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GUARANTEES AND INDEMNITIES - Liability of guarantor - Indemnity - Performance bonds

Friday, January 17, 2020 @ 8:47 AM  

Lexis Advance® Quicklaw®
Appeal by the defendant from trial judgment finding its obligation under a performance bond was not extinguished. C agreed to construct a warehouse for the respondent. The appellant provided a performance bond. The floor of the warehouse was defective. C agreed to replace the floor. The parties agreed the performance bond would extend to the remediation work. The respondent then commenced an action against C for investigation, consulting and engineering costs relating to the failed floor and legal costs. The action was dismissed because the mandatory arbitration was not commenced within the limitation period. The respondent had also commenced an action against the appellant under the performance bond. The trial judge found that the expiry of the limitation period did not extinguish the claim against C, but only barred the remedy and that the respondent was not relieved of liability under the performance bond.

HELD: Appeal dismissed. The trial judge correctly determined that under Alberta law the expiration of a limitation period did not result in the complete extinguishment of the underlying obligation under the performance bond. Where there was a default, the principal (the respondent) had a potential independent claim against both C and the appellant. There was no clear wording in the performance bond that made the liability of the appellant contingent on the liability of C. The wording of the bond supported the respondent’s position. The wording of the bond that the appellant and C were jointly and severally liable under the bond indicated that the appellant owed freestanding obligations to the respondent under the performance bond, and that its obligations were not merely concurrent with or secondary to the obligations of C. The joint and several wording in the performance bond confirmed that the obligations under the performance bond were distinct from those under the construction contract, and that the appellant had a several obligation to make sure that C performed its obligations to the respondent. There was no provision requiring the respondent to exhaust its remedies against C before it called on the appellant to remedy any default by C. The performance bond imposed an independent, several obligation on the appellant, and procedural bars to remedies under one were not necessarily bars to the other.

HOOPP Realty Inc. v. Guarantee Co. of North America, [2019] A.J. No. 1540, Alberta Court of Appeal, F.F. Slatter, F.L. Schutz and R. Khullar JJ.A., November 19, 2019. Digest No. TLD-January132020010