS, DEMURRAGE, UNLOADING, ETC.
The cost of leasing freight cars, demurrage, unloading, etc. cannot be charged against the established floor price but shall be over and above the floor price.
The prorationing scheme first introduced under the Regulations, and known as the ABC scheme, is described in the reasons of the trial judge, as follows:
The ingredients of the formula for prorationing production among the producers were: (1) the productive capacity of each mining property; (2) the estimated demand for Saskatchewan potash or potash products for reasonable current requirements and consumption or use within and outside the Province; and (3) the amounts of potash and potash products each producer reasonably required to keep in storage for working stock and for reserves. The ABC scheme allowed each producer to produce and sell 40% of its productive capacity and no more until every mine had produced and sold this basic quota. Producers holding orders in excess of this amount could purchase potash from mines that had not yet reached their 40% quota. After every producer in Saskatchewan had produced and sold its quota, then and only then, producers that still had unfilled orders could apply to the Minister for supplementary licences to produce and sell additional amounts. The Minister in his discretion could grant or refuse any such application. …The scheme allowed each producer additional production for storage and reserve purposes up to 55% of the producer’s storage capacity.
A similar description is found in the reasons of the Saskatchewan Court of Appeal.
Producing and disposal licences were granted to Noranda under date of December 12, 1969, to take effect from January 1, 1970, for a term of three months. The licences authorized the production of 77,440 short tons (K2O equivalent) of potash or potash products, and required reporting to the Minister of production of potash or potash products in accordance with the Potash Conservation Regulations and also required compliance with all applicable Acts, regulations, orders and directives governing, inter alia, production, conservation, processing, disposal, marketing, supplying, delivering and storage of potash and potash products. The disposal licence was in similar terms save that it referred to disposal rather than production. A second producing licence was granted to Noranda on February 24, 1970, for a four month term from March 1, 1970, and it provided for the production of 120,294 short tons. It was made a condition of the licence that the floor price (previously referred to herein) should be observed. A disposal licence on the same terms was granted in respect of 116,056 short tons of potash. Shortly thereafter, the Government dispensed with disposal licences. The trial judge in his reasons referred to a statement of the then responsible provincial Minister that this was done “in compliance with the request of the Department of Justice of the Federal Government”. The Minister advised producers of the elimination of disposal licences in a letter of March 24, 1970, which read in part as follows:
Essentially the amendments dispense with the provisions for disposal licences and prorationing and marketing will be maintained through the issuance of producing licences. Other than this change, the same rules and procedure that are now in effect will apply. The form of the producing licence may have to be changed to comply with the present procedure in order to permit production only for the purpose of fulfilling commitments for the sale of potash at not less than the established floor price.
The Department will be pleased to explain any questions arising from the amendments to The Potash Conservation Regulations, 1969.
On July 14, 1970, the appellant company, which had by then come into existence, was given a twelve-month producing licence effective from July 1, 1970, for the production of 362,242 short tons, subject to certain quarterly limitations on the scale of production. As before, the licence was conditioned on observance of the minimum price previously fixed. A producing licence for a further twelve-month period from July 1, 1972, was granted on June 20, 1972, authorizing the production of 442,647 short tons of K2O equivalent of potash or potash products. The licensee was required to submit a schedule of its planned production and the previous licence condition of observance of the floor price was replaced by another formula reading as follows: 7. Other provisions: This production licence is valid solely upon the condition that the production of potash is only for the purpose of fulfilling commitments that are made for the sales of potash which are in the opinion of the Minister or to the satisfaction of the Minister at not less than the basic price established by the Minister, unless otherwise specifically authorized by the Minister.
As of July 1, 1972, however, the ABC prorationing scheme was replaced by the so-called FP scheme, described as a flat prorationing scheme. Plans for the replacement were indicated in a program review dated March 2, 1972, sent to each producer. A directive of June 30, 1972, set up an allocation formula in these words:
Each producer’s share of production to meet the market demand for Saskatchewan potash will be allocated according to a proration formula based solely on the productive capacity of each producing potash pla