Lac La Ronge Indian Band v. Dallas Contracting Ltd. et al., (2004) 254 Sask.R. 6 (CA)

Lac La Ronge Indian Band v. Dallas Cont. (2004), 254 Sask.R. 6 (CA);

    336 W.A.C. 6

MLB headnote and full text

Temp. Cite: [2004] Sask.R. TBEd. SE.008

Western Surety Company (appellant/defendant) v. Lac La Ronge Indian Band (respondent/plaintiff/defendant by counterclaim) and Dallas Contracting Ltd. (respondent/defendant/plaintiff by counterclaim) and UMA Engineering Ltd., Arvid Pederson, M.D. Haug & Associates Ltd. and Moir Haug (non-parties/defendants by counterclaim)

(No. 305; 2004 SKCA 109)

Indexed As: Lac La Ronge Indian Band v. Dallas Contracting Ltd. et al.

Saskatchewan Court of Appeal

Vancise, Sherstobitoff and Jackson, JJ.A.

August 13, 2004.

Summary:

The plaintiff contracted with the defendant Dallas to construct a two-cell sewage lagoon. Dallas failed to complete the work on time or in accordance with the contract specifications. The plaintiff refused to give Dallas an extension. It engaged other contractors to modify the work on a temporary basis and then complete the work. The plaintiff sued Dallas on the contract and its surety, Western, on its performance bond. Dallas counterclaimed against the plaintiff and its professional engineers (two companies and their principals), alleging that the engineers contributed to the plaintiff's loss.

The Saskatchewan Court of Queen's Bench, at the end of the trial, granted Dallas leave to discontinue its counterclaim against the engineers, with costs to be spoken to. The court gave judgment for the plaintiff against Dallas and Western, and determined damages. The court dismissed the counterclaim. See 206 Sask.R. 13. Western appealed.

The Saskatchewan Court of Appeal allowed the appeal in part.

Editor's note: The trial judge's decision respecting costs is reported at 228 Sask.R. 46.

Building Contracts - Topic 7502

Performance bonds - General principles - Interpretation of - The Saskatchewan Court of Appeal stated that "Since a performance bond is not insurance, to speak of construing the bond strictly against one party or another, in such circumstances, is not appropriate. The nature of the instrument and the wording of the contract do not support such an approach to contractual interpretation. There is no principle of contract interpretation which compels one to either construe a performance bond strictly or leniently in favour of one party or another." - See paragraph 72.

Building Contracts - Topic 7505

Performance bonds - General principles - Extent of liability of surety - The defendant contractor (Dallas) failed to complete work on time or in accordance with the contract specifications - The plaintiff owner refused to give Dallas an extension and engaged other contractors to modify the work on a temporary basis and then complete it - The plaintiff sued Dallas and Western, its surety - The construction contract had provided for the payment of damages for delay - The Saskatchewan Court of Appeal held that Western's obligation under the performance bond to "complete the contract in accordance with its terms and conditions" did not include liability for the liquidated damages - See paragraphs 55 to 96.

Building Contracts - Topic 7505

Performance bonds - General principles - Extent of liability of surety - The defendant contractor (Dallas) failed to complete work on time or in accordance with the contract specifications - The plaintiff owner refused to give Dallas an extension and engaged other contractors to modify the work on a temporary basis and then complete it - The plaintiff sued Dallas and Western, its surety - The Saskatchewan Court of Appeal held that under the standard form performance bond used here, a surety was not liable for additional costs incurred by the owner to supervise the completion of the work by the new contractor - See paragraphs 97 to 104.

Building Contracts - Topic 7564

Performance bonds - Duties of surety - Duty to complete work - General - The plaintiff sued a contractor (Dallas) and its surety (Western) - Western defended on the basis, inter alia, that it had met its obligations under its performance bond by arranging for a subsequent supervised tender by Dallas - The trial judge disagreed - Under the bond, Western had two options in the event of a default - It could complete the work itself by using its own contractor, or indirectly by finding the "lowest responsible bidder" to do so - Western chose the second option but failed to meet its requirements because Dallas was neither the lowest nor a responsible bidder - The Saskatchewan Court of Appeal affirmed that Dallas was not a responsible bidder - See paragraphs 17 to 36.

Building Contracts - Topic 7564

Performance bonds - Duties of surety - Duty to complete work - General - The Saskatchewan Court of Appeal stated that "In order for a surety to breach its obligation to act promptly, there must be some steps that it can take to remedy the default and complete the contract or obtain a bid for completing the contract." - See paragraph 54.

Cases Noticed:

H.L. v. Canada (Attorney General) et al., [2003] 5 W.W.R. 421; 227 Sask.R. 165; 287 W.A.C. 165 (C.A.), refd to. [para. 3, footnote 2].

Ellis-Don Construction Ltd. v. Halifax Insurance Co., [1998] O.J. No. 4554 (C.A.), dist. [para. 25, footnote 25].

Saskatchewan Housing Corp. v. Canadian Surety Co. (1988), 64 Sask.R. 158 (C.A.), folld. [para. 48, footnote 60].

Whitby Landmark Development Inc. v. Mollenhauer Construction Ltd. et al., [2000] O.T.C. Uned. A62; 4 C.L.R.(3d) 1 (Sup. Ct.), affd. (2003), 178 O.A.C. 49; 26 C.L.R.(3d) 161 (C.A.), not folld. [para. 57, footnote 70].

Citadel General Assurance Co. v. Johns-Manville Canada Inc. et al., [1983] 1 S.C.R. 513; 47 N.R. 280, refd to. [para. 71, footnote 77].

Credit Heights Ltd. v. United States Fidelity & Guaranty Co. (1987), 26 C.L.R. 228 (Ont. H.C.), additional reasons (1987), 59 O.R.(2d) 209 (H.C.), not folld. [para. 76, footnote 83].

Regina (City) v. Graham Construction & Engineering Ltd. et al., [1999] Sask.R. Uned. 152 (Q.B.), affd. [2001] Sask.R. Uned. 6; 2001 SKCA 3, not folld. [para. 76, footnote 84].

Halton Region Conservation Authority v. Toronto Underground Contractors Ltd., [1982] O.J. No. 599 (H.C.), not folld. [para. 76, footnote 86].

Via Rail Canada Inc. v. Saskatchewan Government Insurance et al. (1990), 85 Sask.R 81 (Q.B.), not folld. [para. 76, footnote 87].

United States Fidelity & Guaranty Co. v. Gulf Florida Development Corp. (1978), 365 So.2d 748 (Fla. 1st D.C.A.), refd to. [para. 84, footnote 96].

American Home Assurance Co. v. Larkin General Hospital Ltd. (1992), 593 So.2d 195 (Fla.), refd to. [para. 84, footnote 97].

L & A Contracting Co. v. Southern Concrete Services Inc. (1994), 17 F.3d 106 (5th Cir. Miss.), refd to. [para. 84, footnote 98].

Downingtown Area School District v. International Fidelity Insurance Co. (2001), 769 A.2d 560 (Pa. Commw.), refd to. [para. 84, footnote 99].

Mason v. Albertville (City) (1963), 158 So.2d 924 (Ala.), dist. [para. 88, footnote 106].

Southern Roofing & Petroleum Co. v. Aetna Insurance Co. (1968), 293 F.Supp. 725 (E.D. Tenn.), dist. [para. 88, footnote 107].

Amerson v. Christman et al. (1968), 261 Cal. App.2d 811; 68 Cal. Rptr. 378 (3 App. Dist.), dist. [para. 88, footnote 108].

Aetna Casualty & Surety Co. v. Butte-Meade Sanitary Water Dist. (1980), 500 F.Supp. 193 (D.S.D.), dist. [para. 88, footnote 109].

Pacific Employers Insurance Co. v. Berkeley (City) (1984), 204 Cal. Rptr. 387 (C.A.), dist. [para. 88, footnote 110].

Riva Ridge Apartments v. Fisher (Robert G.) Co. (1987), 745 P.2d 1034 (Colo. App.), dist. [para. 88, footnote 111].

Cates Construction v. Talbot Partners (1997), 53 Cal. App.4th 1420 (2 App. Dist.), affd. (1999), 21 Cal.4th 28 (Sup. Ct.), dist. [para. 88, footnote 112].

Griffin (R.J.) & Co. v. Continental Insurance Co. (1998), 497 S.E.2d 586 (Ga. App.), dist. [para. 88, footnote 113].

Colt Engineering & Construction Ltd. v. Bond Architects & Engineers Ltd. (1993), 10 C.L.R.(2d) 217 (Nfld. T.D.), refd to. [para. 100, footnote 130].

Authors and Works Noticed:

Burke, Barlow, Colloquium on SMCRA: A Twenty Year Review: Reclaiming The Law Of Suretyship (1997), 21 S. Ill. U.L.J. 449, generally [para. 71, footnote 80].

Burrows, Roland, Interpretation of Documents (2nd Ed. 1946), p. 50 [para. 83, footnote 93].

Frakes, Aron J., Surety Bad Faith: Tort Recovery for Breach of a Construction Performance Bond (2002), U. Ill. L. Rev. 497, generally [para. 71, footnote 80].

Lewison, Kim, The Interpretation of Contracts (3rd Ed. 2004), pp. 308, 309 [para. 83, footnote 93].

McGuinness, Kevin Patrick, The Law of Guarantee (2nd Ed. 1996), pp. 776 to 779 [para. 71, footnote 79].

Reynolds, R. Bruce, Whitby Landmark: Much Ado About Nothing? (2002), 12 C.L.R.(3d) 23, pp. 28, 29 [para. 79, footnote 91]; 30 [para. 62, footnote 72].

Scott, Kenneth W., and Reynolds, R. Bruce, Surety Bonds (1994) (2004 Looseleaf), pp. 2-9 [para. 71, footnote 79]; 7-5 to 7-13 [para. 57, footnote 69]; 7-6 [para. 84, footnote 95]; 7-6.1 [paras. 79, 84, footnotes 90, 95]; Appendix B (Unreported Decisions), pp. B-197, B-198 [para. 71, footnote 78].

Counsel:

Douglas Hodson, for Western Surety Company;

Neil Fisher, for Lac La Ronge Indian Band.

This appeal was heard on December 17, 2003, by Vancise, Sherstobitoff and Jackson, JJ.A., of the Saskatchewan Court of Appeal.

Jackson, J.A., delivered the following decision for the court on August 13, 2004.