The Surety Association of Canada (SAC) recently released its SAC 2021 Bond Forms for Bid Bonds, Performance Bonds, and L&M Payment Bonds. According to SAC, the changes incorporated were being contemplated by the Canadian Construction Documents Committee (CCDC) as part of their efforts to update the standard CCDC bond forms. There is currently no anticipated release date for the CCDC bond forms but it is expected that the updated CCDC bond forms will be similar to the SAC bond forms.
Performance Bond
The SAC 2021 Performance Bond is meant to be used in all of Canada but is based on Form 32 that is prescribed by Ontario’s Construction Act. For example, the SAC Performance Bond includes provisions allowing for a Pre-Notice Meeting within a specific timeframe and strict timelines for the surety to respond to a Notice of Claim.
In addition, the SAC 2021 Performance Bond addresses the concern raised by the 2019 case of HOOPP Realty Inc. v. The Guarantee Company of North America, 2019 ABCA 443. The Alberta Court of Appeal’s decision cast doubt on the principle that a surety’s liability only arises from the liability of the principal. In the HOOPP case, The court held that, depending on the language of the bond, it was possible for the surety to have independent obligations under the performance bond. The language relied on by the court, that the liability to pay is “joint and several” by the surety and the principal, is currently found in the standard CCDC bond form and Ontario’s Form 32.
The SAC 2021 Performance Bond has amended the recitals portion of the bond to strengthen the joint and several nature of the obligation. In addition, new language has been added at section 10.2 to expressly limit the surety’s obligation, as follows:
10.2 The Surety’s responsibility to the Obligee under this Bond in respect of any Surety Option or Obligee’s Direct Expenses shall be secondary to, and not greater than, that of the Principal under the Contract. The Surety shall not be obligated to pay any sums which the Principal is not obligated to pay the Obligee or for which the Obligee’s remedy against the Principal is barred.
Labour & Material Payment Bond
The SAC 2021 Labour & Material Payment Bond was also based on the form prescribed by Ontario’s Construction Act. Similar to the Performance Bond, the SAC 2021 Labour & Material Payment Bond also includes strict timelines for a surety to deliver a response to a Claim. The response must include details on any amounts that are in dispute and reasons for that dispute.
Whereas Ontario’s Form 31 extends some protection to second-tier subcontractors and suppliers, for amounts the “Contractor would have been obligated to pay the Sub-subcontractor under the Construction Act”, made possible because of the lien and holdback provisions of Ontario’s Construction Act, the SAC 2021 Labour & Material Payment Bond limits coverage to first-tier claimants only. This was done as the SAC bond is meant to be used in every province, many of which have different approaches to lien/holdback rights.
The SAC 2021 Labour & Material Payment Bond also addresses the Supreme Court of Canada’s 2018 case of Valard Construction LTD v. Bird Construction Company, 2018 SCC 8. In Valard, the SCC found that under a trustee labour & material payment bond form, the trustee would assume all the responsibilities of a traditional trustee. The SAC bond form has added a new paragraph to nullify the impact from this decision, as follows:
4. The Bond or the trust under Section 0 does not impose on the Obligee any legal, equitable or other obligations or duties to any Claimant, including but not limited to any obligation to notify any Claimant of the existence of the Bond or the trust.
This language directly addresses the issue and fact pattern of Valard in specifying that the bond does not impose on the obligee the responsibilities of a traditional trustee, including the obligation to notify any claimant of the existence of the bond.
Conclusion
SAC’s release of the 2021 bond forms, along with the anticipated release of the new CCDC bond forms, sets a standard for the surety industry across Canada.
It should be noted that in Ontario, for public contracts with a price exceeding $500,000, a contractor is required to furnish the owner with a performance bond and labour and material payment in the prescribed forms, being Form 32 and 31, respectively. It will be interesting to see if Forms 31 and 32 will be amended in the future to reflect the recent case law developments, as has been done in the 2021 SAC bond forms.