2025 ONSC 2375

COURT FILE NO.: CV-24-00716757-00CL
DATE: 2025-04-17
SUPERIOR COURT OF JUSTICE – ONTARIO (COMMERCIAL LIST)

RE: IN THE MATTER OF AN ARBITRATION PURSUANT TO SECTION 8 OF SCHEDULE 27 OF THE PROJECT AGREEMENT DATED MARCH 7, 2017, THE ARBITRATION ACT, 1991, S.O. 1991, C. 17, AND THE ARBITRATION AGREEMENT DATED NOVEMBER 10, 2021

BETWEEN:

LINK 427 GENERAL PARTNERSHIP
Plaintiff/Respondent

AND:

HIS MAJESTY THE KING IN RIGHT OF ONTARIO as represented by THE MINISTER OF TRANSPORTATION as represented by ONTARIO INFRASTRUCTURE AND LANDS CORPORATION
Defendant/Appellant

BEFORE: Kimmel J.

COUNSEL:
Daniel Schwartz / Adrian Visheau / Andrew Hanrahan / Derek Harland, for the Plaintiff/Respondent
Sarit E. Batner / Brandon Kain / Trevor Courtis, for the Defendant/Appellant

HEARD: January 14 and 15, 2025

ENDORSEMENT (Appeal from the February 16, 2024 award of the Hon. J.D. Cunningham, K.C.)

The Award Appealed From

[1] This is an appeal under s. 45(2) of the Arbitration Act, 1991, S.O. 1991, c. 17, from the February 16, 2024 award (the “Award”) of the Honourable J.D. Cunningham K.C. (the “Tribunal” or the “Arbitrator”). His Majesty the King in Right of Ontario, Represented by the Minister of Transportation, as Represented by Ontario Infrastructure and Lands Corporation (“Contracting Authority”) is appealing four disputes (the “Disputes”) out of the total of eleven disputes decided by the Tribunal in respect of the parties’ rights and obligations under the March 7, 2017 Project Agreement (the "Project Agreement") between Contracting Authority and Link 427 General Partnership ("Project Co").

[2] Contracting Authority maintains that, in each of the four Disputes under appeal, the Tribunal’s erroneous interpretation of the Project Agreement resulted in Project Co being awarded additional time or money for things that were Project Co's responsibility under the Project Agreement. The four Disputes that this appeal addresses are:

a. The “Crossfall Dispute”, in relation to the cost to achieve a specified slope percentage for the road surfaces;
b. The “Zenway Boulevard Dispute”, in relation to the cost to relocate utilities;
c. The “407 ETR Dispute”, in relation to the cost of obtaining the consent of 407 ETR to perform work on its land; and
d. The “2014-2016 Dispute”, in relation to the cost to complete paving work that Project Co assumed from another contractor.

[3] The arbitration involved thirty-three days of witness testimony. Thirty-six witnesses provided witness statements and affidavits prior to the hearing, and twenty-four lay witnesses and twenty-three expert witnesses gave oral evidence at the hearing. There were two hundred and thirteen exhibits, approximately fifteen hundred pages of written submissions and more than three days of oral closing submissions. The Award is supported by in excess of three hundred pages of reasons (the “Reasons”).

[4] In general terms and as a point of reference for this appeal, the following are extracts from the Tribunal’s Reasons that provide some context for the positions of the parties (the Reasons should be referred to for the meaning of any capitalized terms in the below extracts):

44. Cooperation and collaboration between the Parties is fundamental in the Project Agreement. Recital H states that "it is the intent that Contracting Authority and Project Co work collaboratively, responsibly and cooperatively, throughout the Project Term" in order to ensure that both Parties are able to "properly and effectively discharge their respective duties, functions and responsibilities".

45. Project Co alleges that Contracting Authority ignored its responsibilities under the Project Agreement and repeatedly breached its contractual obligations. Contracting Authority wrongfully imposed extra-contractual requirements and refused contractual relief in the face of the pandemic. It was combative and antagonistic, Project Co alleges, instead of working collaboratively to solve problems. Indeed, rather than working collaboratively, Contracting Authority obstructed Project Co's efforts to open the highway to the public.

46. Project Co alleges that Contracting Authority impeded Project Co's efforts to achieve Substantial Completion and used the Substantial Completion Payment and Project Co's precarious financial position as leverage in an attempt to gain concessions for which it had not bargained. In late 2020, when Project Co had nearly achieved Substantial Completion, Contracting Authority introduced a new, extra-contractual paving requirement that the highway be constructed with a precise crossfall of 2.0%. This was not a requirement of the Project Agreement and would have been practically impossible to achieve. Contracting Authority identified safety concerns. Despite this, the Widening portion of the highway, which had the same alleged deficiencies, remained open to the public. Moreover, the highway was certified as safe to open to the public by a team of independent road safety auditors in February 2021.

47. Eventually Contracting Authority allowed for construction tolerances. Project Co adjusted the highway's crossfalls under protest. Not only did this construction cost millions of dollars, but it also negatively impacted the maintenance component of the Project, Project Co alleges, increasing costs and forcing Project Co to make unpriced and unplanned changes to its long-term maintenance and rehabilitation program.

48. It is Contracting Authority's position that, when it became clear to Project Co that it had fallen significantly behind schedule and would be unable to achieve Substantial Completion by the SSCD, Project Co engaged in a systematic campaign of issuing Notices, claims for various Variations, and unsubstantiated claims asserting that alleged breaches by Contracting Authority had caused it delay…

49. Contracting Authority contends that, in Project Co's haste to try to catch up from its own delays, and mitigate its own losses, Project Co rushed its work, cut corners, and neglected quality assurance and quality control steps that resulted in major deficiencies on the Project. The most significant deficiency was discovered by Contracting Authority during the contractual commissioning processes in late 2020: inadequate crossfall throughout the Project.

50. Contracting Authority argues that it is entitled to damages and to be indemnified under the Project Agreement as a result of Project Co's failure to achieve Substantial Completion by the SSCD.

The Project

[5] The Project Agreement required Project Co to construct a 6.6 km long extension, widen a 4 km section of Highway 427, and both construct and rehabilitate several bridge structures (the “Project”).

[6] Project Co undertook to complete the project by September 30, 2020, and maintain the highway over a 30-year period. The Project met a number of obstacles, including the COVID-19 pandemic, and did not achieve Substantial Completion under the Project Agreement until September 9, 2021. The Project ran millions of dollars over budget. After achieving Substantial Completion, Project Co made a number of claims against Contracting Authority for additional time and money, which were consolidated into a single proceeding for arbitration.

[7] The commercial context of the Project Agreement is summarized in paragraphs 21 and 22 of the Reasons:

21. The Highway 427 expansion is a private-public-partnership (or "P3") project. The P3 is Infrastructure Ontario's approach to procuring and financing significant public infrastructure projects. IO delivers projects under various delivery models, such as Design-Bid-Build or Design-Build-Finance-Operate-Maintain, each model having unique features with different degrees of risk transferred to the private sector, different cost and schedule certainty, and different levels of owner involvement and control over project delivery.

22. The model to be used for the Highway 427 expansion was Design-Build-Finance-Maintain ("DBFM"). Under this system, the government establishes the scope, standards, and specifications of the project and the private sector entity bears the risk and responsibility for designing, building, financing, and maintaining the project. The entity is typically paid an all-inclusive fixed price, which is paid out through a combination of fixed milestone payments and periodic payments, depending on the phase of the project. Under the DBFM model, a significant part of the fixed price for the design and construction phase of the project is paid upon the contractual milestone of "Substantial Completion". After Substantial Completion, the maintenance period of the contract begins, and the private sector entity receives regular service payments to operate, maintain, and/or rehabilitate the infrastructure over the term of the contract.

Summary of Outcome

[8] For the reasons that follow, the appeal is dismissed.

Issues to be Decided

[9] The parties' Agreed-Upon Arbitration Terms dated November 10, 2021, grant a right of appeal only on questions of law pursuant to section 45(2) of the Arbitration Act, 1991.

[10] The Contracting Authority alleges that the Tribunal erroneously interpreted the Project Agreement in the determination of the four Disputes under appeal.

[11] Contractual interpretation is presumptively a matter of mixed fact and law: see Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, at para. 50; Teal Cedar Products Ltd. v. British Columbia, 2017 SCC 32, at para. 47. However, there are limited circumstances in which an extricable question of law can arise in the interpretation of a contract: see Sattva, at para. 53.

[12] The issue that must be decided on this appeal is whether the Tribunal made an error on any extricable question of law in the interpretation of the Project Agreement in relation to any of the four Disputes. Contracting Authority alleges that whether the Tribunal met the requirement to consider and interpret the Project agreement as a whole when interpreting the specific contractual provisions relevant to the four Disputes is an extricable question of law. Contracting Authority further alleges that the Tribunal failed to do so, thereby committing an error of law.

[13] To determine whether an error of law was committed in respect of any identified extricable question of law in the contractual interpretation analysis by the Tribunal in the four Disputes, the court must also consider what the appropriate standard of review is on this appeal: correctness or reasonableness. The court must then apply that standard to determine if the Award should be varied so as to dismiss Project Co’s claims in respect of any of the four Disputes.

[14] Project Co raised objections at the outset of the appeal about the reply factum that Contracting Authority delivered, and the cases mentioned in it. The court declined to rule on the objections at the outset of the hearing. Both parties addressed the authorities and points raised in the reply factum. In a complex case like this, a reply factum is of assistance to the court and should not be disregarded in the absence of prejudice to the opposing party, of which there was none demonstrated. The respondent had the reply factum and was aware of the cases referred to in it for a number of weeks before the hearing and ably addressed these cases in its responding submissions at the hearing.

Analysis

The Identification of Extricable Questions of Law

[15] The court’s jurisdiction is dependent upon the identification of extricable questions of law, as they are the only questions that the parties agreed could be appealed from the Tribunal’s Decision.

[16] At paragraphs 27-28 of Earthco Soil Mixtures Inc. v. Pine Valley Enterprises Inc., 2024 SCC 20, the Supreme Court recently re-affirmed the following principles with respect to appellate deference regarding contractual interpretation and the caution courts should apply in seeking to identify extricable questions of law:

[27] This Court’s jurisprudence firmly establishes that questions of contractual interpretation, which involve questions of mixed fact and law, are ordinarily afforded deference on appellate review. The exception set out in Sattva is for errors on extricable questions of law, which are reviewable on the more exacting correctness standard. It was the purported errors on extricable questions of law identified by the Court of Appeal that enabled it to apply a standard of review of correctness. As I will explain below, the Court of Appeal erred in identifying these as extricable questions of law.

[28] In Sattva, this Court established that contractual interpretation “involves issues of mixed fact and law as it is an exercise in which the principles of contractual interpretation are applied to the words of the written contract, considered in light of the factual matrix” (para. 50). Accordingly, deference is owed to the trial judge, who is best placed to make findings as to the nature of the factual matrix, and the predominantly applicable standard of review is palpable and overriding error (Housen v. Nikolaisen, 2002 SCC 33, at para. 21). The search for an extricable question of law is, in my view, not consistent with Sattva’s holding that the interpretation of contracts and agreements are mixed questions of law and fact and that extricable questions of law will be “rare” and “uncommon” (para. 55; Corner Brook (City) v. Bailey, 2021 SCC 29, at para. 44). Housen expressly admonished that courts should “be cautious in identifying extricable questions of law in disputes over contractual interpretation” because ascertaining the objective intention of the parties, which is the prevailing goal of contractual interpretation, is an “inherently fact specific” exercise (Sattva, at paras. 54-55, citing Housen, at para. 36). The subsequent tendency of some appellate courts to use Sattva to elevate the standard of review, when it was intended to do the opposite, is to be resisted (the Hon. D. Brown, “Has Sattva spawned an era of less appellate deference?” (2023), 41:4 Adv. J. 26, at p. 27).

[17] The Supreme Court in Earthco makes it clear that an appellate review should not be treated as an invitation to look for extricable questions of law in decisions involving contractual interpretation. It has long been recognized that where an appeal is limited to questions of law, it will be rare that the court can extricate a purely legal question, especially in contractual interpretation cases: see Sattva, at para. 55.

[18] This admonition not to strain to find extricable questions of law on an appeal is equally, if not more, applicable in the appeal of arbitration decisions, where the deference to be afforded to the factual findings of the parties’ chosen decision-maker is heightened. Judicial intervention in commercial arbitrations is the exception, not the rule: see Peace River Hydro Partners v. Petrowest Corp., 2022 SCC 41, at para. 50. This is also consistent with the principles of finality in commercial arbitration and deference to factual findings: see Teal Cedar, at para. 45; Tall Ships Development Inc. v. Brockville (City), 2022 ONCA 861, at paras. 3 and 16; and Ledcor Construction Ltd. v. Northbridge Indemnity Insurance Co., 2016 SCC 37, at para. 113.

[19] Extricable errors of law are about the decision-maker applying the wrong principle, not applying the right principle inappropriately. A legal question is only extricable if it can be considered without regard to the facts: see Teal Cedar, at paras. 59-61; Christie Building Holding Company, Limited v. Shelter Canadian Properties Limited, 2022 MBKB 239, at paras. 35-36. Once the decision-maker engages in the application of the correct principle, that becomes a question of mixed fact and law, from which there is no right of appeal: see Sattva, at paras. 64-67.

[20] In the context of contractual interpretation, extricable questions of law must be focused on whether the arbitrator:

a. applied the correct legal principle,
b. considered all the relevant elements of a legal test, and
c. considered the relevant factors.

See Sattva, at para. 53, citing Housen v. Nikolaisen, at paras. 31, 34-35, and King v. Operating Engineers Training Institute of Manitoba Inc., 2011 MBCA 80, at para. 21.

[21] In Sattva, at paras. 62-64, the Supreme Court acknowledged that a decision-maker's failure to construe a contract as a whole could be properly extricated as an error of pure law. Such errors have taken the form of failing to give meaning to all the terms of an agreement, and arriving at conclusions inconsistent with the whole of the agreement: see Resolute FP Canada Inc. v. Ontario (Attorney General), 2019 SCC 60, at paras. 26-27, 32-33; Meridian C C Intl Inc. v. 2745206 Ontario Inc., 2022 ONCA 12, at para. 7. See also Fuller v. Aphria Inc., 2020 ONCA 403, at para. 74.

[22] Failing to give words their ordinary and grammatical meaning, ignoring specific and relevant provisions elsewhere in the contract when interpreting the words of a specific contractual provision or reading in limitations that are contrary to other express provisions are all examples of extricable legal errors in contractual interpretation that are not deserving of deference on appeal: see Niagara Falls Shopping Centre Inc. v. LAF Canada Company, 2023 ONCA 159, at paras. 33-36.

[23] As stated by the Supreme Court in Canada (Director of Investigation and Research) v. Southam Inc., at para. 39, and recently quoted in Teal Cedar, at para. 44:

[I]f a decision-maker says that the correct test requires him or her to consider A, B, C, and D, but in fact the decision-maker considers only A, B, and C, then the outcome is as if he or she had applied a law that required consideration of only A, B, and C. If the correct test requires him or her to consider D as well, then the decision-maker has in effect applied the wrong law, and so has made an error of law.

[24] The distinction between extricable questions of law and questions of mixed fact and law is often highly nuanced. Not surprisingly, appellants will often seek to strategically frame the issues so as to bring them into the scope of the appeal. The court needs to look at the substance of each issue raised on appeal to be satisfied that they fall within the court’s appellate jurisdiction under the applicable legislation and arbitration agreement: see Sattva, at para. 54 and Teal Cedar, at para. 45.

[25] Contracting Authority asserts that the Tribunal myopically focused on individual provisions of the Project Agreement, and interpreted them in a way that rendered other provisions meaningless in each of the four Disputes.

[26] In considering whether there is an extricable question of law in the context of the Tribunal’s analysis of the Disputes, as a starting point, it must be recognized that the Tribunal understood, correctly stated and considered the legal principles of contractual interpretation relevant to its analysis of the Disputes. Those were all summarized at the outset of the Reasons (at paragraphs 61-71). Of particular relevance to this appeal is the following extract from paragraph 65 of the Reasons:

65. A contract is to be construed as a whole with meaning given to all of its provisions. One provision should not be read in isolation but should be considered in harmony with the rest of the contract, its purposes and commercial context. (Ventas, Inc. v. Sunrise Senior Living Real Estate Investment Trust, 2007 ONCA 205, at para. 24; M.J.B. Enterprises Ltd. v. Defence Construction (1951) Ltd., at para. 44). Individual words and phrases must be read in the context of the entire document. (Sattva, paras. 47, 57; Ventas, para. 24).

[27] That is the correct legal principle that Contracting Authority says should have been, but was not, considered and applied. In other words, Contracting Authority contends that the Tribunal only paid lip service to this principle in the Decision as it relates to the four Disputes.

The remainder of the decision continues with detailed analysis of the four disputes, the standard of review, and the application of the law to the facts, as set out in the original document.

Footnotes

[1] The GDSOH contains the geometric design standards for Ontario highways and is a reference document under the Project Agreement.

[2] Contracting Authority was also found to have failed to assist Project Co in obtaining the Project Co PLA, contrary to s. 8.2(b). This is in addition to the breach of s. 14.1, but does not change the analysis for purposes of this appeal.

End of decision.