Court File and Parties

COURT OF APPEAL FOR ONTARIO DATE: 20220307 DOCKET: C69486

Rouleau, van Rensburg and Roberts JJ.A.

BETWEEN

Crosslinx Transit Solutions General Partnership and Crosslinx Transit Solutions Constructors Applicants (Respondents)

and

Ontario Infrastructure and Lands Corporation, as representative of the Minister of Economic Development, Employment and Infrastructure, as representative of Her Majesty the Queen in Right of Ontario and Metrolinx Respondents (Appellants)

Counsel: Sharon Vogel, Peter Wardle, Jesse Gardner and Cheryl Labiris, for the appellants Matthew Sammon, Andrea Wheeler and Jacqueline Chan, for the respondents

Heard: January 6, 2022 by video conference

On appeal from the judgment of Justice Markus Koehnen of the Superior Court of Justice dated May 17, 2021, with reasons reported at 2021 ONSC 3567.

REASONS FOR DECISION

Overview

[1] This is an appeal of a judgment in application proceedings that involved the interpretation and allegations of the breach of a complex project agreement respecting the design, construction, and maintenance of a large-scale public infrastructure project, the Eglinton Crosstown Light Rapid Transit line (“Crosstown LRT”) in Toronto (“the Project Agreement”), in the context of the effects of the COVID-19 pandemic. The appellants represent agencies of the Crown who commissioned the project. The respondents are a consortium of four of Canada’s largest and most sophisticated construction companies that are building the project. The project is in its construction phase.

[2] At issue in the appeal is whether the application judge erred in concluding that s. 62.1(c) of the Project Agreement was triggered such that the parties were required to engage in a Variation Enquiry, a procedure provided for under the Project Agreement that could result in an extension of the time the respondents have to substantially complete the Crosstown LRT.

[3] The application judge granted judgment declaring that the COVID-19 pandemic was an “Emergency” under the relevant terms of the Project Agreement; that the appellants had required compliance with “additional or overriding procedures in response to the COVID-19 pandemic to protect public health and worker safety”; and that the appellants had a contractual obligation to provide the respondents with a Variation Enquiry. The application judge concluded that the appellants had notified the respondents by means of a March 25, 2020 email that they required compliance with additional and overriding COVID-19 health and safety procedures.

[4] The appellants submit, among other things, that the application judge made a palpable and overriding error in finding that s. 62.1(c) had been triggered by the March 25, 2020 email, which was an internal email that was not directed to the respondents. They also assert that the application judge erred in his interpretation of the Project Agreement by failing to conclude that the respondents had assumed the risks of additional health and safety measures required by the pandemic in their contractual obligation to comply with “Applicable Laws”, a defined term in the Project Agreement; and in their obligation to prepare and to follow an Emergency Response Plan.

[5] For their part, the respondents disagree that the application judge erred in finding that s. 62.1(c) was triggered. They say that there was no extricable error of law in the application judge’s interpretation of the Project Agreement, nor did the application judge make a palpable and overriding error of fact in concluding that s. 62.1(c) had been triggered by the appellants. The respondents submit that to the extent that the application judge erred in his characterization of the March 25 email, this was not an overriding error because there was other evidence to support this conclusion. The respondents argue that, in any event, if the appellants did not invoke s. 62.1(c), their failure to do so was in breach of their obligation to exercise their contractual discretion in good faith. In addition, they rely on the doctrine of indivisibility of the Crown to argue that government-mandated requirements constituted “additional and overriding requirements” of the appellants under the Project Agreement.

[6] For the reasons that follow, we allow the appeal, set aside the judgment of the application judge and remit the application for a rehearing.

Brief factual background

[7] The Crosstown LRT project involves the construction and maintenance of a 19-kilometre light rapid transit line of which 10 kilometres will be underground. At the time of the application in the court below, the project was in its construction phase and employed 1,500 people.

[8] The Project Agreement calls for the construction to be completed by a substantial completion date as defined in Schedule 1 to the Project Agreement (“Substantial Completion Date”). [1] There are significant penalties if the respondents do not meet the Substantial Completion Date. The Project Agreement contains provisions that allow the respondents in certain prescribed circumstances to claim extensions of time and compensation.

[9] One of the prescribed circumstances is in the case of an “Emergency”, which is defined by the Project Agreement to include “any situation … (b) which gives rise to an emergency, as determined by any statutory body…”. Section 62.1 of the Project Agreement provides as follows:

62.1 Emergency

(a) From Financial Close until Substantial Completion Date, upon the occurrence of an Emergency, Project Co shall comply with the Emergency Response Plan.

(b) From and after Substantial Completion Date, upon the occurrence of an Emergency, Project Co shall comply with its Emergency Response Plan in accordance with the Output Specifications.

(c) If, in respect of any Emergency, HMQ Entities notify Project Co that they require compliance with any additional or overriding procedures as may be determined by HMQ Entities or any other statutory body, then Project Co shall, subject to Schedule 22 - Variation Procedure (if compliance with such procedures constitutes a Variation), comply with such procedures (whether such procedures are specific to the particular Emergency or of general application and on the basis that such procedures shall take precedence to the extent that they overlap with the procedures mentioned in Section 62.1(a) or (b). [2]

[10] The parties executed the Project Agreement in 2015. Delays ensued prior to the outbreak of the COVID-19 pandemic and the respondents invoked the processes under the Project Agreement to address the delays. By the time the Ontario government declared a state of emergency because of the global COVID-19 pandemic in March 2020, the project was already about a year behind schedule.

[11] It is common ground that the Ontario government declared construction of public infrastructure projects to be an essential service that could continue to operate notwithstanding the wholesale shuttering of many businesses. However, significant health and safety procedures were imposed. These included social-distancing and limiting the number of workers who could attend at a worksite.

[12] The respondents took the position in their correspondence with the appellants that the COVID-19 pandemic was an Emergency that required them to implement additional or overriding procedures that slowed down construction. They urged the appellants to declare an emergency pursuant to s. 62.1(c) of the Project Agreement, to direct the respondents to take “additional and overriding procedures” to protect health and safety pursuant to s. 62.1(c) of the Project Agreement, and thereby initiate a Variation Enquiry under Schedule 22 of the Project Agreement in connection with the additional and overriding procedures.

[13] The appellants refused to declare an emergency. They took the position that declaring an emergency was unnecessary given that the province had already done so. The appellants advised the respondents in a letter dated April 21, 2020 that “[a]t this point, [the appellants] do not require that [the respondents] implement additional or overriding measures in addition to those presently being undertaken by [the respondents]” in order to comply with their obligations as a Constructor and Employer under the Occupational Health and Safety Act, R.S.O. 1990, c. O.1. The appellants also reminded the respondents that they were “required to comply with all of [the respondents’] obligations under the Occupational Health and Safety Act … and the guidance of public health authorities and local, provincial, and federal governments.”

[14] The respondents invoked the dispute resolution procedures under Schedule 27 of the Project Agreement. They alleged that the appellants did not act in good faith in refusing to declare an emergency under s. 62.1(c) of the Project Agreement. They sought remedies, including a determination that the COVID-19 pandemic is an emergency under the Project Agreement and an order that the appellants direct the respondents to take additional or overriding procedures. The dispute resolution procedures did not resolve the dispute.

[15] The respondents then commenced an application in the Superior Court seeking declarations regarding their rights under the Project Agreement, including that (i) the COVID-19 pandemic is an Emergency under the Project Agreement; (ii) the appellants had breached their contractual obligations including their obligation to exercise their contractual discretion reasonably and in good faith by (1) refusing to acknowledge that the pandemic is an Emergency and (2) failing to direct them to take additional and overriding procedures under s. 62.1(c) of the Project Agreement; and (iii) the appellants have a contractual obligation to provide them with a Variation Enquiry.

Judgment

[16] The appellants brought a preliminary motion seeking a stay of the application on the basis that the Project Agreement called for litigation to be postponed until after “Substantial Completion” [3]. The application judge refused the stay, and the appellants’ motion for leave to appeal this order was denied by the Divisional Court: Crosslinx Transit Solutions General Partnership v. Ontario Infrastructure and Lands Corporation, 2021 ONSC 5905.

[17] There was considerable affidavit evidence filed on the application. The deponents were cross-examined, and documents were marked as exhibits, resulting in a record exceeding 5,000 pages. The application judge, after considering the evidence, granted a declaration that (i) the COVID-19 pandemic is an Emergency under the Project Agreement (although the appellants in their communications with the respondents had refused to declare an emergency, they ultimately conceded that this part of s. 62.1(c) was met); (ii) the appellants had required compliance with additional or overriding procedures in response to the pandemic to protect public health and worker safety; and (iii) the appellants had a contractual obligation to provide a Variation Enquiry under the Project Agreement.

[18] The application judge did not consider it necessary to address the parties’ arguments respecting the principles of good faith and the indivisibility of the Crown. Rather, his conclusion was based on his finding that, by their email of March 25, 2020, the appellants had notified the respondents under s. 62.1(c) that they required compliance with anticipated government construction protocols. The application judge concluded that, when the Ontario government released a workplace health and safety protocol on March 29, 2020 (“the March 29 protocol”), its provisions constituted “additional and overriding procedures”. Responding to the appellants’ argument that such measures were part of the Applicable Law with which the respondents were bound to comply, the application judge concluded that the construction protocols, while issued by the government, were not legally binding. He found that it was “difficult” to hold that the protocols fell within the definition of “Applicable Law”.

Issues and Analysis

[19] The appellants raise several grounds of appeal. They assert that the application judge made a palpable and overriding error that the internal March 25, 2020 email notified the respondents under s. 62.1(c) that they required compliance with additional or overriding procedures. They also contend that the application judge erred in focusing on the March 29 protocol, which at its highest prescribed “best practices” and not mandatory measures. They argue that the application judge made several errors in his interpretation of the Project Agreement with respect to the parties’ contractual allocation of risk, and in failing to give effect to the respondents’ obligation to comply with Applicable Law.

[20] In our view, to determine the appeal, it suffices to consider only the question of whether the application judge made a palpable and overriding error in finding that the appellants had, by their March 25, 2020 email, actually notified the respondents under s. 62.1(c) that they required compliance with additional or overriding procedures. For the reasons that follow, we conclude that he did commit such a reversible error and that the appeal must be allowed.

[21] The standard of review for palpable and overriding error is well-established. In R. v. Clark, 2005 SCC 2, [2005] 1 S.C.R. 6, at para. 9, the Supreme Court, relying on a long line of decisions including Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, articulated the standard in the following way:

Appellate courts may not interfere with the findings of fact made and the factual inferences drawn by the trial judge, unless they are clearly wrong, unsupported by the evidence or otherwise unreasonable. The imputed error must, moreover, be plainly identified. And it must be shown to have affected the result. “Palpable and overriding error” is a resonant and compendious expression of this well-established norm. [Citations omitted.]

[22] It is common ground that the application judge’s error was palpable. Quite simply, he clearly and obviously erred in finding that the appellants’ March 25, 2020 email was sent to the respondents. There is no dispute that this email was an internal email that was never directed to or sent to the respondents.

[23] The application judge’s error was also overriding. Central to the application judge’s determination that s. 62.1(c) had been triggered was his finding that the appellants, by the March 25 email, notified the respondents that they required compliance with additional or overriding procedures.

[24] The respondents argue that the application judge’s finding that they were notified as required by s. 62.1(c) can be supported by substituting the March 25, 2020 internal email with the appellants’ April 21, 2020 letter that was sent to the respondents.

[25] There are several difficulties with the respondents’ submission.

[26] First and foremost, the April 21 letter is at best ambiguous. The appellants explain in the letter that they did not require any additional and overriding procedures in addition to those the respondents had already undertaken to comply with their health and safety obligations required by law.

[27] Further and importantly, the respondents never stated in their contemporaneous correspondence with the appellants that the April 21, 2020 letter, or any other letter from the appellants, constituted actual notification under s. 62.1(c). Rather, the respondents repeatedly complained that the appellants should declare an emergency and direct them to implement additional or overriding procedures with respect to the project. This was the primary relief they sought under the Notice of Dispute sent to the appellants on May 11, 2020 and was the thrust of their application and argument before the application judge.

[28] The respondents did not frame their application or arguments before the application judge on the basis that any communication from the appellants constituted actual notice under s. 62.1(c). Rather, the respondents maintained on the application that the appellants had effectively or should be deemed to have notified them because their actions as Crown agencies were indivisible from those of the provincial government that ordered the additional or overriding pandemic procedures or, in the alternative, that the appellants failed to exercise their contractual discretion in good faith.

[29] Finally, the application judge did not consider, nor did the parties make any submissions before us, as to what constitutes notification as required by s. 62.1(c), and whether such notification would constitute notice under s. 61.1(a) of the Project Agreement. For example, no submissions were made before the application judge or before us regarding whether the April 21, 2020 letter (or any other communication) complies with the notice requirements under s. 61.1(a) of the Project Agreement. Section 61.1(a) of the Project Agreement states:

All notices, requests, demands, instructions, certificates, consents and other communications (each being a “Notice”) required or permitted under this Project Agreement shall be in writing (whether or not “written notice” or “notice in writing” is specifically required by the applicable provision of this Project Agreement) and served by sending the same by registered mail, facsimile transmission or by hand…. [Emphasis in original and added.]

[30] The parties’ correspondence contains references to “formal” notices and responses. A “Notice” under s. 61.1 of the Project Agreement must be in writing and delivered by registered mail, facsimile transmission followed by registered mail, or personal service. We have no evidence as to whether the April 21, 2020 letter met these requirements, nor did we have submissions on whether it was required to do so. In these circumstances, we reject the submission that the application judge’s finding that the appellant notified the respondents, as required by s. 62(1)(c), can be upheld by this court simply by substituting the April 21 letter for the March 25 email.

[31] We therefore conclude that the application judge made a palpable and overriding error in determining that the appellants notified the respondents by means of their March 25, 2020 internal email that was never sent to the respondents.

[32] Accordingly, the appeal is allowed, and the judgment is set aside.

Next steps

[33] We decline, however, to dismiss the application, as requested by the appellants.

[34] As the application judge indicated at para. 39 of his reasons, “[t]he nub of the issue between the parties is whether [the appellants] asked or should have asked [the respondents] to implement additional or overriding procedures with respect to the project” (emphasis added), because, he reasoned, had they done so, this would have given the respondents the right to initiate a Variation Enquiry pursuant to s. 62.1(c) of the Project Agreement. Because he determined that by their March 25, 2020 internal email, the appellants had clearly “asked” the respondents to implement additional or overriding procedures, the application judge did not determine whether the appellants “should have asked” the respondents to do so. Specifically, the application judge did not carry out an analysis of the exchanges between the parties, including the April 21 letter, to determine whether s. 62.1(c) had, in effect, been triggered or, in the circumstances should be deemed to have been triggered.

[35] As earlier noted, the respondents’ submission that s. 62.1(c) had effectively or should be deemed to have been triggered is premised on their arguments that the appellants did not act in good faith or that as Crown actors, their actions were the same as the provincial Crown that legislatively mandated the respondents’ compliance with the additional or overriding pandemic health and safety procedures. The application judge did not determine any of these issues but only the issue of actual notice based on the March 25 email.

[36] It is not appropriate for this court to engage in the kind of fact-finding process that would be required to determine these issues. As this court recently observed in Carmichael v. GlaxoSmithKline Inc., 2020 ONCA 447, 151 O.R. (3d) 609, at paras. 129-132, leave to appeal refused, [2020] S.C.C.A. No. 409, while appellate courts have fact-finding powers and the power to make any decision that the judge at first instance could have made under ss. 134(1) and (4) of the Courts of Justice Act, R.S.O. 1990, c. C.43, they are cautious about exercising them. Appellate courts will not make findings of fact if this requires the court to assess credibility, the evidentiary basis needed to draw the necessary inferences is inadequately developed in the record, or where the court cannot reach a fair and just determination of the merits.

[37] With respect to the issues of good faith exercise of contractual discretion and Crown indivisibility, there could be issues of credibility including the reasons for the project delays and the appellants’ refusal to declare an emergency and invoke the Variation Enquiry pursuant to s. 62.1(c). The determination of these issues requires an interpretation of the Project Agreement and a deep dive into the factual matrix surrounding the Project Agreement and the circumstances leading up to the commencement of the present proceedings.

[38] Accordingly, we remit the application for a rehearing.

Disposition

[39] In conclusion, we allow the appeal, set aside the application judge’s judgment and costs order, and remit the application to the Superior Court for directions, if considered necessary or advisable. [4] It will be up to the parties to decide whether they wish to proceed with the rehearing before another judge of the Superior Court or continue with the other previously invoked dispute resolution procedures under Schedule 27 of the Project Agreement.

[40] As agreed, the appellants are entitled to their costs of the appeal in the amount of $60,000, inclusive of disbursements and applicable taxes. If the parties cannot agree on the disposition of the application costs, they may make brief written submissions of no more than two pages, plus costs outlines, within ten days of the release of these reasons.

“Paul Rouleau J.A.”

“K. van Rensburg J.A.”

“L.B. Roberts J.A.”

Footnotes

[1] Under s. 1.566 of Schedule 1 to the Project Agreement “Substantial Completion Date” is defined as “the date on which Substantial Completion is achieved as evidenced by the Substantial Completion Certificate, as such date shall be stated therein.” Section 1.528 of the Project Agreement defines “Scheduled Substantial Completion Date” as September 29, 2021, “as such date may be amended pursuant to s. 40 of the Project Agreement.” For the purposes of this appeal, nothing turns on these different definitions.

[2] In the Project Agreement “Project Co” refers to the respondents, while “HMQ Entities” refers to the appellants.

[3] “Substantial Completion” is defined in s. 1.564 of Schedule 1 to the Project Agreement. Nothing turns on it for the purposes of this appeal.

[4] The proceedings were commenced by way of application under r. 14.05(3)(d) and (h) of the Rules of Civil Procedure. While the application judge, apparently without opposition from the appellants, proceeded to decide the application in a summary fashion, we do not express any view on whether the issues are capable of being determined in a summary procedure, or whether, under r. 38.10 any issue would require a trial. As such it may be appropriate for the parties to seek direction from the court.