I agree that AC should be in T1-NEW. Everyone knew that was the plan for years. T1-NEW has been designed for AC's operations. It would have been a major inconvenience for most AC passengers if they had to split their domestic operations between two terminals.
But look at this from WS's point of view. They need guarenteed access to perferential gates in YYZ to run an efficient hub operation at that airport, and WS is really big on efficiency. Anyone who made a connection on Tango in T3 and had to hike from A2 to C23 knows that you cannot run an efficient operation that way. Since WS was promised preferential gates in T1-NEW, they made plans to move their hub to YYZ. They can't really undo those plans now because they have already released the new schedule, accepted thousands of bookings for the new flights, and spent quite a bit preparing for the move. WS has every right to sue the GTAA over this.
What I suspect will happen is that the GTAA will offer WS preferential gates in T3 (the old shuttle gates, plus some of the others nearby) to avoid a lawsuit, and SG will get stuck with some "A" gates in the satellite terminal, plus maybe a few "C" gates to make connections interesting. Who knows how the GTAA will squeeze in all the transborder operations if they have to use the "A" gates for domestic flights, or where they will find enough gates for SG's expansion plans.
This whole mess proves that the idiots running the GTAA should not be allowed to manage the most important hub airport in the country without some measure of accountability.