Relief from Forfeiture: Imperfect Compliance vs. Non-Compliance
Constructive Thoughts Newsletter
August 2024 - 5 min read
In Todd Brothers Contracting Ltd. v Wessuc Inc., the Ontario Court rejected Wessuc's claim on a Labour and Payment bond due to failing to meet the bond's strict notice requirements and unreasonable behavior. The Court examined the concept of relief from forfeiture, noting that it applies only in cases of "imperfect compliance" rather than outright non-compliance. Wessuc's delayed and inaccurate notice to the surety, combined with their unreasonable conduct, disqualified them from relief. This ruling underscores the need for construction companies to adhere closely to bond requirements and provide timely, accurate notice when making claims.
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Labour and payment (L+M) bonds are common on large construction projects. They allow unpaid subcontractors and suppliers to make a claim against the party issuing the bond (the surety) for payment of unpaid amounts. In order to make a claim on an L+M bond, a claimant must meet the bond’s strict time requirements, and provide information to the surety in a timely fashion. If a claimant fails to fully comply with the bond terms, it may be able to rely on a legal concept known as relief from forfeiture. The Court here examined the requirements for relief from forfeiture in the L+M bond claim setting.
Background
Todd Brothers contracted with Durham to remove and process sludge in a water treatment lagoon operated by Durham. Wessuc was a subcontractor of Todd Brothers, hired to haul and unload the sludge. GCNA was the surety for the construction project. It issued an L+M bond with Durham as owner/obligee and Todd Brothers as contractor/principal.
Following a dispute between Todd Brothers and Wessuc regarding the cost of the work being done, Wessuc made a claim on the L+M bond in February 2019. The basis of Wessuc’s claim was that it was owed money by Todd Brothers, and that GCNA, as surety, was obligated to compensate it pursuant to the terms of the bond. The bond provided that any claims must be provided within 120 days of when a claimant should have been paid in full or of the date of the last work performed.
The last date of work performed by Wessuc was in September 2018 (almost five months prior to giving notice). GCNA began an investigation into the claim and requested documentation from Wessuc to support the claim. Additionally, GCNA contacted Todd Brothers for documentation relevant to the claim. GCNA received some documentation from Wessuc in December 2020 – nearly two years after Wessuc submitted its claim
GCNA denied Wessuc’s bond claim on the basis that Wessuc did not provide timely and adequate notice as required under the terms of the bond. Wessuc sued Todd Brothers for amounts allegedly owed under their contract. Additionally, Wessuc sued GCNA under the bond. Wessuc argued that provided the required notice to GCNA, and in the alternative, it should be granted relief from forfeiture even if it failed to provide proper notice.
What the Court Said
With respect to Wessuc’s claim against Todd Brothers, the Court found that Wessuc had not completed the contracted work and had abandoned the contract. Therefore, Wessuc’s claims against Todd Brothers were dismissed. Wessuc’s claim on the L+M bond was also dismissed, because GCNA’s liability as surety was co-extensive with that of Todd Brothers, as principal. As no funds were owed to Wessuc by Todd Brothers, the corollary was that nothing was owed to Wessuc in its capacity as claimant on the L+M bond.
However, in obiter, the Court considered relief from forfeiture in relation to Wessuc’s claim against GCNA. The Court relied on the Courts of Justice Act and the Insurance Act. Under section 98 of the Courts of Justice Act, a court may grant relief against penalties and forfeitures on such terms that are considered just by the court. Under section 129 of the Insurance Act, where there has been imperfect compliance with a statutory condition as to the proof of loss to be given by the insured to the insurer, and that results in a forfeiture or avoidance of the insurance, the court may relieve against the forfeiture on such terms that it considers just.
The Court found that relief from forfeiture under the Insurance Act is restricted to instances of imperfect compliance with terms of an insurance policy after a loss. Relief from forfeiture under s. 98 of Ontario’s Courts of Justice Act is available to contracts regulated by the Insurance Act. However, s. 98 generally operates where the breach of the policy happened before the loss occurred.
Although relief from forfeiture is not available where the breach consists of non-compliance with a condition in the policy, a court should find that an insured’s breach constitutes non-compliance only in rare cases where the breach is substantial and prejudices the insurer. In all other instances, the breach will be considered imperfect compliance, and relief from forfeiture will be available to the insured.
Where relief from forfeiture is available, a claimant must show three things in order to succeed:
- that its conduct was reasonable,
- that the breach was not grave, and
- that there is a disparity between the value of the property forfeited and the damage caused by the breach.
The Court applied these requirements to Wessuc’s claim against GCNA. The Court found that although GCNA suffered no prejudice, Wessuc’s conduct was so unreasonable, and that the breach was sufficiently grave, that Wessuc essentially came to court with unclean hands. To grant relief from forfeiture, the claimant must not have engaged in wrongful conduct related to the matter in front of the court.
In this case, Wessuc claimed that the documentation provided to GCNA in December 2020 was in error. As well, the notice provided by Wessuc in February 2019 was for a bond claim of roughly half of what Wessuc had claimed in the lawsuit. The Court found that the documentation provided by Wessuc to GCNA was not substantially accurate and that Wessuc did not provide any explanation for the delay in providing accurate and timely notice to GCNA.
Takeaways
If you are a construction company, it is important to provide timely and adequate notice to a surety on a bond claim. If you fail to provide adequate, timely notice, you may lose your right to claim under the bond.
If you believe you may have a bond claim, please contact Anthony Burden in Calgary, Ryan Krushelnitzky in Edmonton, or any member of Field Law’s Construction Group for guidance and assistance in this area.
Link to decision: Wessuc Inc. v. Todd Brothers Contracting Limited et al, 2024 ONSC 4368