The recent Ontario Court of Appeal decision in Crosslinx Transit Solutions General Partnership v. Ontario (Economic Development, Employment and Infrastructure), 2022 ONCA 187 (“Crosslinx v. Ontario”), has served as an important reminder that in order to obtain relief for an alleged breach of contract, proper notice pursuant to the contractual requirements must be provided. In Crosslinx v. Ontario, despite the complex project agreement and party structure, the decision turned on the simple contractual provision of notice.
Background
In 2015, Ontario Infrastructure and Lands Corporation (“Owner”) selected Crosslinx Transit Solutions General Partnership (“Project Co”) to deliver the Eglinton Crosstown Light Rapid Transit Line (“Crosstown LRT”), a large-scale infrastructure project located in Toronto. Pursuant to the Project Agreement, Project Co’s scope included the design, construction, finance, maintenance and rehabilitation of the Crosstown LRT. It was during the course of construction that the dispute arose, following the onset of the COVID-19 pandemic and the delays associated with the implementation of the Ontario Ministry of Labour public health and safety measures (the “COVID-19 Protocols”).
At issue was whether Project Co was entitled to a Variation Enquiry, which if granted, could permit an extension of the Substantial Completion Date. It is worth noting, however, that at the time of the dispute, and prior to the COVID-19 pandemic, the Crosstown LRT was already about a year behind schedule. The Variation Enquiry provision, s. 62.1(c), of the Project Agreement stated:
“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”.[1]
For the Variation Enquiry provision to be triggered, there were two requirements. First, the Owner had to state that the pandemic constituted an Emergency. Second, notice of “additional and overriding procedures” had to be delivered to Project Co. The Owner failed to do both, and it was their failure to do so that led Project Co to commence an application for a declaration regarding substantial completion.
Motion to Stay
The Owner brought a motion to stay the application, citing the Project Agreement dispute resolution provisions, which required litigation to be stayed until Substantial Completion. These provisions were subject to exceptions which included the ability for either party to apply to the court for interim protection, per s. 13.2 of Schedule 27 to the Project Agreement. The motion judge relied on this exception, found that staying the application could cause irreparable harm and therefore allowed the application to proceed.
Decision of the Lower Court
In the application, Project Co alleged that the pandemic was an Emergency, which required the implementation of “additional and overriding procedures”, being the COVID-19 Protocols that resulted in delays to construction. The Owner’s view was that the Provincial Government’s declaration of a State of Emergency on March 17, 2020 precluded the need to declare an Emergency under the Project Agreement. Further, the Owner asserted that the health and safety obligations of the contract required Project Co to comply with the government’s construction industry COVID-19 Protocols which fell squarely within Project Co’s obligation to remain in compliance with Applicable Laws.
Justice Koehnen, as application judge, disagreed with the Owner’s arguments; he held that “(i) the COVID-19 pandemic is an Emergency under the Project Agreement … (ii) the appellants had required compliance with additional or overriding procedures … and (iii) the appellants had a contractual obligation to provide a Variation Enquiry under the Project Agreement.”[2] In assessing the notice requirement under s. 62.1(c), Justice Koehnen found that the Owner’s email dated March 25, 2020 was sufficient notice to trigger the Variation Enquiry. Justice Koehnen also held that the construction COVID-19 Protocols issued by the Government were not legally binding and could not be deemed to be Applicable Law, and thus did become Project Co’s obligation or risk per the Project Agreement’s health and safety requirements. The Owner appealed this decision. (To read more about the lower court’s decision and analysis, you can find our previous article here)
Court of Appeal Decision
On appeal, the Owner asserted that the application judge made a “palpable and overriding error” as it related to the March 25, 2020 email, stating it did not, and could not, satisfy the notice requirements of s. 62.1(c) of the Project Agreement because it was an internal email. Additionally, the Owner argued that the application judge erred in his interpretation of the Project Agreement and the allocation of risk of the COVID-19 health and safety protocols by not requiring Project Co to fulfil their obligation to comply with same, pursuant to the Applicable Laws.
The Court of Appeal narrowed their focus on the issue of whether proper notice, pursuant to the Project Agreement had been delivered. The Appellate court held that it was only necessary to consider whether a “palpable and overriding error” occurred with respect to the application judge’s decision that the Variation Enquiry had been triggered. To determine whether the application judge made a palpable and overriding error, the Court of Appeal applied the standard articulated in the Supreme Court of Canada’s decision, R. v. Clark, 2005 SCC 2. This standard does not allow Appellate court interference with an application judges’ findings of fact “unless they are clearly wrong, unsupported by the evidence or otherwise unreasonable”.[3]
The Court of Appeal concluded that a palpable and overriding error had occurred. The March 25, 2020, email was internal and was never delivered to Project Co. Therefore, no notice was provided to satisfy the requirements of s. 62.1(c). As a result, the Variation Enquiry could not have been triggered.
In its submission, Project Co argued that, even if the March 25, 2020 email did not satisfy the notice requirements, a letter dated April 21, 2020, was sufficient notice to trigger the provision. The Court of Appeal held that this was also not the case. The letter was too vague and could not be interpreted to serve as notice. Notably, the Court of Appeal’s decision highlighted that Project Co never communicated to the Owner that any of the forgoing communication served as the trigger to the Variation Enquiry, but only that they should have triggered the Variation Enquiry.
The Court of Appeal allowed the appeal but declined to dismiss the application. Rather, the Court remitted the application for a rehearing. In so doing, they recited the application judge’s reasoning that “[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 in original).
Although the Court overturned the application judge’s finding that the appellants asked the respondents to implement additional or overriding procedures, it was not in a position to engage in fact finding or a credibility analysis to determine whether the appellants should have asked the respondents to implement additional or overriding procedures. The application judge did not complete any analysis relating to whether the previously mentioned communication had triggered or should have been deemed to have triggered s. 62.1(c). For lack of factual findings, the application was sent back to the Superior Court for rehearing.
Key Takeaway
This decision serves as a reminder of the importance of proper notice pursuant to the contract. As seen in Crosslinx v. Ontario, despite the complexity or length of an agreement, failure to adequately provide notice pursuant to the Project Agreement can prohibit a party from seeking relief under the contract. The Court of Appeal is clear: notice actually means notice.