



COURT OF APPEAL FOR ONTARIO

CITATION: Crosslinx Transit Solutions
    General Partnership v. Ontario (Economic Development, Employment and
    Infrastructure), 2022 ONCA 187

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)

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 Canadas 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 judges 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 judges 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 judges error was also overriding. Central to the application
    judges 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 judges 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 judges 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 judges 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.





[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.


