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Court of Appeal Sends Crosstown LRT COVID-19 Decision Back for Rehearing

Published on: March 2022 | What's Trending

street with streetcar tracks

The Eglinton Crosstown Light Rapid Transit line (the “Crosstown LRT”) is a major infrastructure project and the first to receive an Ontario court ruling on a contractual dispute resulting from the COVID-19 pandemic.  The decision was appealed to the Court of Appeal.

On March 7, 2022, the Court of Appeal for Ontario released its decision in Crosslinx v. Ontario Infrastructure, 2022 ONCA 187, setting aside the Ontario Superior Court of Justice’s decision in Crosslinx v. Ontario Infrastructure, 2021 ONSC 3567, and remitting the application back for rehearing.

Brief Factual Background

The parties involved are, on one side, agencies of the Crown who commissioned the Crosstown LRT project (the “Crown”) and, on the other side, a consortium of highly sophisticated, Canadian construction companies (“Crosslinx”) building the Crosstown LRT.

The contract governing the project specified a Substantial Completion Date with penalties applied if the date was not met by Crosslinx. The contract permitted the Crown to require Crosslinx to take “additional and overriding procedures” to protect public health and worker safety in the event of an “Emergency”. If the Crown required the implementation of these emergency procedures, Crosslinx could initiate a “Variation Enquiry”, a procedure which could possibly result in an extension of the Substantial Completion Date.

The dispute centered around whether the Crown asked (or should have asked) Crosslinx to implement additional and overriding procedures in response to the COVID-19 pandemic, such that the Variation Enquiry process was triggered.

Crosslinx’s position was it implemented additional and overriding health and safety measures that slowed down the project. The Crown’s position, in refusing to declare an “Emergency”, was that it had not imposed any additional or overriding procedures because Crosslinx was already contractually and statutorily obligated to maintain a safe and healthy workplace and previously took such measures. Therefore, Crosslinx applied to the court seeking declarations that,

  1. the COVID-19 pandemic is an “Emergency” under the contract;
  2. the Crown breached their contractual obligations by failing to direct Crosslinx to implement additional or overriding procedures under s. 62.1(c) of the contract; and
  3. the Crown is obligated to provide Crosslinx with a Variation Enquiry, potentially extending the Substantial Completion date, given the additional and overriding procedures necessitated by COVID-19.
The Initial Decision[1]

On May 17, 2021, Justice Markus Koehnen of the Superior Court of Justice granted the declarations sought by Crosslinx. The application judge concluded that:

  1. the COVID-19 pandemic was an “Emergency” requiring additional and overriding measures. The Crown was obligated to provide Crosslinx with a Variation Enquiry;
  2. while Crosslinx had contractual and statutory obligations to maintain a safe and healthy project, this did not mean Crosslinx accepted all risks of the pandemic. Among other reasons, the presence of the Variation Enquiry as a procedure to extend the Substantial Completion Date suggested Crosslinx was not expected to assume all such risks; and
  3. the Crown provided notice to Crosslinx, via email on March 25, 2020, that Crosslinx was required to comply with additional and overriding measures to protect public health and worker safety on the project.
The Appeal[2]

The Crown appealed, arguing that Justice Koehnen made palpable and overriding errors when concluding that the applicable contract provision [i.e., section 62.1(c)] was triggered, thus necessitating a Variation Enquiry and a possible extension of the project’s Substantial Completion Date.

The Crown disputed the application judge’s finding, including the finding that the March 25 email triggered s. 62.1(c) of the contract because it was an internal email – not directed to Crosslinx.

Conversely, Crosslinx’s position was that there was no extricable error of law in the application judge’s interpretation of the contract, nor was it a palpable and overriding error in concluding that s. 62.1(c) was triggered by the Crown. Crosslinx submitted that if, and to the extent that, the application judge mischaracterized the March 25 email, it was not an overriding error because, among other things, the Crown’s failure to invoke s. 62.1(c) was a breach of its obligation of good faith in exercising contractual discretion. Further, Crosslinx relied on the doctrine of indivisibility of the Crown, arguing that government-mandated requirements constituted “additional and overriding requirements” of the Crown under the contract.

The Court of Appeal for Ontario determined it was sufficient to reach a conclusion having consideration only to the question of whether the application judge made a palpable and overriding error in finding that the Crown’s March 25 email constituted notice to Crosslinx, under s. 62.1(c), requiring Crosslinx to take additional and overriding health and safety procedures. On that question, the Court of Appeal held that the application judge committed a reversible error.

The application judge had not determined whether s. 62.1(c) had effectively or should be deemed to have been triggered because the Crown did not act in good faith or that Crown’s actions were the same as the provincial crown that legislated compliance with pandemic health and safety procedures. Therefore, the Court of Appeal was not prepared to engage in the “fact-finding process that would be required to determine these issues”[3].

The Court of Appeal allowed the appeal, set aside Justice Koehnen’s judgment, and remitted the application back to the Superior Court for a rehearing.

Implications

The Court of Appeal’s decision serves as a stark reminder that adherence to contractual notice provisions is important.

At the rehearing, various issues may be determined including whether the Crown “should have asked” Crosslinx to implement additional or overriding procedures in the context of a more fulsome analysis of the exchanges between Crosslinx and the Crown. Further, the issues of good faith in the exercise of contractual discretion and Crown indivisibility raised by Crosslinx can be revisited.

However, a rehearing may not necessarily take place. The decision to proceed with the rehearing before another judge of the Superior Court or continue with other dispute resolution procedures under the Contract was left to Crosslinx and the Crown[4]. Therefore, the remaining issues are not guaranteed to receive judicial interpretation.

[1] Crosslinx v. Ontario Infrastructure, 2021 ONSC 3567.

[2] Crosslinx v. Ontario Infrastructure, 2022 ONCA 187.

[3] Ibid at para. 36.

[4] Ibid at para. 39.