Standard Form Performance Bond Covers More than Brick and Mortar

On October 16, 2000, Justice Paul Lamek of the Superior Court of Justice released his decision in an action which may result in the revision of the standard form Performance Bond used in the construction industry throughout North America. The action, which was dismissed with costs, related to a $20 million condominium project in Whitby, Ontario, as originally reported in the June issue of Lexpert. The action was commenced by the developer, Whitby Landmark Development Inc., against Mollenhauer Construction Limited and Zurich Indemnity Company of Canada.

Interestingly, Landmark’s claim was dismissed on the basis of its conduct in failing to bring its claim under the bond in a timely manner. The other aspect of the claim was 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. On this issue, the court held that the bond responds to the claim for savings. This result could necessitate a revision to the standard form of bond, to exclude liability for collateral obligations of this kind.

Whitby Landmark Development Inc. is appealing the decision to the Court of Appeal. It is not known at this time if Zurich will cross-appeal on the issue of whether the bond responds.
Harvey Kirsh and Roger Gillott (now of Osler Hoskin & Harcourt LLP) represented the defendant bonding company, Zurich, while W. Andrew McLauchlin and Robert Kennaley of Glaholt & Associates represented the plaintiff, Whitby Landmark.