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Bonds

Berkely Insurance Co. v. Rob Piroli Construction Inc. 2017 Ont SCJ

A surety agreed to post construction lien bonds to vacate construction liens on behalf of the general. As a condition for doing so, the general’s principal indemnified the surety for any loss that it might occur and, as additional security, the general undertook that it would direct the owner to pay $486,000 to the general’s lawyer and that these funds would be used as further security. The general breached its undertaking; it received $486,000 from the owner, but used the money to pay other subcontractors. The surety brought a motion for an order for specific performance requiring the general to honour its undertaking and, in the alternative, a mandatory interlocutory injunction compelling the general to honour its undertaking. The actual order would have been impossible to honour because the general no longer had any money to do so; the horse had already left the barn. However, the judge granted the order regardless. He did so because a judgment debt would have been treated as unsecured whereas the order would have resulted in a trust, which would give the surety priority over other unsecured creditors.

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