Saskatchewan tire recycler suing province for $10M over multiple year contract dispute

A Saskatoon, Sask. rubber manufacturer is taking the province to court, claiming millions of dollars in damages for breach of a contract as part of a dispute that's lasted more than two years.

In a lawsuit filed at Court of King's Bench last Friday, Shercom Industries is seeking at least $10 million in damages against the Government of Saskatchewan, the Tire Stewardship of Saskatchewan (TSS), a non-profit provincial regulator, and its chief executive officer Stevyn Arnt.

The statement of claim argues Shercom was unfairly excluded from a request for proposals to award a second tire recycler in Saskatchewan, and argues negotiations were "predetermined and locked into awarding" services to an American based company instead.

The lawsuit also seeks damages against Arnt for a series of claims and comments he's allegedly made over the last two years, which Shercom argues are false statements that caused economic harms meant to shutter the company.

"Shercom further states that in maligning Shercom, excluding it from a tire processing contract, and depriving it of Saskatchewan-sourced processed scrap tires, Stevyn Arnt and/or TSS intended to cause maximum harm to Shercom and put it out of business," the lawsuit reads.

"At all times, TSS has conducted itself in an arrogant, high-handed and shocking fashion, callously indifferent to the economic harm it has caused Shercom."

Shercom began operations just north of Saskatoon in 1993, and for years was the province's only scrap tire recycler, in charge of recycling every used tire purchased in Saskatchewan.

A fire in 2016 nearly destroyed two buildings at Shercom, and left the company with the choice of either moving to another province or investing more than $10 million to rebuild its plant. Months of negotiations with the province ensued before Shercom ultimately built a new recycling plant in 2017.

In 2021, TSS, which is overseen by the Ministry of Environment and oversees the province's tire recycling program, issued a request for proposals seeking a second tire recycler in Saskatchewan, preferably in the southern part of the province. The RFP allegedly said it was seeking a "second processor" and not a "second location." Therefore, Shercom thought it was excluded from the process, according to the lawsuit.

Shercom opposed a second tire recycler because it said the province doesn't produce enough tires to necessitate one, as well as collection zones which Shercom argues "undermines the free market's ability to determine who collects scrap tires," according to the statement of claim.

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The TSS ultimately awarded American-based Crumb Rubber Manufacturers Co. (CRM) as the second processor in December of 2022 after assuring the province a new facility will open in Moose Jaw to handle the southern part of the province, the lawsuit claims.

After losing roughly 40 per cent of the market share last spring, Shercom said it laid off more than 60 workers once months of negotiations with TSS failed and its recycling plant was forced to shut down.

Once the dispute with TSS went public, Arnt said "I think what you're seeing play out is a company that is upset that they've lost their monopoly," in May of 2023 interview with CTV News.

In the lawsuit, Shercom argues it never controlled the supply of recycled tires, the price for servicing and said there were no restrictions preventing another company from applying for a license. However, guaranteeing CRM a "minimum supply of tires created a regional monopoly."

Later that year, Shercom joined with Emterra Group to bid for a new request for proposals for a northern plant. Shercom argues that bid was rejected because CRM was going to build a facility in Saskatoon in 2025 while its rebuilt facility sits idle.

The lawsuit further argues CRM never opened a "state of the art facility" in Moose Jaw as it promised and is instead operating a shredder with one-third the capability of Shercom's shredder to reduce the size of the rubber and ship them out of province. Another portion claims CRM is not producing crumb rubber or products like rubber paving, curb ramps or many other varieties of rubber Shercom used to create.

It also says the TSS began stockpiling scrap tires near Clavet as it works towards getting both of its plants up to full capacity, which Shercom says presents "a looming environmental disaster."

None of these claims have been proven in court.

Last month, Shercom announced it will layoff an additional 79 employees on Dec. 2.

In an email, the province said it was unaware of the legal action filed by Shercom.

Arnt said he has been served the lawsuit but won't be commenting while the matter is before the court.