Watson Island remains the subject of a lawsuit between the City of Prince Rupert and the Watson Island Development Corporation.

Details emerge around failed Watson Island sale: Lax Kw’alaams ‘threatened’ city, remediation tops $50 million

The Lax Kw'alaams band "threatened conflict" if the City of Prince Rupert tried to sell the Watson Island to anyone other than them.

The Lax Kw’alaams band “threatened conflict” if the City of Prince Rupert tried to sell the Watson Island to anyone other than them.

That is just one of the new pieces of background related to the former pulp mill site contained in a court document filed by the city on May 27 in response to a lawsuit filed by the Watson Island Development Corporation (WatCo).

The filing claims the band “threatened” the city on or about Dec. 1, 2009, after it rejected a number of offers to purchase the land back in November, 2009, including an offer from a partnership consisting of the North American Indian Charter of Shipping and Trade and the Lax Kw’alaams Band. Just two months after receiving the “threatened conflict” the city began negotiating with the same partnership to sell Watson Island for $13.2 million, but that partnership terminated in July 2010.

One month later, exclusive negotiations began for the sale of the site to a partnership between the Lax Kw’alaams and Metlakatla First Nations and the Prince Rupert Port Authority. More than a year later, the city claims Chief Councillor Garry Reece wrote a letter indicating the port authority was no longer a part of the joint venture, but that theCoast Tsimshian had entered into a memorandum of understanding with Colonial Coal to develop the land and wished to continue negotiating exclusively. That partnership was joined by Vitol inc. on July 13, 2012 to form WatCo.

The WatCo conditional offer included a purchase price of $5 million, payments to the city to maintain the site and the company providing $15 million toward the cost of remediation, with the city receiving indemnity form the province in relation to remediation costs. A subsequent definitive agreement in August included a condition that WatCo prepare a remediation plan tat is acceptable to the provincial government.

That agreement was initially scheduled to end in November, but was extended to February, 2013, as WatCo said it needed more time to have its remediation plan approved. It was during this time that WatCo revealed the full cost to remediate the site were closer to $50 million to $60 million and the company proposed that SunWave Forest Products and the Province of B.C. pay the balance after the $15 million from WatCo had been used up. Also during this time, Vitol Inc. left the partnership and WatCo began looking for other investors.

Negotiations continued even as the city settled its court case with Sun Wave Forest Products in August, 2013 and in September the city told WatCo it had set a deadline of Jan. 31, 2014 for the company to complete the conditions of of its offer and, if that was not accomplished, the city would seek interest from other parties. On Dec. 27, the parties began negotiating a non-binding term sheet on an option to purchase for $5.7 million. But when the Jan. 31 deadline came and went, the city said there was no agreement in place and an extension to Feb. 11 was granted. On Feb. 11, with no term sheet agreed to, city council voted to terminate the exclusivity portion of any agreement with WatCo and no longer accept payment for land maintenance. On Feb. 14, WatCo sent along an executed term sheet sent, but the city said it never “proposed or agreed that any documents were required on February 14” and that “it ever accepted or agreed to the WatCo February 12 term sheet”. While WatCo said it understood the deadline to be Feb. 25, the city says that is not the case.

In considering the draft option agreement on March 17, council voted to reject it.

In a statement regarding the suit filed by WatCo, the city notes the company never obtained approval from the province for a remediation plan, the province did not agree to indemnify the city from any environmental claims related to the site and did not approve the Feb. 12 term sheet or the draft option agreement. As well, the city denies any oral exclusivity agreement as outlined in WatCo’s filings. As for damage to the company, the city said it fulfilled all of its obligations while receiving payment for land maintenance including not discussing the sale with others, not encumbering the lands and providing access.

“The city specifically denies that WatCo has suffered any loss or damage, as alleged or at all,” reads the filing.