MGN Constructors Inc. v. Axa Pacific Insurance Company, 2012 ABQB 561

Court of Queen ’ s Bench of Alberta Citation: MGN Constructors Inc. v. Axa Pacific Insurance Company, 2012 ABQB 561 Date: 20120911 Docket: 1003 17494 Registry: Edmonton Between: MGN Constructors Inc. Plaintiff - and - Axa Pacific Insurance Company Defendant _______________________________________________________ Memorandum of Decision of L. A. Smart, Master in Chambers _______________________________________________________ [ 1 ] Axa Pacific Insurance Company (Axa) applies for

summary dismissal of MGN Constructors Inc. ’ s (MGN) claim under a Performance Bond (Bond) issued by Axa in favor of MGN as obligee in respect of MGN ’ s subcontract with Sprague- Rosser Contracting Co. Ltd (Sprague-Rosser). Both parties agree that there is a high threshold to be met for a

summary dismissal application to be successful, that is, it must be plain and obvious that the plaintiff ’ s action is bound to fail or beyond real doubt. [ 2 ] Axa says that there are three issues any one of which, if accepted, should result in dismissal of MGN ’ s claim. I agree. The

first issue was that it was impossible for Axa to perform by virtue of circumstances arising prior to MGN giving a notice of default under the Bond. The general contract between MGN and Proland (the owner of the lands to be improved) had been terminated. Without a general contract in place, Sprague-Rosser, Axa or its designate could not complete the work under the subcontract between MGN and Sprague-Rosser. Furthermore, the City of Edmonton had called upon the Letter of Credit provided by Proland under the servicing agreement and sometime thereafter hired a new general contractor.

Axa has provided considerable authority to support the position that the inability of the surety to perform the work would release it. MGN says that there was no apparent attempt made by Axa to perform the agreement which could well have been available had inquiries and negotiations taken place. Rather than do so Axa ’ s response was to deny liability under the bond on the basis of nonpayment by MGN of amounts said to be owing to Sprague-Rosser under the subcontract.

I also observe that the Bond provides, as an alternative, Axa ’ s ability to elect payment in addition to the elections to “ perform ” the contract, albeit those alternatives may not have been available. [ 3 ] Second Axa says there was a material alteration in the contract giving rise to the Bond such that they are released. In April 2008 there was a large-scale project added to the original subcontract between MGN and Sprague-Rosser together with an increase of the subcontract price of $2,432,000.

Providing a bond for this bigger contract clearly would constitute an increase in the risk and the premium which would be payable. MGN says that the extra work was independent of the earlier contract. The Bond did not nor was it ever intended to cover the additional work and MGN ’ s claim can only be made under the original scope of the work. Axa also notes that its form of bond shows that a surcharge of 4% is applied on the premium for contracts over 12 months but less than 24 months. Thus it is said is clear evidence that an extension of time is material to the premium and hence material to the risk.

MGN having granted an extension such that the contract would not be completed over the initial contemplated term of less than one year again materially altered the contract. In response MGN says that the negotiations with Sprague-Rosser to provide additional time to complete the contract was beneficial to Axa as it provided the additional opportunity to complete which would avoid or limit liability to Axa and was not prejudicial. [ 4 ] Finally, Axa says that notice must be given sufficient to allow it to choose among its options or elections.

There appears to be some overlap between this argument and the first pertaining to the inability to perform. The authorities presented by Axa are all circumstances where the obligee took steps to repair the default with considerable delay before a notice of default was given effectively precluding the surety in those cases from electing an alternative ordinarily available to the surety under such a bond. MGN did not attempt to repair or complete the work done by Sprague-Rosser. Furthermore, it says that Axa was aware of delays by virtue of status reports sent to them.

Efforts were made to allow Sprague-Rosser to complete its obligations and it wasn ’ t until the formal notice of default was sent that it was concluded by MGN that the default was so serious in nature that it was proper to do so. [ 5 ] It is perhaps trite to say that the

interpretation of a contract and its terms is not made in a vacuum but must be made in the context of the relevant facts and circumstances. The foregoing does not set out in detail all of the facts and circumstances presented to me in the materials and at the application. Axa, quite understandably, has characterized this matter as simply as possible in its argument for

summary dismissal. Although Axa has compelling arguments based on the evidence, I am irresistibly drawn to the conclusion that I do not have all of the relevant and material evidence to properly determine if it supports the consequences and conclusions I am asked to infer in the context of the evidence presented. [ 6 ] In light of the foregoing, I am of the view that

summary dismissal of this claim is not appropriate in the circumstances. In reaching this conclusion I am mindful of the decision in Murphy Oil Co v. Predator , 2006 ABCA 69 regarding tendering of evidence by the Respondent when resisting

summary judgment. Rather, I reach this conclusion on the basis of De Shazo v. National Energy Co. , 2005 ABCA 241 , that is, I am not satisfied there are undisputed facts before me which necessarily lead to the conclusion that it is plain and obvious the claim ought to be dismissed. [ 7 ] The application is dismissed with costs payable to the Plaintiff in any event. Dated at the City of Edmonton, Alberta this 11 th day of September, 2012.

L. A. Smart M.C.C.Q.B.A. Appearances: Robert Gillespie for the Plaintiff/Respondent Daniel P. Carroll, Q.C. Field LLP for the Defendant/Applicant