Standard Form Performance Bond to be Revised?

Justice Paul Lamek of the Superior Court of Justice has reserved his decision in an action which could necessitate an alteration to the standard form Performance Bond used in the construction industry throughout North America. The action relates to a $20 million condominium project in Whitby, Ontario, and was commenced by the developer, Whitby Landmark Development Inc., against Mollenhauer Construction Limited and Zurich Indemnity Company of Canada. The issue is whether a Performance Bond responds strictly to claims for bricks and mortar, that is, the physical aspects of construction, or whether it also guarantees the financial obligations of the contractor, such as the obligation to remit its share of the cost savings on the project to the owner. If it is held that the bond responds, it is likely that the standard form of bond will have to be revised to exclude liability for collateral obligations of this kind. The issue of collateral obligations under bonds has been a frequent topic at seminars and meetings of the Canadian Bar Association’s construction law section, and this case has therefore generated significant interest.

Harvey Kirsh and Roger Gillott of Cassels Brock & Blackwell LLP are representing the bonding company, Zurich, and W. Andrew McLauchlin and Robert Kennaley of Glaholt & Associates are litigating on behalf of Whitby Landmark.