Legal Blog

Bond Mitigation

Lopes Limited v. Guarantee Company of North America 2019 Ont CA

General contractor defaulted, owing the mechanical sub $183,000 (originally higher, but reduced after the sub received its proportional amount of the holdback under its claim for lien). Bonding company under a performance bond had appointed another general to complete the project. The new general requested tenders to complete the mechanical work and the mechanical sub bid on that tender call and was successful. As it happened, the tender price was substantially higher than what the sub would have received under its original subcontract with the defaulting general for the incomplete work. The mechanical sub then sued under the labour and material payment bond for the amount that the defaulting general owed to it. The bonding company, incensed that the sub had already received more in total under the old and new contracts then it would have been entitled to under the old contract alleged that the sub had suffered no actual damages. The motion judge and the Court of Appeal disagreed. The sub’s decision to bid on and enter into a new completion subcontract was not an action taken to mitigate its loss from the defaulting general. It would have secured the benefits of its new subcontract regardless of whether money was owed under the old subcontract. It was the defaulting general’s abandonment of the subcontract, not its failure to pay for completed work, that created the necessity for the completion subcontract. The sub’s successful bid for the completion subcontract did not arise from the defaulting general’s failure to pay its invoices.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.