ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO: CV-13-472914
DATE: 20130625
B E T W E E N:
OHL Construction Canada and Fomento de Construcciones Y Contratas Canada Limited Partnership
Plaintiffs
- and -
Continental Casualty Company and Advanced Construction Techniques Ltd.
Defendants
Harvey J. Kirsh,
for the Plaintiffs
Andrew Heal,
for the Defendants
HEARD: June 5, 2013
Reasons For Decision
FIRESTONE J.
[1] The defendants bring this motion for a determination before trial of a question of law and to have the action stayed or dismissed pursuant to Rules 21.01(1)(a), 21.01(3)(c) and (d) of the Rules of Civil Procedure, R.R.O. 1990, Reg.194 and section 106 of The Courts of Justice Act, R.S.O.1990 c.C.43.
[2] The issues for determination on this motion are set forth in the defendants’ factum as follows:
(a) whether it is plain and obvious that the plaintiffs cannot sustain a claim against the defendant Continental Casualty Company for an amount greater than the performance bond amount and,
(b) whether the remainder of the bond action should be stayed in favour of the lien proceedings.
[3] The defendant’s advised the Court during oral argument that they are not seeking a stay of this action pending the outcome of the lien proceedings, but rather are seeking an order that the amount claimed in this action must be limited to the amount of the performance bond, namely, $3,915,522.50.
Factual Background
[4] This action arises from a construction contract regarding the design and construction by the Toronto Transit Commission (“TTC”) of a new underground subway line, with twin bored tunnels, extending from the existing Downsview station in the City of Toronto to the Vaughan Corporate Centre in the City of Vaughan. This project, known as the “Toronto-York Spadina Subway Extension”, consists of 8.6 km of subway line and six new subway stations.
[5] Pursuant to a contract entered into around February 2, 2011, the plaintiffs, OHL Construction Canada and Fomento de Construcciones Y Contratas Canada Limited (“OHL/FCC”), agreed to carry out construction work, including the excavation and tunneling for the North twin subway tunnels, and the York University station site works, including the full excavation for the York University station.
[6] Because of the potential for damage to the Schulich Building located on the York University site from induced settlement, subsidence, movement and ground loss resulting from both the tunneling and the subway station excavation activities, the TTC and its consultants designed the subway project to include a “compensation grouting” program.
[7] This involved the injection of grout into the soil in order to stabilize the soil and fill voids caused by excavation and tunneling. It also included an excavation monitoring program, the purpose of which was to measure any movement of the structure.
[8] On June 2, 2011, the plaintiffs and the defendant, Advanced Construction Techniques Ltd. (“ACT”) entered into a subcontract agreement whereby ACT agreed to provide compensation grouting and excavation monitoring services specified in the TTC contract. Pursuant to the subcontract, ACT obtained and delivered to the plaintiffs a performance bond executed on June 17, 2011. The performance bond amount was $3,915,522.50.
[9] The plaintiffs allege that ACT did not perform the compensation grouting work properly or in a good and workmanlike fashion or in accordance with the specifications for the subway project thereby causing severe delays to the subway project’s schedule.
[10] As a result of the dispute between ACT and the plaintiffs about remuneration for unpaid work on the project, delay and inadequate site preparation and access, ACT commenced a separate lien action on August 30, 2012 against OHL/FCC and York University. OHL/FCC defended that action and advanced a counterclaim.
[11] On February 15, 2012, OHL/FCC served a Notice of Default upon ACT that included particulars of alleged multiple breaches of the terms of the ACT subcontract. On February 21, 2012, OHL/FCC wrote to Continental Casualty to make a formal demand on the performance bond.
[12] OHL/FCC sent subsequent letters to Continental Casualty advising among other things, that by reason of ACT’s multiple breaches of the terms of the subcontract, OHL/FCC failed to achieve a contractual “milestone” deadline date. This exposed OHL/FCC to a substantial claim by the TTC for liquidated damages in the sum of $71,000 for every calendar day the work was delayed beyond May 13, 2012.
[13] On May 25, 2012, counsel for OHL/FCC wrote to Continental Casualty alleging that its inaction and failure to take any steps under the performance and constituted a breach of its bonding obligations. Continental Casualty disputed the claim that ACT had breached the ACT subcontract, and that Continental Casualty had breached its bonding obligations. On June 7, 2012, ACT’s subcontract was terminated.
[14] The plaintiffs allege that ACT’s multiple breaches of the ACT subcontract resulted in OHL/FCC incurring or being exposed to damages in excess of $35,000,000.
[15] On January 29, 2013 the plaintiffs commenced this action claiming damages against Continental Casualty in the sum of $35,000,000 and other declaratory relief.
Position of the Moving Parties
[16] The defendants submit that the bond is the only instrument that creates the contractual relationship between the surety and obligee. Therefore, in order to recover extra contractual damages, an “independent actionable wrong” must be pleaded and that was not done in this case. The moving parties argue that it is “plain and obvious” that the amount claimed above the bond amount cannot succeed at law.
Position of the Responding Parties
[17] The plaintiffs submit that the requested order should only be granted if it is “plain and obvious” and “crystal clear” that the claim cannot succeed. They argue that the question of law to be determined on this motion is neither “crystal clear” nor “plain and obvious” because of Continental Casualty’s acquiescence, implied authorization and guarantee (unrestrained not limited by the bond amount), collateral, express and material misrepresentation, as well as waiver and estoppel. Therefore, they submit that the defendants’ motion should be dismissed.
[18] The plaintiffs highlight the fact that there is no Canadian authority that stands for the proposition argued by the defendants that a claim against a surety for an amount in excess of a performance bond cannot succeed.
Analysis
[19] I start my analysis with the Supreme Court of Canada decision in R. v. Imperial Tobacco Canada Ltd.; 2011 SCC 42, 2011 S.C.C. 42, [2011] 3 S.C.R. 45, Her Majesty the Queen in Right of Canada and Imperial Tobacco Canada Limited which sets out the test to be followed on a motion to strike. At paragraph 17 the Court states:
A claim will only be struck if it is plain and obvious, assuming the facts pleaded to be true, that the pleading discloses no reasonable cause of action … another way of putting the test is that the claim has no reasonable prospect of success. Where a reasonable prospect of success exists, the matter should be allowed to proceed to trial.
[20] The Court further states at paragraph 21:
Valuable as it is, the motion to strike is a tool that must be used with care. The law is not static and unchanging. Actions that yesterday were deemed hopeless may tomorrow succeed. Before Donoghue v. Stevenson, 1932 536 (FOREP), [1932] A.C. 562 (H.L.) introduced a general duty of care to one’s neighbour premised on foreseeability, few would have predicted that, absent a contractual relationship, a bottling company could be held liable for physical injury and emotional trauma resulting from a snail and a bottle of ginger beer. Before Hedley Byrne & Co. v. Heller & Partners Ltd., [1963] 2 All E.R.575 (H.L.), a tort action for negligent misstatement would’ve been regarded as incapable of success. The history of our law reveals that often new developments in the law first surface on motions to strike or similar preliminary motions, like the one at issue in Donoghue v. Stevenson. Therefore, on a motion to strike, it is not determinative that the law has not yet recognized the particular claim. The court must rather ask whether, assuming the facts pleaded are true, there is a reasonable prospect that the claim will succeed. The approach must be generous and err on the side of permitting a novel but arguable claim to proceed to trial.
[21] The defendants rely on Hill v. Church of Scientology of Toronto, 1995 59 (SCC), [1995] 2 S.C.R. 1130 and Whiten v. Pilot Insurance Co., 2002 SCC 18, [2002] S.C.J. No. 19 in support of their argument that in order to recover extra contractual damages an independent actionable wrong must be pleaded.
[22] A review of the plaintiffs’ Statement of Claim discloses that they have specifically turned their mind to and addressed the amount of the performance bond and why, in this case, the plaintiffs’ claim should not be limited to that sum. Paragraphs 42 to 48 of the statement of claim, plead and rely upon Continental Casualty’s inaction, acquiescence, material misrepresentation, disregard and breach of its performance bond obligations, and prejudicial conduct as a basis for waiver of the bond amount as a cap for the plaintiffs’ claim.
[23] The parties have been unable to cite a single Canadian case that stands for the proposition that a claim against a surety based on a performance bond must be limited to the bond amount. This is conceded by both the moving and responding parties.
[24] I also note that U.S. case law has held that while the amount of a surety’s liability for damages caused by a principal’s breach might be limited by the bond amount, the amount of the surety’s liability in damages for breach of its own obligations to the obligee is not so limited. (see Continental Realty Co. v. Crevolin 380 F. Supp. 246 (S.D. W. Va 1974 at pp 8-9).
[25] The plaintiffs intend to argue at trial, based on the Continental Realty decision as well as leading U.S. texts on construction and surety law, that a surety’s election to do nothing following default may constitute a breach of the bond which can expose the surety to liability for all compensatory contract damages sustained by the obligee beyond the “bond amount”. This has been pleaded at paragraphs 46 and 47 of the plaintiffs’ statement of claim.
[26] I am also mindful of the decision of this Court in Portuguese Canadian Credit Union Ltd. (Liquidator of) v. CUMIS General Insurance Co. 2010 ONSC 6107, 104 O.R. (3d) 16 at para. 46 where it was held that matters of law which have not been settled fully in the jurisprudence should not be disposed of at an interlocutory stage of the proceedings.
[27] Rule 21.01(1)(a) states that:
[a] party may move before a judge - for the determination, before trial, of a question of law raised by a pleading in an action where the determination of the question may dispose of all or part of the action, substantially shorten the trial or result in a substantial saving of costs.
[28] I agree with the responding parties’ position that determining the maximum damages which can be obtained in this case will not result in a substantial shortening of the trial or a substantial saving of costs; the plaintiffs will still have to prove damages if they are successful. The material facts underpinning the plaintiffs’ claim remain in dispute and no doubt will be hotly contested at trial. Even if the damages are capped, there will still have to be evidence called on the issue of liability and damages.
[29] I am not persuaded that the defendants have satisfied their onus of demonstrating on the pleadings that the claim has no reasonable chance of success. The defendants’ motion is, therefore, dismissed.
[30] If the parties are not able to agree on costs, written submissions with a costs outline totaling no more than 2 pages may be filed within 15 days.
[31] I thank counsel for their submissions which were exceptional.
FIRESTONE, J.
DATE: June 25, 2013
Continental Casualty Company, 2013 ONSC 4043
COURT FILE NO: CV-13-472914
DATE: 20130625
ONTARIO
SUPERIOR COURT OF JUSTICE
B E T W E E N:
OHL Construction Canada and Fomento de Construcciones Y Contratas Canada Limited Partnership
Plaintiffs
- and -
Continental Casualty Company and Advanced Construction Techniques Ltd.
Defendants
REASONS FOR DECISION
FIRESTONE J.
Released: June 25, 2013