AECL sued for $1.6 billion

OTTAWA, CANADA - Life sciences company MDS Inc. has launched a $1.6-billion lawsuit against Atomic Energy of Canada Ltd. and the federal government after a decision to cancel a 12-year-old project to build new nuclear reactors for producing medical isotopes.

MDS claims that AECL, encouraged by Ottawa, breached its contract. The company is also claiming damages for negligence and has accused the federal government of "interference with economic relations."

In May, AECL announced that it would cancel its Maple project, an effort to bring two new medical isotope reactors into service that would replace the company's half-century old NRU reactor at facilities in Chalk River.

MDS Nordion, a unit of publicly traded MDS, sells about two-thirds of the world's medical isotopes used to diagnose and treat a variety of diseases. Its primary source of supply is AECL's NRU reactor, which has given the company a near-monopoly grip on supply into the United States.

The reactor was shut down last November for routine maintenance after regulators found problems with an emergency backup system. This led to a prolonged outage that put global isotope supply at risk. In a controversial move, Ottawa bypassed the nuclear regulatory by ordering the reactor back in service.

MDS maintains it was never consulted prior to AECL's decision to cancel the problem-plagued Maple project. "We have had to resort to taking these steps to protect the interests of patients, the nuclear medicine community, our shareholders and our customers," said Stephen DeFalco, president and chief executive of MDS, in a statement.

"We are disappointed that AECL and the government decided to abandon the Maple project without establishing a clear plan for the long-term supply of critical medical isotopes."

MDS said the purpose of the lawsuit is to have AECL honour its commitment to provide a 40-year supply of isotopes.

The Maple project began in 1996 with plans to develop two new reactors to replace the NRU by 2000, at a planned cost of $145 million. MDS said by 2005 the new reactors still weren't finished even though it had invested more than $350 million in the project. This led to a lawsuit, after which AECL agreed in 2006 to have the Maple reactors operating by October 2008.

Ottawa, supporting AECL's move to cancel the project in May, said at the time that the reactors had been "plagued since its inception with problems."

The amount of damages MDS is seeking through the lawsuit far exceeds the estimated market value of AECL, which is currently under a strategy review that could result in the privatization of the crown corporation.