Ontario judge blocks Metrolinx effort to cancel Bombardier contract
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Metrolinx should not be allowed to unilaterally terminate its $770-million light rail vehicle contract with Bombardier, a judge has ruled.
In a highly anticipated decision released Wednesday morning, Judge Glenn Hainey of the Superior Court of Justice granted the rail manufacturer’s application for an injunction that, at least for now, prevents the transit agency from cancelling the deal.
The ruling is a victory for Bombardier, but it could yet prove only temporary.
Metrolinx’s claim that the company’s failure to deliver vehicles on time means it is in default will now be decided by a dispute-resolution board process laid out in the contract.
The case centred around Metrolinx’s 2010 purchase of 182 light rail vehicles, which it intended to run on the Eglinton Crosstown, Finch West LRT and other Toronto rail lines. Justice Hainey heard arguments on Mar. 21, but reserved his judgment at the time.
In its submissions, Metrolinx, which is the provincially owned agency responsible for transit planning in the GTHA, argued that the Montreal-based rail manufacturer had shown a “persistent inability to deliver on its contractual obligations.”
As evidence, the agency cited Bombardier’s failure to deliver the first pilot vehicles for the order, which were supposed to arrive in the spring of 2015.
The agency filed a notice of default against the company in July, followed in October by a notice of intention to terminate the deal.
Metrolinx said that the dispute-resolution process doesn’t apply to its right to terminate the deal for default.
Justice Hainey flatly rejected that argument, however.
“It does not make commercial sense to exclude (Metrolinx’s) right to terminate the contract for material default, which is one of the most serious disputes that could arise, from the mandatory dispute-resolution process agreed to by the parties,” he wrote.
Doing so would “render the dispute-resolution process in the contract ineffective.”
The judge agreed with Bombardier’s submissions that the company would suffer “irreparable harm” if Metrolinx were permitted to terminate the deal.
“The stigma resulting from a termination of the contract would likely result in lost LRV business for (Bombardier) in the future,” he wrote, and the damage that would do the company “is impossible to quantify.”
Metrolinx’s lawyers said, in court, that the agency urgently needed to find another vehicle supplier in order to have a fleet ready for the Crosstown’s 2021 opening, and was already in talks with another company.
The agency alleged that Bombardier had exposed it to “extreme” financial losses because Metrolinx would be liable to pay damages of up to $500,000 a day to the consortium building the line, if the manufacturer failed to deliver the Crosstown vehicles on time.
The judge said he was not convinced that the agency actually intends to cancel the order, however.
“It appears to me that (Metrolinx) is using the threat of termination for negotiating purposes,” he wrote. He cited a letter that Bruce McCuaig, then-CEO of Metrolinx, wrote to Bombardier after serving the company with the notice of intention to terminate.
“While we recognize that the notice could lead to the conclusion that continuing with the contract is not viable, we are interested in finding a way forward with the company,” McCuaig wrote.
It’s not clear how long the dispute-resolution process could take, but Hainey warned that his ruling was conditional on Bombardier taking “all reasonable steps to expedite” a decision by the dispute-resolution board.
If it did not, the judge said that Metrolinx could appeal to him to “seek an appropriate remedy.”
The injunction would also be lifted if the dispute-resolution board agreed that Bombardier was in default. However, the company could likely prolong the process by appealing the board’s decision in court.
In a statement issued Wednesday afternoon, Bombardier welcomed the ruling, saying it “confirms our belief that Metrolinx acted inappropriately in seeking to avoid the dispute-resolution provisions of the contract.”
The company said it remains “on track to deliver high-quality, state-of-the-art light rail vehicles to support the Eglinton Crosstown expansion” and called for “constructive discussions with Metrolinx to pave a new path forward to serve the people of Ontario.”
In a terse statement, Metrolinx president and CEO John Jensen said: “Nothing in today’s decision changes our focus on delivering high-quality vehicles on time. We remain uncompromising on that point.
“We are reviewing the decision and identifying the best path forward.”
Bombardier instigated the lawsuit in February when it filed an application for an injunction to prevent Metrolinx from terminating the contract.
The company alleged that because some of the LRT lines originally planned have since been cancelled or deferred, Metrolinx no longer needed all 182 of the vehicles and was attempting to “unlawfully” break the deal.
The company challenged Metrolinx’s notice of default. It argued that the first pilot has been ready for testing since last fall, but Metrolinx has refused to accept it. The company claimed it was on schedule to deliver a fleet of 76 LRVs for the Crosstown in time for the line to open as scheduled.
The court decision is a rare spot of good news for Bombardier following wave after wave of bad press in recent months. In early April, protesters demonstrated outside the company’s Montreal offices to denounce pay hikes it planned to give executives, despite recently receiving more than $1 billion in assistance from the federal and Quebec governments. Bombardier has since said it will defer the executives’ increased compensation.
The company continues to face public and political backlash for failing to deliver the TTC’s new fleet of streetcars on time.
In March, Swedish officials arrested a Bombardier employee working in that country as part of an anti-corruption investigation connected to railway projects in Azerbaijan.
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