On April 16, 2020, the Supreme Court of Canada dismissed an application for leave to appeal the Alberta Court of Appeal's decision in HOOPP Realty Inc. v. Guarantee Company of North America. That decision effectively brought an end to a dispute that lasted close to 20 years.
In 1999, Clark Builders and HOOPP Realty Inc. entered into a contract for the construction of a warehouse. Clark Builders delivered a performance bond issued by the Guarantee Company of North America ("GCNA"), using the CCDC standard form at the time, CCDC 221 1979.
HOOPP Realty was not satisfied with the flooring installed by Clark Builders. Clark Builders replaced the floor work and reserved its position that it was not obliged to do so under the contract. HOOPP Realty commenced an action seeking costs arising from the investigation, consultant, and engineering costs related to the floor replacement. The Alberta Court of Appeal dismissed the action between Clark Builders and HOOPP Realty because the contract provided for a mandatory arbitration which had not been commenced within the limitation period. As a result, no finding was made on the merits of whether Clark Builders was obliged to replace the floor or whether it was liable for any costs incurred by HOOPP.
Meanwhile, HOOPP had commenced an action against GCNA under the performance bond, which it continued to pursue. The issue was whether GCNA had been relieved of any obligations under the performance bond given that HOOPP's claim under the contract against Clark Builders was barred by the expiry of the limitation period.
At the end of a summary trial, the trial judge held GCNA had not been relieved of its liability. This decision was based on the reasoning that the expiry of the limitation period did not "extinguish" the claim against Clark Builders, but only barred the remedy.
On appeal, three arguments were raised by GCNA:
- GCNA had no remaining obligations since the underlying debt had been extinguished;
- GCNA was entitled to raise any defence that the principal could raise, including any limitation defence; and
- GCNA's obligation was not freestanding, but only collateral to the liability of the principal.
On the first argument, the Court of Appeal agreed with the trial judge that the expiration of a limitation period under Alberta law does not result in the complete extinguishment of the underlying obligation.
On the second and third arguments, which both relate to the nature of a surety's obligation, the Court held that the barring of a remedy against Clark Builders did not necessarily bar HOOPP's remedies against the surety under the performance bond.
The Court relied on wording of the performance bond, whereby Clark Builders and the surety bound themselves "jointly and severally", as support that the surety could have freestanding obligations to HOOPP under the bond. In addition, there was no provision requiring HOOPP to first exhaust its remedies against Clark Builders before its call on the performance bond.
Although GCNA argued that the usage of "joint and several" in a performance bond has a different meaning than its common usage, no authorities were provided for that proposition, and the Court rejected it. Instead, the Court of Appeal adopted the following interpretation offered in Hudson’s Building and Engineering Contracts, 13th ed. (London: Sweet and Maxwell, 2015), at p. 1132:
10-037 It is submitted that where, as is usually the case in construction contracts, the obligation to be guaranteed arises under a separate contract between the principal debtor and creditor, the fact that the liability to pay under the bond may be expressed to be joint and several by the surety and debtor, although discharged by unilateral due performance on the part of the debtor, is not the same thing as joint liability under the principal contract, and so is in no way inconsistent with the surety’s true status as a guarantor. If this view is correct, no practical significance should attach to the presence of the principal debtor as an additional party liable under the bond in cases where it is the rights and liabilities inter se of the bondsman and obligee creditor which are in issue. (Emphasis added)
On that basis, the Court summarized:
 In summary, it can be accepted that in most respects the obligation of a surety is coextensive with the obligations of the principal debtor. That means that the surety is not exposed to a wider liability than that of the principal debtor under the principal contract, and that any substantive defences open to the principal debtor will be open to the surety. It does not, however, mean that the surety can have no independent obligations under the performance bond. Whether there are such independent obligations depends on the wording of the bond. In this case, it is clear that HOOPP Realty had several claims against Clark Builders and The Guarantee Company, and it was entitled to pursue one or both of them. Having failed in its claim against Clark Builders, it nevertheless retains a potential claim against The Guarantee Company.
On the issue of the limitation defence, the Court held that as the principal is obliged to indemnify the surety for any funds paid under the performance bond, the principal does not have the protection of the Limitations Act until the limitation has run against both the principal and the surety. The same is true for the surety. The appeal was dismissed.
Although the facts giving rise to this decision may be unique, the "joint and several" language relied on by the Alberta Court of Appeal is found in various standard form performance bonds, including the current CCDC performance bond form 221-2002, Surety Association of Canada's renewable performance bond for a multi-year contract, and the Form 32 performance bond for Ontario's Construction Act. It will be interesting to see what impact this case has on the case law in this area, particularly outside the Province of Alberta.