Originally published October 2017
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SURETY AND BOND ISSUES
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The Alberta Court of Queen's Bench holds surety liable under a performance bond for consequential damages suffered by an obligee as result of defaulting contractor.
Vermilion & District Housing Foundation v Binder Construction Limited, 2017 ABQB 365, per Nielsen, J. [4242]
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FACTS AND ISSUES
In 2004, Binder Construction Limited ("Binder"), as general contractor, entered into a construction contract (the "Bonded Contract") with Vermilion & District Housing Foundation ("Vermilion") for the construction of an addition to and the modernization of an existing senior's lodge (the "Project"). Binder's scope of work included the supply and installation of resilient sheet flooring ("RSF") for the Project.
Binder obtained a performance bond (the "Performance Bond") issued by The Guarantee Company of North America ("GCNA"). The Performance Bond named Binder as principal, Vermilion as obligee, and GCNA as surety.
Following completion of the Project, problems were encountered with the RSF which had been installed. In 2006, an inspection of the RSF determined that excessive moisture from either groundwater or a high water table and hydrostatic pressure appeared to have forced moisture through the floor slab which was then trapped under the RSF, causing the adhesive to break down and the RSF to bubble and ripple.
After Binder and GCNA failed to provide Vermilion with any solution, in 2009 Vermilion installed weeping tile and replaced the defective RSF. In having that work carried out, Vermilion incurred substantial costs. Vermilion also suffered a loss of income as residents had to vacate the premises while the flooring was replaced.
Vermilion sued Binder, GCNA and others, advancing a number of claims including breach of the Bonded Contract and seeking recovery against GCNA pursuant to the Performance Bond. Vermilion sought to recover the costs incurred to install the weeping tile and to replace the RSF and recovery for its loss of income, however, the total amounts claimed were less than the penal sum of the Performance Bond.
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HELD: Binder was held liable for 65% of Vermilion's damages for its negligence and breach of the Bonded Contract and GCNA was held liable under the Performance Bond for the amounts awarded against Binder, including loss of income.
The Court held the work of Binder was deficient, it breached its obligations under the Bonded Contract, and was negligent. The Court apportioned Vermilion's damages...
