Sorting Out Whitby Landmark

Duncan W. Glaholt

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WhitbyLandmark

Lac La Ronge

Doe v.Canadian

Surety

ThomasFuller

Citadel v.Johns

Manville

ElanceSteel

PaulD’Aoust

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WhitbyLandmark

Lac La Ronge

Doe v.Canadian

Surety

ThomasFuller

Citadel v.Johns

Manville

ElanceSteel

PaulD’Aoust

Doe v. Canadian Surety Co. [1937] S.C.R. 1

Bonds as a “specialty” One law for all sureties An undertaking given by the contractor

without the consent of the surety was a variation of the contract discharging the surety.

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WhitbyLandmark

Lac La Ronge

Doe v.Canadian

Surety

ThomasFuller

Citadel v.Johns

Manville

ElanceSteel

PaulD’Aoust

Thomas Fuller Construction Co. (1985) Ltd. v. Continental Insurance Co.,

[1973] 3 O.R. 202 (H.C.)

It is not a breach not to report minor delays.

Notice was necessary, but only when default was so serious that a declaration of default and a call upon the bonding company to perform is required.

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WhitbyLandmark

Lac La Ronge

Doe v.Canadian

Surety

ThomasFuller

Citadel v.Johns

Manville

ElanceSteel

PaulD’Aoust

Citadel General Assurance Co. v. Johns-Manville Canada Inc.

(1983), 147 D.L.R. (3d) 593 (S.C.C.)

Compensated v. gratuitous suretyship Only a prejudicial non-compliance is a

defense Even then, only to the extent of the

prejudice

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WhitbyLandmark

Lac La Ronge

Doe v.Canadian

Surety

ThomasFuller

Citadel v.Johns

Manville

ElanceSteel

PaulD’Aoust

Falk Bros. Industries Ltd. v. Elance Steel Fabricating Co. Ltd.

(1989), 62 D.L.R. (4th) 236 (S.C.C.)

Bonds as a class insurance The world post Citadel Failure to give notice is less serious than

failure to bring an action Relief from forfeiture can be granted under

Insurance Act in respect of delayed notices of claims.

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WhitbyLandmark

Lac La Ronge

Doe v.Canadian

Surety

ThomasFuller

Citadel v.Johns

Manville

ElanceSteel

PaulD’Aoust

Paul D’Aoust Construction Ltd. v. Markel Insurance Company of Canada

(2001), 208 D.L.R. (4th) 225 (S.C.C.)

Bonds as a “specialty” again To be effective, an original signed

bond must be delivered.

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WhitbyLandmark

Lac La Ronge

Doe v.Canadian

Surety

ThomasFuller

Citadel v.Johns

Manville

ElanceSteel

PaulD’Aoust

Whitby Landmark Developments Inc. v. Mollenhauer Construction Ltd. (2002), 4

C.L.R. (3d) 1 (Ont. S.C.J.)

• Bonds as a contract

• Failure to give notice of default fatal

• Bond extends to cost savings provisions of contract

Justice Lamek:

“If Zurich intended to restrict the obligations that it undertook or to eliminate certain of Mollenhauer’s contractual obligations from the scope of the bond, it could easily have done so.  It did not.  Instead, Zurich issued a bond that obliged it, in the event of Mollenhauer’s default, to "complete the Contract in accordance with its terms and conditions".  It would be difficult to formulate a provision that would more easily embrace all of the obligations of Mollenhauer’s under its contract with Landmark.”

Justice Lamek:

“If Zurich intended to restrict the obligations that it undertook or to eliminate certain of Mollenhauer’s contractual obligations from the scope of the bond, it could easily have done so.  It did not.  Instead, Zurich issued a bond that obliged it, in the event of Mollenhauer’s default, to "complete the Contract in accordance with its terms and conditions".  It would be difficult to formulate a provision that would more easily embrace all of the obligations of Mollenhauer’s under its contract with Landmark.”

Justice Lamek:

“If Zurich intended to restrict the obligations that it undertook or to eliminate certain of Mollenhauer’s contractual obligations from the scope of the bond, it could easily have done so.  It did not.  Instead, Zurich issued a bond that obliged it, in the event of Mollenhauer’s default, to "complete the Contract in accordance with its terms and conditions".  It would be difficult to formulate a provision that would more easily embrace all of the obligations of Mollenhauer’s under its contract with Landmark.”

Justice Lamek:

“If Zurich intended to restrict the obligations that it undertook or to eliminate certain of Mollenhauer’s contractual obligations from the scope of the bond, it could easily have done so.  It did not.  Instead, Zurich issued a bond that obliged it, in the event of Mollenhauer’s default, to "complete the Contract in accordance with its terms and conditions".  It would be difficult to formulate a provision that would more easily embrace all of the obligations of Mollenhauer’s under its contract with Landmark.”

Reaction to Whitby Landmark Trial Decision:

J. Steven Tatrallyay:

Decision “will have a major impact on the surety industry”

R. Bruce Reynolds:

Decision is “much ado about nothing”

Court’s statement that the CCDC performance bond clearly and unambiguous-ly rendered the surety liable for collateral mone-tary obligations was just plain wrong.

Whitby Landmark Developments Inc. v. Mollenhauer Construction Ltd. (2003), 67

O.R. (3d) 628 (C.A.)

“There is no basis in the language of the bond or in the circumstances surrounding its negotiation or completion to suggest that the cost-sharing provisions of the construction contract are not included as bonded losses.”

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WhitbyLandmark

Lac La Ronge

Doe v.Canadian

Surety

ThomasFuller

Citadel v.Johns

Manville

ElanceSteel

PaulD’Aoust

Meanwhile, in Saskatchewan

Lac La Ronge Indian Band v. Dallas Contracting Ltd. (2004), 35 C.L.R. (3d) 236 (Sask. C.A.)

Facts:

Compensated surety CCDC performance bond Late completion Termination Liquidated damages

Trial Decision (2001), 9 C.L.R. (3d) 25 (Sask. Q.B.):

Surety was liable with respect to liquidated damages for delay.

Trial Judge:

the phrase “complete the Contract” does not confine the surety’s liability to completing the “work” described in the Contract;

by the terms of the Contract, the Band may deduct liquidated damages from the amount otherwise payable to Dallas under the Contract and, therefore, may deduct them from the remaining funds;

the definition in the Bond of the term “balance of the Contract price” confirms the ability to deduct liquidated damages from the amount otherwise payable to Dallas.

Court of Appeal (Jackson J.A.)

(2004), 35 C.L.R. (3d) 236 (Sask. C.A.)

Surety was not liable with respect to liquidated damages for delay.

Whitby

In case of default, surety has 3 options:

- remedy default

- complete contract

- obtain new bid

Lac La Ronge

In case of default, surety has 3 options:

- remedy default

- complete contract

- obtain new bids

Whitby

There was no qualification on type of default referred to

Third option did not limit surety’s obligation to funding the completion of physical construction, but included other costs and damages.

Lac La Ronge

Surety did neither, but the measure of damages can’t be greater than if it had fulfilled either option.

Surety’s obligation can’t be greater under option 2 than under option 3, because no surety would ever use option 2 if it meant greater liability

Whitby

Third option required surety to pay costs of completion less balance of contract price, which was defined as total amount payable by obligee to principal less amount paid by principal to obligee.

Therefore, amount surety had to pay to complete was higher than it would have been without cost sharing agreement.

Lac La Ronge

“Balance of contract price” does not mean damages award can be deducted from amount payable.

“Total amount payable” is amount of contract.

Words “complete the contract” can more easily be interpreted as “complete the work” than as “perform all obligations under the contract”.

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WhitbyLandmark

Lac La Ronge

Doe v.Canadian

Surety

ThomasFuller

Citadel v.Johns

Manville

ElanceSteel

PaulD’Aoust

The End