Walsh Construction Co. of Canada v. Toronto Transit Commission: A Landmark Case on Delay, Change Orders, and Liquidated Damages

In Walsh Construction Co. of Canada v. Toronto Transit Commission [2024] ONSC 2782, the Ontario Superior Court of Justice addressed one of the largest and most complex construction disputes reported in recent years, arising from the construction of the Steeles West Subway Station (later renamed Pioneer Village Station), part of the Toronto-York Spadina Subway Extension (TYSSE).

Background

Walsh Construction Co. of Canada (“Walsh”) entered into a contract with the Toronto Transit Commission (the “TTC”) to build the new subway station. The original contract price was $165,925,000, with a substantial performance date set for 1,154 days from award and final completion at 1,245 days.

The project was marked by various delays and disruptions. Substantial performance was only achieved 2,107 days after the award, which was 953 days beyond the original substantial completion date. The certified contract price increased to $223,267,711, representing an increase of over $57 million.

Walsh advanced claims totaling approximately $193 million, including:

• Unpaid or Underfunded Change Orders
• Unpaid Requests for Quotations tied to delay or acceleration
• Unpaid Notices of Intent to Claim

The TTC counterclaimed for roughly $22 million in alleged liquidated damages. The parties disagreed with respect to the cause(s) of the delays and about who was responsible for the delays. Walsh relied significantly on the fact that the TTC’s provided drawing was incomplete when the contract was signed, that there was a lack of access to the site, and that said issues created significant delay.

The Court’s Findings

The Court ruled in favour of Walsh, finding that the Toronto Transit Commission was responsible for much of the delay. The evidence showed that:

• The design was not ready for tender at the time of contract award.
• The project was plagued by constant design changes throughout construction.
• Walsh was entitled to 1,047 compensable days of delay.

On liquidated damages, the Court determined that the contractual provisions were not a genuine pre-estimate of damages but a penalty. This meant that even if Walsh had failed to meet milestone dates, the liquidated damages provisions were unenforceable.

As a result, the Toronto Transit Commission’s $22 million counterclaim failed.

The Court further ordered that:

• Walsh was entitled to be paid the unpaid contract balance of $9,572,100.00, which had been improperly withheld by TTC.
• Walsh was entitled to register a construction lien in the amount of $57,697,627 against TTC, the City of Toronto, the Regional Municipality of York, and York University.

Flow-Through Claims

The decision also addressed contractor flow-through claims. Walsh attempted to pass subcontractor claims through to the TCC by way of flow-through claims, which enable general contractors to seek damages from owners on behalf of subcontractors when the owner’s actions have caused cost overruns or delays. The Court found that Walsh could not claim for flow-through subcontractor claims, and that in order for these claims to be valid, the contractor must be liable to their subcontractors. Walsh had obtained release from its subcontractors in this case.

Expert Evidence

Walsh’s claims were heavily supported by a retained expert, Mr. Ott, who prepared a delay impact analysis report and concluded that Walsh was entitled to 1,047 days of compensable delay. The TTC challenged Mr. Ott’s objectivity, as a result of his ongoing involvement with the project, and ran through the legal test outline in R. v. Mohan [1994] 2 S.C.R. to determine whether his evidence could be introduced. The four factors considered were:

1. Relevance
2. Necessity in assisting the trial of fact
3. Does not trigger any exclusionary rules; and
4. A properly qualified report.

The Court found that Mr. Ott was not bias and that his communication with Walsh was reasonable for obtaining answers and necessary documentation for his analysis, and that he provided the Court with fair, non-partisan evidence.

Key Takeaways

This case offers important insight and considerations when litigating a complex construction matter involving various parties, delays, and a stark difference in the agreed upon contract price and proposed change orders/extras, which are as follows: 

1. Owner Responsibility for Design Readiness – Owners who tender projects with incomplete designs risk liability for subsequent delays.
2. Expert Evidence is Invaluable -Evidence shown by way of an expert’s report in a construction delay claim is necessary to assist the Court in determining what incidents caused the delays, and the value of said delays.
3. Design Change Management – Frequent design changes can result in substantial compensable delay claims, especially where the work is tendered and drawings have not been provided yet.
4. Lien Rights Remain Powerful – Even in large, complex projects involving multiple public entities, lien rights provide strong security for unpaid amounts.

Conclusion

The decision in Walsh Construction v. TTC underscores the importance of realistic project planning, clear contract drafting, and careful delay analysis. It also reaffirms that courts will not hesitate to protect contractors where project owners mismanage design and scheduling responsibilities.

For owners, the case serves as a cautionary tale about the risks of inadequate design preparation and overreliance on liquidated damages clauses. For contractors, it highlights the value of maintaining meticulous records of delays, changes, and claims throughout a project’s lifecycle, and that obtaining an expert to substantiate your delay claims can mean a difference of the Court awarding millions, or nothing at all!

If you need to sue someone over a project with delays, contact Sarah Farquharson – Daniel and Partners.