COURT FILE NO.: CV-23-00699626-00CL
DATE: 20230612
SUPERIOR COURT OF JUSTICE – ONTARIO
(COMMERCIAL LIST)
BETWEEN: CROSSLINX TRANSIT SOLUTIONS GENERAL PARTNERSHIP and CROSSLINX TRANSIT SOLUTIONS CONSTRUCTORS, Applicants
AND:
ONTARIO INFRASTRUCTURE AND LANDS CORPORATION, as representative of the Minister of Economic Development, Employment and Infrastructure, as representative of His Majesty the King in Right of Ontario and METROLINX, Respondents
BEFORE: Penny J.
COUNSEL: Matthew Sammon, Andrew Parley and Brianne Westland for the Applicants/Responding Parties on the Motion
Sharon Vogel, Jesse Gardner, Catherine Gleason-Mercier and Cheryl Labiris for the Respondents/Moving Parties on the Motion
HEARD: June 8, 2023
ENDORSEMENT
Overview
[1] The Applicants and Respondents are parties to an agreement to build the Eglinton crosstown light rail system.
[2] The Applicants, who I will also refer to generically as Crosslinx, have brought an application before the Superior Court of Justice seeking declaratory relief. Crosslinx seeks declarations that:
(i) the Respondents have breached the project agreement by failing to retain an Operator;
(ii) the Respondents have breached the project agreement by failing to retain an Operator through a contract consistent with the terms of the project agreement;
(iii) the Respondents have an obligation to cause the TTC, in its role as the de facto Operator, to take reasonable steps to minimize undue interference with the provision of project operations by the Applicants;
(iv) the Applicants have no obligation to continue working on or complete any aspect of the project that requires coordination with, input from, or participation of the Operator, who has not yet been retained; and
(v) the Applicants have no obligation to continue working on or complete any aspect of the project, and are permitted to stop work on the project, until an Operator is formally appointed through a contract consistent with the terms of the project agreement.
[3] Many of the facts and circumstances underlying the application are in dispute. From the Applicants’ perspective, the need for the application was the result of problems caused by the absence of a fixed contract between the Respondent, His Majesty the King Entities, or HMKE, and the TTC as intended Operator of the light rail system. This had become a problem because the TTC appeared to have no obligation to limit or structure its requests or to ensure that their requests were consistent with the terms of the project agreement Crosslinx has with HMKE. Crosslinx has no contractual mechanism to control or restrain the conduct of the TTC. This began to create practical problems during the commissioning phase of the project work. Specifically, under the project agreement, Crosslinx is responsible for training the trainers who will be hired by the Operator (“Train the Trainer”), including by creating a training curriculum. Following the Train the Trainer program, the trained trainers become responsible for training the Operator’s drivers, following the curriculum also developed by Crosslinx. Crosslinx has tried to work with the TTC as the de facto Operator in developing and executing these training programs. This is required because, among other things, Crosslinx requires trained Operator drivers to drive the “revenue vehicles” during the 30-day revenue service demonstration as part of project commissioning and completion.
[4] Crosslinx alleges that the TTC’s expectations for what this training exercise would entail, and the prerequisites to that training taking place, are out of step with what Crosslinx has agreed to provide under the project agreement. Crosslinx has advanced claims against HMKE in relation to these issues. These claims are not the subject of this application, however, and remain to be determined under the dispute resolution process provided under the project agreement.
[5] Through the exchange of correspondence related to these claims, according to Crosslinx, it became clear that not only did the TTC not feel bound by any of the requirements Crosslinx must adhere to in the project agreement, but that the TTC was, in many instances, not even aware of what the project agreement requirements were. The TTC has, for example, taken the position to HMKE that the TTC is not bound by the project agreement such that there should not be any expectation that the TTC needs to comply with parameters contained in the project agreement. The TTC claimed to be “unaware” of any project agreement clause suggesting that Train the Trainer will occur during construction and commissioning of the project.
[6] The Respondents move for an order staying this application on the basis of an agreement to arbitrate. The Applicants take the position that the purported arbitration agreement does not apply to the subject matter of the application and that, in any event, there has been undue delay in raising the arbitration alternative and bringing the stay motion.
[7] There is an alternative argument made by HMKE that a different provision of the agreement between the parties precludes any proceedings in court prior to substantial completion, which has not yet occurred. The Applicants argue that this provision of the agreement does not apply to their application and that, in any case, HMKE has not met the test for a stay.
[8] I will say at the outset that time is of the essence in this matter, so my reasons will be brief.
[9] As I will explain in more detail below, I have concluded that HMKE has an arguable case that the arbitration agreement applies to the complaints raised in Crosslinx’ application. In these circumstances, a stay is warranted. I am not satisfied that HMKE is guilty of undue delay in the circumstances.
Background
[10] HMKE and Crosslinx are parties to a project agreement governing the design, construction, commissioning and maintenance of the Eglinton Crosstown LRT project. The project is large and complex, involving the construction and commissioning of a new light rail transit system over a route extending 19 km (10 km underground) with 25 stations (15 underground). The project began in 2015.
[11] The Project Agreement has a detailed dispute resolution process contained within Schedule 27. It is a stepped process. In summary, the process begins with a notice of dispute. Once a notice of dispute is delivered, sections 2 and 3 of Schedule 27 require the parties to engage in without prejudice negotiations, initially between “party” representatives and then, if no settlement is reached, between “senior” officers. If the parties are unable to resolve the dispute through without prejudice negotiations, then section 4 of Schedule 27 provides that the dispute shall be submitted to the Independent Certifier for determination. The Independent Certifier is a consultant jointly appointed by the parties. Section 13 of Schedule 27 provides that the Independent Certifier shall be the decision maker of first instance. The parties “shall” comply with the initial decision of the Independent Certifier unless and until it is overturned in a subsequent arbitration or litigation proceeding. Once the Independent Certifier has issued a decision, either party may issue a further notice of dispute in relation to the Independent Certifier’s decision. That dispute may be referred to arbitration under the Arbitration Act, 1991 with the mutual consent of the parties. However, either party may unilaterally elect litigation in the Superior Court of Justice to resolve the dispute if the actual or potential total value or amount at issue in the dispute is more than $150,000 in a year or $500,000 in the aggregate.
[12] This is the process relied upon and followed by Crosslinx in bringing the current application.
[13] Since the outset of the project, there have been two significant negotiations which have resulted in major changes to the project agreement. The second of these began in 2021 following disruptions associated with COVID-19 but also involved other issues. Although the issues first arose in the context of litigation, there were expanded negotiations which resulted in the second settlement. This was the subject of Minutes of Settlement, which are central to the position of HMKE in the present motion.
[14] In the Minutes of Settlement, Crosslinx acknowledged that the settlement fully and finally resolved all claims against HMKE “which have been, might have been, or might be hereafter advanced by Project Co [Crosslinx] arising from facts, events, and/or circumstances, (i) which are known or Ought to Be Known to Project Co as of the Release Date [November 26, 2021], and (ii) which exist or occur on or before” final completion. In section 5.3 of the Minutes, this was stipulated to include “any and all claims, issues, and/or disputes, including those by Subcontractors relating to Permits, Licences and Approvals, or alleging that the TTC [and others]… have failed to perform as contemplated by the Project Agreement in respect of Permits, Licences and Approvals”.
[15] In section 10 of the Minutes, Crosslinx acknowledged that, in relation to seeking approvals from stakeholders, HMKE’s cooperation has been entirely satisfactory and, in relation to the TTC and others, the comments of these entities to date had been appropriate and acceptable. Further, Crosslinx acknowledged that the alleged failure of HMKE in cooperating or coordinating with the TTC and others in respect of the project “shall not give rise to a claim by Project Co of any kind under any circumstance”.
[16] The Minutes contain their own dispute resolution mechanism. Under section 20, Crosslinx acknowledged that all disputes “arising out of these Minutes of Settlement, including, without limitation, its enforceability, performance, breach, or validity” shall not be subject to sections 4 to 13 of Schedule 27 but “shall be determined by arbitration.” The parties also acknowledged that “under no circumstances will any litigation relating to these Minutes of Settlement be before the Commercial List of the Ontario Superior Court of Justice.” The Minutes provide that, in the event of any inconsistency with the project agreement, the Minutes prevail.
[17] HMKE relies on these provisions from the Minutes to argue that Crosslinx’ application, which complains about the TTC’s allegedly unreasonable demands and HMKE’s failure to conclude an Operating Agreement with the TTC, “arises from facts, events, and/or circumstances” relating to the Minutes or to issues which could have been raised in the process leading to the Minutes. As such, it says, Crosslinx is not entitled to rely on the dispute resolution provisions in sections 4 to 13 of Schedule 27 of the project agreement. It must submit the issues raised in the application to arbitration by virtue of s. 20 of the Minutes.
[18] Finally, section 10.1 of Schedule 27 of the project agreement states that all adjudication, arbitral and litigation proceedings between the parties prior to substantial completion shall be stayed. HMKE relies on this provision to argue in the alternative that all recourse to court proceedings (or arbitration proceedings for that matter) must be deferred until the project is substantially complete, which it is not.
The Issues
[19] There are three essential issues requiring resolution on this motion. As I will explain in more detail below, the three issues are:
(1) has HMKE established an “arguable case” that the complaints raised in the application – the failure of HMKE to conclude an Operations Agreement with the TTC and the alleged interference by the TTC with Crosslinx’ obligations under the project agreement – arise from or relate to issues resolved by the Minutes?
(2) if yes, is HMKE nevertheless precluded from raising the arbitration agreement and moving for a stay as a result of “undue delay”? and
(3) in any event, does s. 10 of Schedule 27 preclude Crosslinx’ recourse to the court prior to substantial completion of the project?
Analysis
[20] Section 7(1) of the Arbitration Act provides that a court shall grant a stay of proceedings where a party to an arbitration agreement commences a court proceeding in respect of a matter to be submitted to arbitration under the agreement.
[21] Under the competence-competence principle, challenges to an arbitrator’s jurisdiction to determine a dispute “must be resolved first by the arbitrator”: Dell Computer Corp. v Union des consommateurs, 2007 SCC 34; Peace River Hydro Partners v Petrowest Corp., 2022 SCC 41.
[22] There is a two-part framework. The court must assess:
the technical prerequisites for a mandatory stay of court proceedings; and
the statutory exceptions to a mandatory stay of court proceedings.
[23] There are typically four technical prerequisites:
an arbitration agreement exists;
court proceedings have been commenced by a “party” to the arbitration agreement;
the court proceedings are in respect of a matter that the parties agreed to submit to arbitration; and
the party applying for a stay in favour of arbitration does so before taking any “step” in the court proceedings.
[24] In this case, there is no real dispute that parts 1 and 2 of this test have been met. The only disputes are about part 3 -- whether the court proceedings are “in respect of a matter that the parties agreed to submit to arbitration” and part 4 -- whether HMKE’s objection to the court proceedings was “unduly delayed”.
[25] In order to succeed on a motion for a stay the moving party is not required to prove on a balance of probabilities that the dispute falls within the terms of the arbitration agreement. It is sufficient, for a stay, under the competence-competence principle, that the moving party has established an “arguable” case. An “arguable” case is clearly something less than the standard of “correctness” or even “likely to succeed”. It is more like “a reasonable prospect of success” or “not obviously doomed to fail”.
Issue #1
[26] The parties fundamentally disagree about whether the relief sought on this application arises out of or relates in any way to the matters resolved in the Minutes. The Applicants say the matters raised in the last settlement negotiation and resolved in the Minutes did not involve whether HMKE had an obligation to enter into an Operations Agreement with the TTC, or whether the TTC, in its role as de facto Operator, was interfering with the provision of project operations or whether HMKE was obliged to cause the TTC to take reasonable steps to minimize undue interference with the provision of project operations by the Applicants.
[27] HMKE argues that the Minutes squarely address alleged interference by the TTC with the performance of the Applicants’ ongoing obligations under the project agreement. It also argues that the Minutes released HMKE from any complaint known, or which ought to have been known, at the time of the settlement. The Applicants were aware, prior to November 26, 2021, that HMKE had not concluded an Operations Agreement with the TTC and was not, therefore, in a position to enforce any obligations of the TTC under such agreement.
[28] Based on the law cited above, it is not the job of the court on this motion to decide who is “correct” in this disagreement. Nor am I sure, based on the record before the court for this motion, whether I would even be in a position to do so. The test is whether HMKE has raised an arguable case.
[29] What is clear is that complaints about interference by the TTC and HMKE’s alleged failure to regulate or rein in the TTC’s conduct were live issues in the prior negotiations and expressly resolved in the Minutes. Further, the release language, including complaints which were known or which Crosslinx ought to have known, arguably broadens the scope of settled issues beyond those which were actually and specifically on the table at the time.
[30] It is entirely possible that Crosslinx is correct in its assertion that its concerns about the lack of an Operations Agreement between HMKE and the TTC is creating huge problems in the closing stages of this project, and that these particular concerns were not part of the proceedings or the settlement which lead to the Minutes. But I cannot say that HMKE’s argument has no reasonable prospect of success or is doomed to fail. On this basis, I am bound to conclude that HMKE has raised an arguable case that this dispute falls under the arbitration clause in the Minutes. Accordingly, this issue must go (initially at least) to an arbitrator under the provisions of section 20 of the Minutes for a determination of whether that section applies or not to the matters raised in the Crosslinx application.
[31] I appreciate that this approach involves the risk of additional delay and cost if, for example, the arbitrator were to conclude, on a full record, that the dispute is not subject to the arbitration agreement under the Minutes. That risk is, however, except in the most obvious of cases, a necessary consequence of the competence competence approach endorsed by the Supreme Court.
Issue #2
[32] The Applicants argue, however, the stay should not be granted because the Respondents have “unduly delayed” raising the arbitration issue. Section 7(1) of the Arbitration Act is subject to exceptions identified in s. 7(2) of the Act, one of which provides that the court may refuse to stay the proceeding where “[t]he motion was brought with undue delay.” Courts have consistently held that undue delay has occurred where the respondent has failed to advance its position in favour of arbitration at the “earliest opportunity” and has participated in a litigation process which it subsequently seeks to stay. This relief is discretionary to the court. The reasoning in the cases reflects consideration similar to those which apply in waiver, attornment and estoppel.
[33] In this case, the Applicants initiated their concerns about the lack of an Operations Agreement, and the adverse effect this was having on its ability to perform its obligation under the project agreement, through the Schedule 27 dispute resolution process. They issued a notice of dispute. The parties engaged in without prejudice negotiations, met with the “party” representatives and then had a meeting between “senior” officers, under sections 2 and 3 of Schedule 27. The matter was not resolved. The Applicants then took their complaint to the Independent Certifier under section 4. The Applicants argue that HMKE did not advance its position on arbitration at the earliest opportunity. Instead, HMKE chose to participate fully in the section 4 Schedule 27 process by delivering a submission to the Independent Certifier asking it to interpret and apply the release provisions of the Minutes and dismiss the Applicants’ complaint. Ultimately, the Independent Certifier declined to decide the issue, principally on the basis of lack of legal qualifications and expertise.
[34] Nevertheless, by taking the actions HMKE did, the Applicants submit, HMKE was acting inconsistently with its position now that the dispute raised in the application, because it arises out of the Minutes, cannot proceed through the Schedule 27 process but must proceed to arbitration. By their own argument, section 4, the submission of the dispute to the Independent Certifier, was specifically excluded under section 20 of the Minutes. By participating in the process before the Independent Certifier, it is argued, HMKE “rode” the Schedule 27 horse down the road (which can lead, ultimately, to litigation) “until it became inconvenient to do so” and then tried “to mount the arbitration horse”. This, they say, constitutes “undue delay”.
[35] Notwithstanding the forceful arguments of Messrs. Parley and Sammon, I am unable to accept this argument. While it is true that participation in the section 4 submission to the Independent Certifier was inconsistent with the position now adopted by HMKE in this motion, it did not, in my view, constitute conduct akin to a waiver, attornment or estoppel; it did not amount to “undue delay”. The process before the Independent Certifier took only thirty days. There was no “litigation horse” being ridden until the Applicants commenced this application. HMKE never “rode” that horse. The very day after Crosslinx commenced its application, HMKE moved for a stay. It was not clear during the first, second, third or even fourth (before the Independent Certifier) steps under the Schedule 27 process, that Crosslinx’ complaint would result in litigation before the court. Under all those steps, both litigation and arbitration are just possibilities. Once litigation was initiated, HMKE moved expeditiously to oppose it. In these unique circumstances, I am unable to conclude that HMKE “unduly delayed” its opposition to the Crosslinx’ initiation of court proceedings in favour of arbitration.
Issue #3
[36] The third issue involves whether section 10 of Schedule 27 to the project agreement prohibits this application in any event. This provision purports to preclude access to the courts, subject to several specific exceptions, until after substantial completion of the project. This issue was argued in the alternative. Based on my conclusions on the first two issues, it is strictly speaking unnecessary to address the alternative argument.
[37] One of the exceptions is set out in section 10.1(d) of Schedule 27; that is, a court application made “in connection with the requirements of achieving” substantial completion. Had it been necessary to do so, I would have been inclined to the view that this provision, which is very broadly worded, applies to the circumstances of this case. Crosslinx alleges that it is being hindered from completing the project because of HMKE’s ongoing failure to contract with the Operator. Crosslinx filed evidence to the effect that substantial completion cannot be achieved without an Operator and that “the retention of the Operator is necessary for Crosslinx to advance the project and achieve” substantial completion.
[38] Thus, had I reached a different conclusion on Issues #1 or #2, on the basis of the record before me on this motion I would not have stayed the application solely on the basis of section 10 of Schedule 27.
Conclusion
[39] The application is stayed. The issue of whether Crosslinx’ application is caught by the arbitration agreement in the Minutes must be decided, in first instance, by an arbitrator under section 20 of the Minutes. There was no undue delay on the part of HMKE in the circumstances.
[40] In light of this conclusion, the two days scheduled for argument of the application on July 11 and 12, 2023 are vacated.
Costs
[41] The parties agreed that all inclusive partial indemnity costs of $60,000 should be awarded to the successful party. Costs to HMKE in that amount.
Penny J.
Date: June 12, 2023