Court File and Parties

COURT FILE NO.: CV-18-593251-00CL

DATE: 20180731

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: Crosstown Transit Constructors, Applicant

AND:

Metrolinx, Respondent

BEFORE: Wilton-Siegel J.

COUNSEL: Michael Valo and Duncan Glaholt, for the Applicant

Peter Wardle and Sharon Vogel, for the Respondent

HEARD: June 20, 2018

ENDORSEMENT

[1] On this application, the applicant, Crosstown Transit Constructors (“Crosstown”), seeks judgment against the respondent Metrolinx (“Metrolinx”) in the amount of $7,451,662.65 pursuant to the terms of a settlement agreement between the parties described below.

Factual Background

[2] The parties entered into a contract for the construction of the western portion of the Eglinton Crosstown Tunnel (the “Contract”).

[3] Pursuant to the Contract, Metrolinx was required to obtain certain insurance for the benefit of both parties and other subcontractors on the project, referred to as the owner controlled insurance policies (the “OCIP”). The OCIP comprised a builders’ risk (course of construction) policy, a wrap-up liability policy, a pollution liability policy, and two excess policies. Under the OCIP, Metrolinx is the first named insured and Crosstown is an additional insured entitled to the full benefits and protection provided by each policy.

[4] Crosstown completed all of its work on the Project and a certificate of substantial performance of the Contract was issued on November 29, 2016.

[5] After participating in a dispute resolution process required by the Contract respecting five disputes, the parties entered into final settlement of the outstanding matters between them under the Contract.

[6] The terms of the final settlement were set out in a letter dated March 28, 2017 from Metrolinx to Crosstown (the “Letter”). The relevant provisions of the Letter are as follows:

Subject: Settlement of All Remaining Claims Between CTC and Metrolinx Reference: ECLC-15-REC-7540 Contract: ECLC1-15

This letter agreement is to set out the full and final settlement between Metrolinx and CTC of the below terms.

[The Letter then lists and describes the five specific outstanding disputes between the parties.]

The parties agree to the following:

• As settlement of item 1, the parties agree that Metrolinx shall release to CTC the amount $8.5 million dollars which was previously withheld by Metrolinx on payment applications submitted by CTC in 2016; and

• As settlement of item 2, the parties agree that the Contract Price shall be increased by $10,000 dollars; and

• As settlement of item 3, the parties agree that the Contract Price shall be reduced by $31.81 million dollars; and

• As settlement of item 4, the parties agree that the Contract Price shall be reduced by $0.3 million dollars; and

• As settlement of item 5, the parties agree that the Contract Price shall not be adjusted; and

• Except as set forth above, the parties agree that they will bear their own fees, costs and expenses, including expert and attorney’s fees and court costs, if any with the exception of the $50,000 fixed cost of appeal which was determined to be payable by CTC to Metrolinx in the Lederman judgement of November 29, 2016, and take all necessary action to terminate any proceedings with regard to any dispute above. CTC will pay Metrolinx the above stated $50,000.

Following the execution by Metrolinx and CTC of this letter agreement and the full and final release (attached as Exhibit “A” to this letter), the parties shall expeditiously formalize and execute a Contract Change to affect [sic] the terms herein in accordance with the Contract and take all such further action as is necessary to affect [sic] this letter agreement.

[7] The Letter was executed by both parties. In addition the parties executed the release dated March 28, 2017 between the parties contemplated by the Letter (the “Release”). The Release was reciprocal. The relevant terms of the Release by Metrolinx read as follows:

METROLINX, on its own behalf …, hereby irrevocably remise[s], release[s], acquit[s] and forever discharge[s] CROSSTOWN TRANSIT CONSTRUCTORS from any and all claims, actions, causes of action, suits, debts, penalties, indemnities, proceedings, prosecutions, charges, complaints, demands, damages, costs, attorneys’ fees, liabilities, loss or injury, whether at law or in equity, or under the provisions of any statute or regulation, including the Negligence Act and the amendments thereto and/or under any successor legislation thereto and/or under the Rules of Civil Procedure, of whatever nature or kind which [Metrolinx] had or now ha[s], or may have thereafter, against [Crosstown], whether known or unknown or unanticipated, whether existing now or arising in the future, arising from or relating to the Contract as of the date of the execution of this Release (“[Metrolinx’s] Released Claims”). Expressly excluded from [Metrolinx’s] Released Claims are any claims for breach of the Letter Agreement and Release.

THE PARTIES acknowledge that this Release is not intended to, and does not, affect the Parties’ rights and obligations with regard to the insurance policies METROLINX was required to procure and maintain under the Contract (“OCIP Policies”). The Parties further acknowledge and agree that they will take all such action as reasonably necessary to allow each Party to secure any benefits which are or may be due under the OCIP Policies.

IT IS FURTHER AGREED that except as provided herein, the Parties will not make or continue any existing, further or other claim or demand or take or continue any existing, further or other claim or demand or take or continue any existing, further or other proceedings against any other person, firm, partnership, business, corporation or other entity that might claim contribution or indemnity from the other Party, or any one of them, under the provisions of any statute or otherwise, for the matters released herein. Expressly excluded from this provision are any claims, rights, or demands that exist now or may in the future exist under the OCIP Policies as provided for in the Contract.

In this Endorsement, the second paragraph above is herein referred to as the “Insurance Provision”. The Letter and the Release are collectively referred to as the “Settlement Agreement”. It is not disputed that the exclusion from the Release in the last sentence of the first paragraph above of claims for breach of the Letter Agreement and the Release is not engaged by this application.

[8] Section SC3 of the Contract set out the provisions respecting the insurance arrangements between the parties. In addition to providing that Metrolinx shall obtain and maintain a wrap-up liability insurance policy (which is the policy under which the outstanding claims are insured), the Contract provided as follows regarding the responsibility for the deductible amount in respect of claims under that policy:

The Contractor shall, at its own expense be responsible and liable for 100% of the deductibles under the policy on each and every claim, except for claims arising from tunneling as noted below.

In the case of claims arising from tunnelling by Tunnel Boring Machine or Sequential Excavation Method, the deductible shall be $250,000 per occurrence, that is damage in the aggregate to a third party property […].

Upon notification of a claim being made and notwithstanding SC3.1.1, Metrolinx shall, at its sole discretion, be entitled to retain the amount of the deductible in whole or in part from payment to the Contractor as set out in SC3.1.1. Such amount will be applied by Metrolinx in satisfaction of that claim and excess amounts, if any, will be paid to the Contractor in the event and at such time as the claim is settled, dismissed or withdrawn. If more than one contractor is involved, Metrolinx’s insurance representative shall be the sole judge as to how the deductible is appointed.

[9] On March 30, 2017, Crosstown abandoned a motion seeking leave to appeal a judgment of Lederman J. respecting one of the five matters specifically referred to in the Letter.

[10] The parties also executed six change orders under the Contract between April and June 2017 to implement the terms of the Settlement Agreement with respect to the five disputed items dealt with in the Letter.

[11] On October 6, 2017, Crosstown issued its final application for payment to Metrolinx pursuant to the Settlement Agreement, which was finalized with Metrolinx in the amount of $8,049,459.32 after addressing two minor accounting discrepancies.

[12] However, on December 4, 2017, Metrolinx advised Crosstown that Metrolinx claimed a right to set-off $6,549,391.73 against the amount owing to Crosstown for the following three claims:

(1) $173,684.48 for expenditures associated with legal invoices and adjuster fees for third party insurance claims under the OCIP wrap-up liability policy;

(2) $20,707.25 for the estimated cost of allegedly unfinished work; and

(3) $6,400,000 for insurance deductibles associated with all existing open third-party insurance claims against Metrolinx under the OCIP wrap-up liability policy.

[13] Metrolinx has abandoned its claim in respect of the second item. This application concerns its right to assert a right of set-off in respect of the first and third items. While the remainder of this Endorsement addresses the third item, reflecting the argument at the hearing, the same principles govern the determination of the first item.

[14] At March 28, 2017, a total of approximately 23 third-party claims had been asserted against Metrolinx and Crosstown that were insured under the OCIP having an aggregate potential deductible amount of $5.6 million and the potential existed for further claims. Metrolinx had provided notice to Crosstown of these claims. In addition, Crosstown had two first-party claims for which it was seeking coverage under the OCIP. As of April 17, 2018, Metrolinx says the number of third-party claims has risen to 38 open third-party claims with deductibles of approximately $7.25 million plus related legal costs and other expenses paid to date totalling $182,813.41.

Applicable Law

[15] The issues in this application require the contractual interpretation of the Letter and the Release.

[16] The general principles of contractual interpretation have most recently been reviewed by the Supreme Court in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633 at paras. 46-48.

[17] With respect to the interpretation of a release, Metrolinx also relies on the following statement of La Forest J.A. (as he then was) in White v. Central Trust Co., (1984), 1984 CanLII 3002 (NB CA), 54 N.B.R. (2d) 293 (C.A.), which it characterizes as the leading Canadian case on this issue:

Before entering into an examination of the particular releases involved in this case and the circumstances under which they were executed, it may be useful to make some general remarks regarding the manner in which releases are to be construed. Like other written documents, one must seek the meaning of a release from the words used by the parties. Though the context in which it was executed may be useful in interpreting the words, it must be remembered that the words used govern. As in other cases, too, the document must be read as a whole. This is particularly important to bear in mind in construing releases, the operative parts of which are often written in the broadest of terms. Thus reference is frequently made to recitals to determine the specific matters upon which the parties have obviously focused to confine the operation of general words. As Lord Westbury stated in the House of Lords' case of Directors of London & South Western R. Co. v. Blackmore (1870), L.R. 4 H.L. 610 at p. 623: "The general words in a release are limited always to that thing or those things which were specially in the contemplation of the parties at the time when the release was given."

By referring to what was in the contemplation of the parties, Lord Westbury was, of course, not opening the door to adducing evidence of what was actually going on in their minds, still less to making inferences about it. Such considerations are relevant solely to issues such as undue influence, mistake, fraud and the like which have no application here. What the statement quoted means is that in determining what was contemplated by the parties, the words used in a document need not be looked at in a vacuum. The specific context in which a document was executed may well assist in understanding the words used. It is perfectly proper, and indeed may be necessary, to look at the surrounding circumstances in order to ascertain what the parties were really contracting about. For authority for the foregoing propositions, see in addition to the cases to which I expressly refer, those cited in Halsbury's Laws of England, 4th ed., Vol. 9, pp. 412-3, and Vol. 12, p. 642.

[18] In Biancaniello v. DMCT LLP, 2017 ONCA 386, 138 O.R. (3d) 210 at para. 23, the Court of Appeal affirmed the statement of Lord Westbury in Directors of London and South Western Railway v. Blackmore and went on to identify the following five principles to guide the interpretation of a release:

1. One looks first to the language of a release to find its meaning;

2. Parties may use language that releases every claim that arises, including unknown claims. However, courts will require clear language to infer that a party intended to release claims of which it was unaware;

3. General language in a release will be limited to the thing or things that were specially in the contemplation of the parties when the release was given;

4. When a release is given as part of the settlement of a claim, the parties want to wipe the slate clean between them; and

5. One can look at the circumstances surrounding the giving of the release to determine what was specially in the contemplation of the parties.

Analysis and Conclusions

[19] Crosstown argues that the language of the Release is clear and unambiguous. It says that the Release releases all present and future claims that Metrolinx might have against Crosstown, including any claims under Section SC3 of the Contract for the amount of any deductible under the OCIP in respect of third-party claims against Metrolinx arising out of the actions of Crosstown. Crosstown reads the Insurance Provision to be a provision limited to the OCIP themselves, that is, to the rights and benefits of the parties under the insurance policies.

[20] Accordingly, Crosstown submits that the Release extended not merely to all present and future claims in respect of the five disputed matters addressed in the Letter but also to any other claims that might arise under the Contract or otherwise, including claims under Section SC3 of the Contract. In opposition, Metrolinx argues, in effect, that the Release was intended to apply only to present or future claims pertaining to the five disputed items.

[21] The language of the Insurance Provision is ambiguous. The phrase “the parties’ rights and obligations with respect to the insurance policies …” can be read narrowly to relate only to the insurance policies themselves or more broader to refer to the arrangements in their entirety regarding Crosstown’s indemnification obligations to Metrolinx and the insurance policies contemplated by Section SC3 to fund such indemnification.

[22] If one focuses solely on the language of the Release, the Crosstown position is certainly arguable. If the parties had intended to restrict the Release to the five disputed items, they could, and should, have drafted the Release to make that clear. However, viewing the contractual relationship between the parties as a whole in the particular context in which the Settlement Agreement was negotiated and executed, I find the proper interpretation of the Insurance Provision is the broader interpretation. Accordingly, I find that the Release did not extend to any claims by Metrolinx for the deductibles in respect of third-party claims under the OCIP. I reach this conclusion for the following reasons.

[23] First, both the intention of the parties and the result of the Settlement Agreement is that the Contract would continue rather than be terminated. In this regard, there is no express termination under the applicable termination provisions of the Contract. The parties also executed six Contract Changes in accordance with the provisions of the Contract to implement the terms of the Settlement Agreement. This raises the question of what provisions were intended to continue. The most probable interpretation is that all of the provisions were intended to continue except and to the extent that Contract Changes were required to modify or amend the Contract. On this basis, the provisions of Section SC3, including the obligation of Crosstown with respect to the deductibles, were intended to continue.

[24] In this regard, Crosstown acknowledges that the parties intended that the provisions of Section SC3 of the Contract were to continue at least to the extent that Metrolinx continued to be obligated to maintain the OCIP. Indeed, that was important to Crosstown. It had two outstanding first-party claims against the insurer and, more importantly, might well be the subject of future third-party claims for which it would look to the OCIP (as was the case). There is no logical or principled distinction between the Metrolinx obligation in Section SC3 to maintain the insurance and the Crosstown obligation to pay deductible amounts not covered by the insurance, which is also contained in Section SC3.

[25] Further, I do not accept the Crosstown argument that the exclusionary language in the last sentence of the release paragraph would have been unnecessary if the Contract was intended to continue in its entirety. If anything, the language confirms the interpretation of the Release that limits the claims, actions, etc. to which the Release applies to all claims in respect of the five disputed items.

[26] Second, the context in which the Contract was formed is strong support for the conclusion that the parties intended the obligations under Section SC3 to continue. The language of both the Letter and the Release make it clear that the focus of the parties’ negotiations was the settlement of the five disputes outlined in the Letter. The Letter provided that “[t]his letter agreement is to set out the full and final settlement between Metrolinx and CTC of the below items” [emphasis added]. I acknowledge that the subject line of the Letter refers to “Settlement of all Remaining Claims Between CTC and Metrolinx”. However, given the more specific language in the body of the Letter, I think the subject line is evidence that the parties understood the “claims” being addressed in the settlement to be limited to the five disputed claims. This conclusion is reinforced by the language of the Release, which expresses the consideration for the Release to be “good and valuable consideration described in the [Letter] to which this Release was attached …”

[27] Further, the evidence indicates that the parties never addressed, much less discussed or negotiated, the termination of Crosstown’s obligations under Section SC3 as part of the settlement. I think that the Court is entitled to take these circumstances into consideration as part of the “factual matrix” in which the Settlement Agreement, and in particular the Release, was negotiated and finalized in accordance with the principles articulated in Sattva Capital Corp., supra.

[28] In addition, viewed as part of the larger settlement, I do not think that the Crosstown position – that the parties agreed to terminate the Crosstown obligation to pay all present and future deductibles or third-party insurance claims – makes commercial sense for the following reasons. First, there is no linkage between the disputes being settled and Crosstown’s obligation to pay the deductibles. Effectively, Crosstown asserts that Metrolinx relinquished its claim to the deductibles for no consideration. While Crosstown suggests it gave consideration in the form of a steep discount of its five claims, I cannot reach that conclusion on the evidence in the record. The only evidence, which pertains to the “Jet Grout Spoil” dispute, suggests otherwise given the decision of Lederman J. in the Superior Court appeal regarding this particular dispute. Second, the amount involved is material. Crosstown suggests that Metrolinx agreed to waive this amount without any discussion or negotiation over the amount. Third, and most significant, the actual amount at issue was unquantifiable as it was likely, as actually occurred, that the amount of Crosstown’s obligation would increase with future third-party claims.

[29] Lastly, there is correspondence between the parties contemporaneous with and subsequent to the Settlement Agreement pertaining to specific insured claims in which Metrolinx raises Crosstown’s obligation to pay the deductible amount in respect of such claim. Crosstown does not suggest that the Release terminated Metrolinx’s right to the deductible in this correspondence, although, in several cases, it disputes Crosstown’s obligation to pay the relevant amount for other reasons.

[30] Metrolinx argues that such correspondence is further evidence of the parties’ intentions. I do not rely heavily on such post-contract behaviour. However, I would observe that it reflects the fact that the parties involved did not understand the Release to have changed the manner in which third-party insurance claims were dealt with between them. It was only at the point at which the final payment application was made in November 2017, six months after the Settlement Agreement and in a very different context, that Crosstown first raised the issue in this application.

Conclusion

[31] Based on the foregoing, the Crosstown application is dismissed. Costs in the amount claimed of $39,723.84 are payable by Crosstown to Metrolinx.

Wilton-Siegel J.

Date: July 31, 2018