The decision in Walsh Construction v Toronto Transit Commission et al., 2024 ONSC 2782 addresses significant legal principles encountered in complex construction and infrastructure projects.

In its decision in this case, the Ontario Superior Court outlines key legal concepts in the context of complex construction litigation, specifically those related to the admissibility of expert evidence, the court’s evaluation of compensable delay and subcontractor flow-through claims.

In this matter, the trial extended over 161 days, including a site inspection that lasted one day, opening submissions for four days, 151 days dedicated to evidence presentation and final submissions over five days.

In this case the Court found the following:

i) An expert who analyzes work during a construction project and continues the analysis when litigation ensues is not automatically rendered impartial or biased.

ii) The court does not look favourably at an expert opinion that is not based on an independent assessment, but rather solely on the findings of another expert’s report.

iii) Subcontractor flow-through claims are solely a procedural device and do not create a new cause of action between a subcontractor and the “owner.”

iv) Entities that are not party to a contract can still be found liable for a claim for lien if they are considered an “owner” under the Construction Act.

The facts

The Toronto Transit Commission (“TTC”) and Walsh Construction Company Canada (“Walsh”) entered into a contract (the “Contract”) for the construction of the Pioneer Village Station, part of the Toronto-York Spadina Subway Extension (the “Project”). The Project suffered significant delays including the following:

  • Substantial performance was achieved 953 days beyond the substantial completion date under the Contract.
  • Revenue service was achieved 1,047 days beyond the original Contract completion date.
  • Contract completion was achieved 1,372 days beyond the original completion date.

As a result, at the time of trial, the certified value of the Contract was $223,267,711 inclusive of taxes, which was $57,300,000 more than the original Contract price.

Walsh’s claim against the TTC sought a total of $193,000,000.00 inclusive of taxes under 23 Heads of Damages, including underfunded Changes Directives (“CDs”), unpaid Request for Quotations (“RFQs”), and unpaid Notices of Intent to Claim (“NOICs”). Walsh also advanced claims on behalf of its 22 subcontractors for their extended time of the Project, totaling to approximately $51,000,000, plus a markup of $5,000,000. Walsh also claimed acceleration costs on behalf of its subcontractors in the amount of approximately $5,000,000, plus a markup of $500,000.

The Court dealt with the issue of Project delay followed by the expert evidence submitted on compensable delay. Based on the evidence provided by the parties, over the course of a 161-day trial, the Court found that Walsh was entitled to 1,047 compensable days of delay.

The Court then addressed and ruled on damages to be awarded with regards to Walsh’s claims advanced under 23 separate Heads of Damages. In addressing and awarding damages, the Court found that Walsh was not entitled to any damages related to subcontractor acceleration nor subcontractor extended performance.

The Court also dismissed TTC’s counterclaim for missed contractual milestones and liquidated damages as well as Walsh’s claim for punitive damages.

Responsibility for delay: Liability associated with “design-bid-build” projects

A large portion of Walsh’s claim related to delay, amounting to approximately $19,000,000.00 of Walsh’s overall claim against TTC. The Court concluded that the Project was plagued by delay, much of which was the responsibility of TTC’s design issues.

The Project was a “design-bid-build” project which included three phases: the design, the bidding and then the construction. The advantage of this type of Project is that it allowed TTC to determine the design. The downside of TTC determining the design for the Project was that it equally owned the risks associated with its design and the risk of the Project being delayed due to design issues.

TTC argued that issues leading to delay and costs are not surprising on large and complex projects, including the Project. As such, TTC argued that both it and Walsh were responsible for any delay and costs relating to same.

Over the course of the litigation, TTC personnel such as Andy Byford, TTC’s then-CEO, acknowledged in his evidence that the designs were not finalized when the contractors and subcontractors were told to start building. John Pipilas, the TTC’s representative, equally acknowledged that Walsh was never given a “complete, comprehensive, constructible and coordinated” set of Contract documents and that the issued-for construction drawings were “far short from 100 per cent complete.”

The Court found that the most convincing evidence on design was provided by Betchel, who provided an assessment of the entire Project for TTC. This report concluded that the bulk of the station delays were attributable to the overrun of tunnel boring contracts, and the Project design not being as complete as described at award, resulting in substantial Requests for Information (“RFIs”), Change Directions (“CDs”) and excessive response times on RFIs. The Betchel report indicated that 47 per cent of the Contract Changes were the result of error or omissions in the design.

The Court ultimately concluded that most of the key delay events cited by Walsh were design issues and that the TTC bore responsibility for the design issues as a result of the “design-bid-build” nature of the Project. The Court found that TTC designed the station and instructed contractors to start building before the designs were finalized. As a result, there were constant changes to the design over the course of the construction leading to delay.

  1. Design issues leading to delay

    The design issues leading to considerable delays, as claimed by Walsh, related to the weathering soffit connections, changes to the bus terminal concrete piers, multiple changes to the fire alarm system, changes to the artwork installations, and issues related to the design of the escalators.

    1. Changes to the weathering steel soffit connections: Under the Contract, panels were to be attached to the soffit of the bus terminal with ¾” self-tapping screws drilled into the underlying subframe supports. This work was to be completed by the subcontractor, C-ore. However, on Feb. 3, 2015, TTC returned the subcontractor’s drawing with a comment that the panels had to be attached with ½” weathering steel bolts rather than self-tapping screws.
    2. Changes to bus terminal piers: TTC ordered numerous changes to the bus terminal concrete piers starting in July 2014 and continuing until Jan. 15, 2015. These changes resulted in work having to be stopped, previous work demolished and new work having to be done.
    3. Incomplete design of the fire alarm system: TTC argued that problems with the fire alarm system were the result of Walsh’s poor management, its relationship with its subcontractors and its failure to provide timely shop drawings. As a result of the numerous and open-ended RFQs issued by TTC, the Court found that the evidence clearly demonstrated that the problems with the design of the fire alarm systems caused delay and that the responsibility lay with TTC, not Walsh.
    4. Failure to provide a prototype for the artwork installation: Walsh was only provided with shop drawings for the artwork fixtures in June 2016. TTC argued that Walsh failed to engage subcontractors on a timely basis and that it did not have to provide Walsh with an actual prototype. The Court found that TTC’s argument that Walsh failed to engage subcontractors on a timely basis ran contrary to the fact that the shop drawings were not submitted until June 2016.
    5. TTC’s inadequate design of the escalators: Walsh raised three issues with regards to the escalator design for the Project; i) the gaps in the escalator balustrades, ii) claddings on the escalators, and iii) low light on the escalators. Based on witness testimony confirming that all issues relating to the escalator were design issues and not construction issues. The Court found that the delay associated with the escalators were the fault of TTC, not Walsh and that the delay arose from design issues, not construction.

Expert evidence: Court’s calculation of compensable delay

Due to the Project's complexity and many variables, the Court recognized it lacked the expertise to determine the compensable claim amount. It noted that calculating delays in complex construction projects is challenging, especially with concurrent delays and critical path considerations.

TTC argued that the onus was on Walsh to prove that the delay was the sole responsibility of the TTC, on the critical path, and without any concurrent delay. Walsh argued that it met the onus through the evidence of their expert, Richard Ott (“Mr. Ott”).

The Court considered the law regarding expert evidence in the context of the Walsh’s expert, Mr. Ott, who prepared a delay impact analysis for the Court that concluded that Walsh was entitled to a total of 1,047 days of compensable delay. TTC argued that it was responsible for only 411 days of compensable delay based on its report prepared by Navigant for Bechtel.

To counter Walsh’s argument, TTC argued that Mr. Ott was not an independent witness and that as result, his evidence with regards to compensable delay should be given no weight. TTC argued that Mr. Ott was part of Walsh’s team, that he was an advocate for Walsh and that he had a biased methodology in arriving at his conclusion.

In considering Mr. Ott’s expert evidence, the Court applied the relevant legal tests to introduce expert evidence. The Court relied upon the four factors as set out in R v Mohan, [1994] 2 S.C.R. 9 to introduce evidence (the “Mohan criteria”):

            1. Relevance

            2. Necessity in assisting the trial of fact

            3. Absence of an exclusionary rule

            4. A properly qualified expert

The Court then applied White Burgess Langville Inman v Abbott and Haliburton Co., 2015 SCC 23, [2015] 2 S.C.R. 182, which set out the two-step test for the admissibility of expert evidence, consisting of the satisfaction of the four Mohan criteria and second, the discretionary gatekeeping step of the Court.

In order to conduct its analysis on the admissibility of Mr. Ott’s evidence, the Court relied on the 14 factors as presented in Wise v Abbott Laboratories Limited, 2016 ONSC 7275 to determine the presence of impartiality or bias in an expert. In considering the factors as listed in Wise v Abbott Laboratories Limited, TTC argued a lack of independence based on “a history of retainer exclusively or nearly so by the prosecution of defense,” a “long association with one lawyer or party,” and a “personal involvement or association with a party.”

In addressing TTC’s grounds for Mr. Ott’s lack of independence, the Court found that there was evidence that Mr. Ott had a history of being retained by Walsh. In its reasoning, the Court stated at paragraph 101 that “courts recognize that experts are called by one party on an adversarial proceeding and are paid to prepare their report and testify.” However, the Court noted that there were no questions asked of Mr. Ott about this and whether his fee was contingent on success, nor any further inquiries as to any prior findings of bias or the results associated with previous retainers.

The Court acknowledged that Mr. Ott was involved with Walsh’s Red Book and Blue Book Claims due to his time impact analysis being part of them. Nevertheless, the Court determined that it was reasonable to include this analysis because TTC mandated such analysis in its claim process. Therefore, this did not classify Mr. Ott as a member of the Walsh team or as an advocate for Walsh. The Court noted that it is common for Mr. Ott to analyze work during construction and to carry on with this analysis if litigation arises.

The Court determined that Mr. Ott's communication with Walsh was reasonable for obtaining answers and necessary documentation for his analysis. Mr. Ott testified that he decided what information was needed for his delay determination methodology.

The Court therefore found that Mr. Ott was able to provide the Court with fair, objective and non-partisan evidence and that the Mohan criteria were satisfied. The Court noted that in order to meet the threshold of necessity, the expert evidence must be “more than merely helpful, but not to be judged on too strict a standard.” The Court noted that the evidence is necessary if it “provides information which is likely to be outside the experience and knowledge of the court.” The Court continued that this expert evidence does not substitute the expert for the court as trier of fact, and that the court must still make an informed judgement, “not an act of faith.”

The Court considered Mr. Ott’s methodology when arriving at its own informed decision on the amount of compensable claim to be awarded. The Court considered the following:

1. Mr. Ott’s delay impact analysis identified and evaluated changes and delays; events and conditions that were different than presented in the Contract documents; determined whether the changed conditions impacted Walsh’s progress and ability to perform work; and the impacts of same.

2. Mr. Ott analyzed Walsh’s and its subcontractors’ performance on the Project to determine whether their performance affected the critical path through the creation and application of fragnets.

3. Mr. Ott’s premise for his methodology was that Walsh was responsible for all delay until such time as the analysis provided that TTC was responsible.

4. In conducting his analysis, Mr. Ott reviewed a significant amount of Project documentation between Walsh and TTC and Walsh’s subcontractors, including RFIs, RFQs, CDs, NOICs, Walsh Schedules, TTC Schedules, correspondence, daily reports and meeting minutes.

5. Mr. Ott created Windows which analyzed the updated schedule created based on Walsh’s contemporaneous schedule; an impacted schedule; and analyzed the transition between each window to determine whether Walsh had caused any delay to the Project.

In determining the amount of compensable delay, the Court also noted that Mr. Ott’s report was the only expert opinion provided on compensable delay. The expert for TTC only provided an opinion based on Mr. Ott’s report and did not conduct an independent delay analysis on his own. The Court also found flaws in the work of Ted Douglas (“Mr. Douglas”) of Navigant, on which TTC based its assertion that it was responsible for only 411 days of compensable delay.

The Court found that while Mr. Douglas was a certified scheduling professional, he was not an independent expert in delay analysis. Mr. Douglas also confirmed in cross-examination that Navigant’s delay analysis wrongly concluded that there was no delay to Walsh in 2013. The Court considered Mr. Douglas’ analysis as “seriously flawed.”

The Court noted that, had TTC presented its own delay impact analysis, the Court would choose between the two or arrive at a different number. However, TTC failed to do so. In the absence of a delay analysis from TTC, the Court faced a “binary choice” between 1,047 days and 411 days. Based on the aforementioned, the Court found that Walsh was entitled to 1,047 days of compensable delay based entirely on Mr. Ott’s report.

Compensable damages: Subcontractor flow-through claims

Walsh claimed damages under 23 separate heads of damages. One of these claims related to the subcontractor flow-through claims.

Walsh included two claims on behalf of its subcontractors in its claim for damages for the delay costs incurred by the subcontractors and another for the subcontractor acceleration costs, in the amount of $55,672,419 and $5,735,378 respectively. Walsh argued that these damages were recoverable from TTC. The Court rejected both these flow-through claims on the basis that TTC’s contract was with Walsh and not with any subcontractor.

The Court noted that there were two signed agreements between Walsh and its subcontractor: i) assignment liquidating agreements, and ii) non-assignment liquidating agreements. Under the assignment liquidating agreements, Walsh paid the subcontractor an amount representing all the contractual payments due and payable to the subcontractor. In exchange, the subcontractor assigned its claim to Walsh and released Walsh from liability.

In some instances, the Court noted that Walsh paid the subcontractor less than the subcontractor claim. The Court found that in all instances any amount awarded at trial for subcontractor claims would be retained by Walsh.

Under the non-assignment liquidating agreements, Walsh paid the subcontractor an amount representing the contract payments due and payable to the subcontractor in exchange for a release of Walsh. The Court noted that if Walsh were to recover anything from TTC with respect to the subcontractor claim, it would pay it to the subcontractor less a percentage for overhead, markup and costs incurred. If there was a global recovery, the subcontractors would receive a pro-rated recovery as determined by Walsh.

The Court found that, in nearly every instance, the amount paid by Walsh was less than the subcontractor claim. The Court further noted that in the United States, contractors and subcontractors began to use liquidating agreements in order to bypass the court’s ruling in Severin v United States, 99 Ct. Cl. 435 (1943) where the court held that a general contractor could not flow-through a subcontractor’s claim against an owner if the general contractor had no liability to the subcontractor for damages. The Court noted that Walsh attempted the same here.

The Court emphasized that flow-through claims are solely a procedural device and do not create a new cause of action between a subcontractor and the owner (TTC) as there is no privity of contract between them. The Court also found that as a result of its liquidating agreements with its subcontractors, Walsh had no liability for the damages being claimed. As a result, the Court found that Walsh could not obtain recovery from TTC for the damages suffered by its subcontractors.

Walsh has appealed the Trial Judge’s decision relating to its subcontractor flow-through claims to the Divisional Court. We await the Divisional Court’s findings on this issue.

Key takeaways

Walsh highlights the risks of the "design-bid-build" process. Though it offers owners some independence, it also exposes them to significant risk from design issues and resulting delays. Owners should be aware of these risks and ensure all designs and drawings meet contractual obligations.

This case also highlights that the Court will rely heavily on expert opinions to calculate compensable delay in the case of complex construction projects where there are many different moving pieces to consider. In Walsh, the Court relied solely on the expert opinion of Walsh’s expert, Mr. Ott, in its calculation of compensable delay because TTC’s expert failed to conduct his own independent delay analysis. As a result, the Court was put in a position where it could award either 1047 days of compensable delay as calculated by Mr. Ott or 411 days as argued by TTC, and nothing in between.

This demonstrates that the Courts will not look favorably on expert opinions based on the findings of another expert’s report. As such, in cases involving complex construction projects, parties must be aware of the nature of the report being provided by their expert.

The Court stated that repeatedly hiring the same expert does not indicate bias or lack of independence. In construction, specialized claims often necessitate the same expert's opinion, making it common for parties to repeatedly hire them for specific issues. 

Finally, Walsh demonstrates that flow-through claims are a procedural device and do not create a new cause of action between a subcontractor and owner. The Court emphasizes that there must be privity of contract between the parties in order to create a new cause of action and that contractors will face limitations in advancing these claims when there are agreements in place with its subcontractors that release the contractor from liability. The Court states in Walsh that there must be liability or potential liability between the contractor and subcontractors for the damages being claimed in order for the contractor to successfully flow-through the claims of the subcontractors.