The Covid-19 pandemic has been a time of global crisis. The restrictions and measures arising in response to the pandemic have caused significant interference in all aspects of our society. Construction projects are among those significantly affected by these measures. Social distancing and other public health measures have caused many challenges and delays within those projects and it had not been clear whose responsibility it is to bear the consequences. However, in February 2021, the Ontario Superior Court of Justice heard the case of Crosslinx v. Ontario Infrastructure, 2021 ONSC 3567, and released its decision in May 2021. This is the first time an Ontario court has dealt with the impact of the Covid-19 pandemic on a construction project. While the case may appear to be mostly about interpreting a provision of the contract, it has important implications on the duties and responsibilities of both owners and contractors and is a clear message regarding the position of the court when it comes to owners seeking to abdicate themselves of all risk and responsibility from the pandemic.
This case concerns the Eglinton Cross Light Rapid Transit line (ECLRT). The Ontario Infrastructure and Lands Corporation and Metrolinx (Owners) entered into an agreement with Crosslinx Transit Solutions General Partnership, which represents a consortium of four of Canada’s largest construction companies (Project Co) to build the ECLRT.
This agreement required the project to be completed by the substantial completion date with significant penalties applied if Project Co was unable to do so. There was also a provision in the contract that allowed the owners to require Project co to implement “additional or overriding procedures” in the event of an Emergency. If the owners called for such procedures, Project Co could start what the contract called a Variation Enquiry to determine whether the implementation of these measures should lead to an extension of the Substantial Completion date.
The main dispute between the parties was whether Project Co was entitled to a Variation Enquiry following them implementing social distancing measures that slowed down the project.
In March 2020, the Government of Ontario declared a state of emergency. In light of that, Project Co wrote to the owners asking them to declare an emergency and direct Project Co to take “additional and overriding measures”, which Project Co had proposed itself, to ensure health and safety at the project site. The owners replied indicating that they were waiting for the Ministry of Labour’s construction protocols and that they expected Project Co to implement them. Later the owners also wrote to inform Project Co that they had not declared an emergency. On March 29th, the construction protocols mentioned above were released and mostly overlapped with the measures proposed initially by Project Co. The owners wrote in April and May 2020, taking the position that they would not declare an emergency and they had not required any measures to be implemented. The owners also took the position that Project Co was already required to implement these measures to comply with all their obligations under the Occupational Health and Safety Act as well as adhering to local laws and government measures. Therefore, the owners refused to grant Project Co a Variation Enquiry to potentially extend the Substantial Completion Date.
As a result, Project Co commenced an action seeking declarations that (i) the Covid-19 Pandemic was an emergency under the project agreement; (ii) the owners required compliance with additional and overriding measures to protect public health; (iii) Project Co was entitled to a Variation Enquiry under the project agreement.
Ontario Superior Court
Motion to Stay
The court initially dealt with a motion to stay brought by the owners. This motion was based on the reasons that: (i) There was a contractual provision to stay all litigation until after substantial completion; (ii) Project Co had failed to comply with the process leading to a Variation Enquiry.
The court found that while there was a valid dispute resolution provision requiring a stay of litigation, the project agreement also included an exception for when waiting until after Substantial Completion Date to resolve a dispute would cause irreparable harm to a party. The court also referred to a different provision that expressly created a process for Project Co to vary the Substantial Completion Date. It would make no sense to require that disputes about extensions to the Substantial Completion Date be deferred until Substantial Completion had been achieved. The court also found that deferring this dispute until Substantial Completion would subject Project Co to adverse consequences and irreparable harm in the manner of liquidated damages, loss of financing, termination of the contract, insolvency, and loss of reputation.
With regard to their second reason, the Owners had alleged that Project Co had failed to comply with the process leading to a Variation Enquiry. The court found that Project Co had followed the procedure and it was in fact the owners that were trying to frustrate the process. Project Co had served the proper notices and had followed all the required steps leading to a Variation Enquiry. However, the owners had attempted to slow down the process by refusing to have the senior officers meet and discuss the dispute, which was a required step in pursuing a Variation Enquiry, unless Project Co had provided the excessive amount of documentation that the owners had requested. The court was not satisfied that even if Project Co had provided this information, it would have helped the dispute discussions. The court considered evidence of an offer to settle by the owners, finding that if they had enough information to offer a settlement, they did not require additional information to consider Project Co’s claims.
Having rejected both reasons, the court dismissed the motion and proceeded with the contractual dispute.
Interpreting the Contract
To be granted a Variation Enquiry, Project Co had to show that there was an emergency as defined by the contract and that the owners requested “additional and overriding measures”.
The core of the dispute between the parties was whether the Owners asked, or should have asked, Project Co to implement additional or overriding measures. The owners argued that they did not require Project Co to implement any measures, since Project Co was already under obligation to follow Construction Protocols and public health measures as they were applicable laws. Any direction from the owners would have been a reiteration of Project Co’s existing obligation. Furthermore, the owners argued that the contract allocated all health and safety risks to Project Co and referred to Project Co’s Emergency Response Plan to support that emergencies are their responsibility.
The Court found that the Covid-19 Pandemic was an Emergency under the terms of the contract that defined an Emergency as requiring “additional and overriding measures”. The court also found that while Project Co certainly had obligations under the Occupational Health and Safety Act, this did not mean Project Co had accepted all the risks of the pandemic when they entered into the agreement. The mere presence of a mechanism to extend the Substantial Completion Date because of an emergency suggested that Project Co was not expected to take on all the risk. Interpreting the contract in this way went against the purpose of the contract and having a substantial completion date. Imposing penalties for pandemic caused delays beyond the contractor’s control, even if they were working with great efficiency considering the circumstances, only incentivized them to cut corners and imperil public health. The court went on to say:
The [owners’] interpretation of the contract would reduce that ostensible concern about worker safety to nothing but window dressing. The safety of workers would be a priority only insofar as it did not delay the project or otherwise inconvenience the [owners]. If there were any inconvenience to be borne, it would have to be borne by [Project Co]. In my view, that is neither a fair nor responsible approach to take to the issue. While professing to be concerned about worker safety, the [owners] would be incentivizing [Project Co] to ignore worker safety by threatening to punish them for the delays that a concern about worker safety would entail.
Furthermore, the court found that the existence of a requirement for Project Co to have an emergency response plan did not suggest that risks of emergencies were allocated to Project Co under the agreement. The provision requiring an emergency response plan expressly contemplated that the “additional and overriding measures” required in the event of an emergency might overlap with the contents of the emergency response plan, meaning those measures applied even if some of them were contained in the plan.
Additionally, the court found that the Ministry of Labour’s construction protocols were not applicable laws which Project Co were required to follow under the agreement. This was simply because the protocol document expressly stated that it was not a legal document and therefore had no legal force. Therefore, when the owners wanted Project Co to comply with the new construction “protocols” that had not yet been published, they were requiring them to implement “additional and overriding measures” and not reiterating their currently existing obligations under OHSA or applicable laws. Even if the protocols had been legally binding, the court would have found the owners to have failed to comply as the protocols required the owners and contractors to “collaborate to ensure there is a clear understanding of how production will be impacted.”
Lastly, the court completely rejected the argument that the owners did not require Project Co to implement anything new because they had already implemented health and safety measures. Even if the owners had not requested anything, finding otherwise would in effect allow the owners to take a free ride on the Project Co’s sense of responsibility as Project Co could have done nothing and waited for instructions from the owners to require measures, potentially risking public health further in the process. The court also noted that Project Co did not get a “free ride” if granted a Variation Enquiry, since they still had to demonstrate within that procedure that the delays they claimed were attributable to the new construction requirements arising out of the pandemic.
Having rejected all the arguments advanced by the owners, the court granted all the declarations Project Co had requested.
What are the Implications?
There are several key takeaways from this case. First, owners and contractors should act in good faith, be fair and reasonable, and collaborate in reaching a solution. The court will not tolerate attempts to frustrate, stall or avoid contractual obligations to negotiate changes or proceed through dispute resolution provisions. Further, contractors should give as early notice as possible and follow applicable contractual procedures, rather than waiting until the end of the project to raise claims related to the pandemic. Contractors also will not get automatic relief from their obligations solely by relying on the fact that Covid-19 occurred. They still need to maintain good, clear records and provide the information required when seeking to attribute delays to the pandemic.
Finally, and most significantly, a significant part of the court’s reasoning was concerned with the owners’ proposition that all healthy and safety risks, including the pandemic, were allocated to Project Co. The court refused to allow such a narrow reading of the project agreement. The Covid-19 pandemic caught the world by surprise and any public health measures arising in response cannot be said to have been already contemplated within the Occupational Health and Safety Act. The court was strongly against shifting all the risk of the pandemic to the contractor and even admonished the owners in this case for attempting to take advantage of the contractor’s responsibility. Public health and safety are the responsibility of everyone. It is the collective responsibility of owners and contractors to keep workers and the project site safe.
Given the latest developments, it is important to note that Infrastructure Ontario and Metrolinx have since launched an appeal of this decision.