July 9, 2008 / 12:54 PM / 9 years ago

MDS sues AECL, Canada over reactor cancellation

<p>Natural Resources Minister Gary Lunn stands to speak in the House of Commons on Parliament Hill in Ottawa January 28, 2008. REUTERS/Chris Wattie</p>

TORONTO (Reuters) - MDS Inc said on Wednesday it has filed a C$1.6 billion ($1.58 billion) claim against Atomic Energy of Canada Ltd and the Canadian government for scrapping a reactor project that would have supplied the company with medical isotopes.

MDS, a medical services company, said its claim follows a May decision by the government and AECL to scuttle the Maple nuclear reactor project without giving the company prior notice or offering consultation. MDS sells medical radioisotopes, used in cancer treatment, to hospitals and other health-care providers.

Mississauga, Ontario-based MDS, which also specializes in analytical instruments, molecular imaging and contract research, said it is seeking an order to compel AECL, a government agency with responsibility for nuclear products, to fulfill its 2006 contract to provide a 40-year supply of the isotopes. If not, MDS said it would seek the damages.

“It was our last resort after trying as best we could with conversations to get a resolution here that made some sense,” Stephen DeFalco, MDS president and chief executive, said in an interview.

“But we need them to honor their commitment to finish these reactors and to provide 40 years worth of supply. It’s very important for our patients and it’s very important for our business.”

Maher Yaghi, an analyst at Desjardins Securities in Montreal, said the company had to take legal action now to address long-term supply of the isotopes.

“They have to do what they have to do. This is something that you can’t wait a long time before you start because you know how the court system works, especially if you are suing the government,” Yaghi said.

Natural Resources Minister Gary Lunn said the government would defend itself and AECL against the claim.

“Neither the government nor AECL accept the allegations made in the statement of claim, accordingly we will be taking steps to defend AECL and the (government),” Lunn said in a statement.

In a surprise move in mid-May, AECL said it was halting work on the Maple reactor in Eastern Ontario because of huge cost overruns and other problems. Maple had been designed to replace an aging reactor at Chalk River in Ontario that now supplies isotopes.

The Maple project was to be completed by the year 2000 at a planned cost to MDS of C$145 million. By 2006, the project was still not finished and costs had more than doubled, with MDS’s investment exceeding C$350 million.

The two sides reached a new agreement in 2006 stipulating that AECL would bring the reactors into service by October 2008 and supply 40 years of the isotopes.

“AECL is a commercial entity. AECL signed a commercial contract and that contract has certain rights and obligations as part of that and this is something for the courts to sort out,” DeFalco said.

Worldwide, there are only four commercial producers of the isotopes, with MDS’s Nordion division supplying the most. DeFalco said the company could obtain quantities of the product through backup agreements with these producers.

Yaghi said it’s possible the company may be able to write down the costs it incurred on the Maple project, but it would probably wait until the outcome of the legal battle is clear before it does so.

($1=$1.01 Canadian)

Additional reporting by Louise Egan in Ottawa; Editing by Peter Galloway

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