The Ontario Superior Court of Justice recently considered the purpose of a performance bond and the scope of a surety’s duties in investigating a claim in Graphic Packaging International Canada, ULC v 2477621 Ontario Inc and Talisman Casualty Insurance Company, 2025 ONSC 7210.
Background
The case arose from a Quebec project but was litigated in Ontario. Graphic Packaging International Canada, ULC (“Graphic”) sold a contaminated former paper mill in Jonquière, Quebec to 2477621 Ontario Inc. (“247”).
Although Graphic sold the property, Quebec environmental law still required Graphic, as the last operator, to complete the site rehabilitation. Under the Agreement of Purchase and Sale (“APS”), 247 assumed responsibility for demolishing the mill structures and provided a $2 million performance bond from Talisman Casualty Insurance Company (“Talisman”) naming Graphic as the obligee. The APS required 247 to provide a demolition scope of work within 30 days and complete the demolition within 24 months. It did neither.
247’s default had immediate consequences. Demolition was the first stage of the rehabilitation process. Without it, Graphic could not properly advance the cleanup, and the Quebec regulator began increasing pressure on Graphic to act. Graphic therefore turned to the bond for the protection it had bargained for.
Talisman’s response
Graphic notified Talisman that it was considering declaring contractor default and requested the conference contemplated by the bond. Talisman did not respond.
Graphic later declared 247 in default and notified Talisman of its principal’s default. Talisman responded with a broad request for documents and later denied liability on multiple grounds, including alleged owner default, deficiencies in the default notice, failure to satisfy the “Balance of the Contract Price” requirement, prejudice, and variation of the bonded contract.
The Court’s response
Under pressure from the Ministry to complete the cleanup and faced with 247’s delays and Talisman’s denial, Graphic took matters into its own hands. It obtained injunctive relief, retook possession of the paper mill property, hired its consultants and contractors to carry out the work remaining under 247’s contract, and then brought an action against 247 and Talisman in Ontario under the bond. In that action, Graphic moved for summary judgment to enforce its claim against 247 for the expenses and against Talisman for breach of the performance bond.
The court was unimpressed with Talisman’s response. In particular, it held Talisman’s document request to be unsupported by the wording of the performance bond, describing it as “a snowblower approach” to bury Graphic in a document and data request resembling documentary discovery in litigation. The request for a long list of largely irrelevant documents, the court said, telegraphed an intention to renege on the performance bond. The court concluded that, instead of honouring its obligations, Talisman had chosen “inaction, obstruction, and ultimately an illogical statement of denial of liability.”
Talisman unsuccessfully alleged as follows:
- Graphic failed to satisfy the conditions precedent to Talisman’s obligation. The court disagreed, holding that Graphic was not in default and that it had provided the requisite notices to the surety as required by the bond. The court also construed correspondence from Graphic indicating that it was retaining a demolition contractor as satisfying the bond’s requirement to agree to pay the balance of the contract price to Talisman or a selected contractor.
- Graphic’s conduct prejudiced Talisman’s rights under the bond by failing to provide the requested documents and retaining a contractor and arranging to perform the work without Talisman’s consent, among other things. However, the court held that the bond contained no right to ask for the information or documents in Talisman’s request; it did contain a right to a meeting, but Talisman did not respond to Graphic’s request for one. As for moving ahead without Talisman’s consent, the court held that Talisman’s history of tardy or counterproductive responses meant that Graphic’s actions were reasonable.
- Graphic materially varied the contract to Talisman’s detriment without Talisman’s consent by providing 247 with periods of grace. The court held that allowing the contractor more time to perform the work could not prejudice Talisman. By providing Talisman timely notice of 247’s delay and anticipatory notice of Graphic’s intention to declare a default, Graphic provided Talisman with ample opportunity to engage with 247 and make plans to substitute 247.
The court held that the cost of demolition exceeded the limits of the $2 million bond. It held Talisman to be liable to Graphic under the performance bond up to $2 million and the balance of damages remained recoverable against 247.
Analysis
Arguably, Graphic Packaging should be read carefully because it involved a bespoke, non-Canadian bond and contains several generalized statements about surety law that may go too far.
In our view, that caution is fair, but only up to a point. The decision should not be read as holding that a surety has no meaningful right to request information or documents unless the bond expressly grants one.
Read broadly, some passages of the judgment could be taken that way, and that would sit uneasily with established surety practice. But the better reading of the case is narrower. The real problem was not that Talisman investigated; the problem was that the court viewed the investigation as inadequate. The surety’s investigation amounted to a request for documents that the court found to be overbroad, largely irrelevant, and deployed in place of meaningful action while the obligee was under mounting regulatory pressure. On that narrower reading, the criticism is fair as a doctrinal caution, but it does not undercut the result on these facts.
Likewise, as a general proposition, it is too broad to say that giving the contractor more time “cannot” prejudice a surety. In some cases, extensions or indulgences may materially alter the surety’s risk. The safer reading is that, on these facts, the indulgences given to 247 did not prejudice Talisman because 247 was already in obvious default, Talisman had early notice of that default, and the extra time simply gave the contractor another chance to do what it should have done from the outset.
Such critiques are fair as cautions against overreading the judgment, but not fair if they are taken to diminish the force of the decision on its facts. This was not a marginal case. The contractor had not delivered the required scope of work, had not completed the demolition, and had not meaningfully started the work within the contractual timeframe. Talisman received repeated notices, did not respond to the requested conference, made an overbroad document demand, advanced a late and unsuccessful owner-default theory, and ultimately denied liability on grounds the court found unpersuasive.
Graphic Packaging stands on its facts but should be read with caution considering some of those facts are unique. With that qualification, sureties would do well to ensure that a timely, targeted and meaningful investigation is undertaken, and avoid the “snowblower” approach.