Executive Summary: Key Legal and Evidentiary Issues

• Core issue was whether the Indemnity Agreement constituted a “guarantee” under the Guarantees Acknowledgment Act (GAA) or a true indemnity.

• The Alberta Court of Justice held the agreement was a guarantee and unenforceable due to non-compliance with GAA formalities.

• On appeal, the Court of King’s Bench found the agreement to be an indemnity, not requiring compliance with the GAA.

• The Respondents were connected to the Builder and stood to benefit from the Builder securing warranty insurance.

• The Indemnity Agreement imposed joint and several liability and allowed RSA to claim directly without exhausting remedies against the Builder.

• The appeal was allowed; the Indemnity Agreement was enforceable as an indemnity.

Background and parties involved

WBI Home Warranty Ltd. (WBI), acting as agent for Royal & Sun Alliance Insurance Company of Canada (RSA), sold home warranty insurance in Alberta pursuant to the New Home Buyer Protection Act, SA 2012, c N-3.2. On February 24, 2016, RSA and Optimistix Management Inc. (the Builder) entered into a Builder Agreement. On the same date, Navinbhai M. Patel, Harshaben N. Patel, and Rekha Tawar (the Respondents) signed an Indemnity Agreement along with the Builder. The Indemnity Agreement obligated them to indemnify RSA for losses arising from the Builder's failure to fulfill its obligations.

RSA later suffered a loss due to the Builder's default. WBI sued the Builder and the Respondents under the Indemnity Agreement. The Respondents moved for summary dismissal, arguing the agreement was a “guarantee” and unenforceable because it had not been executed in compliance with section 3 of the Guarantees Acknowledgment Act, RSA 2000, c G-11 (GAA). The Alberta Court of Justice agreed and granted summary dismissal.

Decision of the Court of Justice (COJ)

The COJ held that the Indemnity Agreement was a guarantee because the Respondents' liability was contingent on the Builder’s default, a hallmark of guarantees. As the agreement had not been acknowledged in accordance with the GAA—an uncontested fact—COJ ruled it unenforceable.

Appeal and reversal by the Court of King’s Bench

Justice Allison G. Kuntz of the Court of King’s Bench allowed the appeal. She found that the Indemnity Agreement was not a guarantee but a true indemnity. Key to this determination was that the Respondents were directors, officers, and/or shareholders of the Builder and stood to benefit from the Builder being able to secure warranty insurance.

The court emphasized the structure and language of the agreements. The Builder Agreement (sections 4.5 and 4.6) and Indemnity Agreement (sections 1, 4, and 5) created distinct obligations. RSA had an independent obligation to homeowners under the Warranty Policies. If the Builder defaulted, RSA had to fulfill that obligation, and the Respondents were to indemnify RSA for related costs.

Justice Kuntz found the liability under the Indemnity Agreement was primary—not contingent—and RSA was not required to exhaust remedies against the Builder. This supported the classification as an indemnity. The commercial context and direct benefit to the Respondents reinforced this conclusion.

Policy terms and relevant clauses

The Builder Agreement required RSA to issue a Warranty Policy once a Certificate of Possession Form was received (s. 4.4). The Builder had to repair defects under the policy (s. 4.5). If it failed to do so, RSA could make repairs and charge back the costs (s. 4.5(d)-(e)). Section 4.6 obligated the Builder and potentially its directors, officers, or shareholders to indemnify RSA.

The Indemnity Agreement (s. 1) imposed joint and several liability on the Respondents for costs incurred by RSA due to the Builder’s failure or the Respondents’ own breach. Section 5 clarified RSA need not pursue the Builder first, and section 9 recorded that the Respondents acknowledged receiving independent legal advice.

Conclusion

The Court of King’s Bench concluded that the Indemnity Agreement was enforceable as a true indemnity. Because the Respondents had a direct connection to and interest in the Builder Agreement and stood to benefit from it, their obligation was primary. The failure to comply with the GAA was irrelevant, and the appeal was allowed.

No monetary award was specified.