The Saskatchewan government has asked a Queen’s Bench court judge to allow a counterclaim lawsuit in the Spudco case.
The government is seeking more than $10 million in damages, said lawyer Fred Zinkhan.
He expected justice Dennis Ball to rule this week.
“If the judge gives us permission to proceed with the counterclaim, we would see the lawsuit expand,” he said.
That means the government and Sask Water would sue the plaintiffs who launched a suit against them in 2000 – Judith River Farms, Coteau Hills Potato Corp., Lake Bend Potato Corp. and New Bridge Potato Corp. – plus Calgary accounting firm Kenway, Mack, Slusarchuk and Stewart.
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Zinkhan said if the case proceeds to trial, the court would have to consider whether the people who sued the government breached their commitments and whether their accountants provided improper information.
The government alleges it was “misled by the plaintiffs and the accountants into making investments they might not have otherwise made,” said Zinkhan.
The government, through Spudco, then a division of Sask Water, built six state-of-the-art storage facilities in the Lake Diefenbaker irrigation area in the late 1990s. The venture lost $28 million, and the sheds were sold at a fraction of their value.
Zinkhan said the government’s counterclaim alleges the accounting firm misrepresented the economic potential of the venture.
“When we decided to go ahead and build them, we relied on financial information that was given to us by LDPC,” said Zinkhan, referring to Lake Diefenbaker Potato Corp., the company that collapsed in 1999. “We might not have gone ahead, or done things differently.”
Zinkhan said these are allegations at this point and the counterclaim would allow evidence to be presented.
Mark Langefeld of Judith River Farms said he doesn’t understand why the government would drag an accounting firm that counts the Calgary Flames among its clients into the legal battle.
“These individuals are accusing one of Calgary’s premier accounting firms,” he said.
Langefeld said the counterclaim will delay the trial, scheduled to begin Oct. 12, and will cost Saskatchewan taxpayers more money.
“I just don’t think that the government understands that we’re going to fight them the whole way,” he said.
Meanwhile, Judith River is trying to purchase facilities the government sold earlier. Langefeld said the company has a deal to buy the fresh-pack plant and a shed at Lucky Lake from Alberta-based Agristar. That company bought the facilities in 2001, but sought court protection from its creditors earlier this year.
According to an affidavit filed April 12 by Agristar president Frank Gatto, a deal likely won’t close until later this summer.
The facilities contain about 11,000 tonnes of potatoes.
“If the Saskatchewan facilities were to be precipitously shut down, the potatoes in storage would flood the market and that would severely impair the operations of the other Agristar corporations,” said the document. “The Saskatchewan potatoes will not be sold until some time in June or July….”
The affidavit also said the Saskatchewan operation was generating cash, not draining it. However, in an earlier affidavit, Gatto said the Lucky Lake processing business was losing a significant amount of money.
“Langefeld said he is concerned about a $750,000 non-interest bearing note the provincial government holds on the Agristar facilities and how that might affect the sale.
“We’re waiting for the court order to see whether the counterclaim goes through. If the government gets their way, we’ll have to deal with that.”
