Executive Summary: Key Legal and Evidentiary Issues

• Whether the contractual two-year limitation period in the performance bond began when the subcontractor was declared in default by the obligee, regardless of any formal notice of a bond claim to the surety
• Interpretation of the bond wording specifying the preconditions that trigger the surety’s obligations and the commencement of the bond limitation period
• Significance of VanMar’s March 14, 2022 letter to Travelers as evidence that all contractual preconditions to a bond claim were satisfied on that date
• The extent to which commercial reasonableness and parties’ post-contract conduct can justify implying additional terms into clear bond language
• The court’s reluctance to rewrite unambiguous contract terms or imply provisions that would effectively create an indefinite claim period against a surety
• Consequences of failing to commence an action within the contractual limitation period, including dismissal of the claim without reaching the statutory limitation issue

Factual background

VanMar Constructors ON 1028 Inc. was the construction manager and general contractor for a residential condominium project in Kitchener, Ontario. As part of the project, VanMar entered into a subcontract with Global Plumbing & Heating Inc. for the supply and installation of mechanical works. The subcontract allowed VanMar to declare Global in default if it failed to perform certain obligations, including supplying proper workers or materials, and gave Global five days to correct any default after notice. The subcontract also required Global to procure a performance bond in favour of VanMar. To satisfy that requirement, Travelers Insurance Company of Canada issued a performance bond dated March 16, 2021, naming Global as Principal, VanMar as Obligee, and Travelers as Surety. The bond was intended to secure Global’s performance of its subcontract obligations. The bond contained a key operative clause prescribing when Travelers’ obligations would arise. It provided that whenever the Principal “shall be, and declared by the Obligee to be, in default under the Contract,” and the Obligee had performed its own obligations, the Surety would promptly respond by taking one of several enumerated actions. It also included a contractual limitation clause providing that “any suit or action must be commenced before the expiration of two years from the earlier of (1) the date of substantial performance…, or (2) the date on which the Principal is declared in default by the Obligee.” This wording placed heavy emphasis on the date of default declaration as the trigger for the limitation period. During performance of the subcontract, VanMar encountered ongoing difficulties with Global’s work. From time to time in 2021, VanMar declared Global in default and required it to remedy deficiencies. VanMar’s correspondence of August 4, 2021, August 18, 2021, December 14, 2021, and December 23, 2021 put Global on notice that it was in default and warned that VanMar might be compelled to make a claim on the bond. Parallel to this, VanMar kept Travelers apprised of the situation. In status reports and emails, VanMar advised Travelers that Global’s performance was unsatisfactory and that Global had been put on notice. On August 18, 2021, VanMar informed Travelers that Global’s progress was deteriorating and that it might soon have to reach out to the surety, while a January 6, 2022 update noted that Global’s work was behind and that it had been formally notified. A pivotal communication followed on March 14, 2022. In a letter to Travelers, VanMar wrote that Global “is and continues to be in significant default” of its contractual obligations, “has been declared as such by VanMar on many occasions,” and that VanMar had performed all of its own obligations under the contract. This language tracked almost exactly the preconditions specified in the bond for triggering the surety’s obligations: Global’s default, VanMar’s declaration of default, and VanMar’s own compliance. Travelers acknowledged receipt of this letter by correspondence dated March 21, 2022. In that response, Travelers did not dispute that Global had been declared in default, but indicated that if VanMar decided to make a claim under the bond in the future, it could provide written notice. More than two years after the March 14, 2022 letter, on April 1, 2024, VanMar issued its statement of claim against Travelers. VanMar sought to enforce the performance bond, alleging that Travelers was liable as surety for Global’s defaults under the subcontract.

Issues on the motion

Travelers brought a motion under Rule 20.04 of the Rules of Civil Procedure for summary dismissal of VanMar’s claim. The parties agreed that the limitation issue could properly be determined on a summary judgment motion. Travelers advanced two main limitation arguments. First, it relied on the contractual limitation clause in the bond itself. Travelers argued that the bond clearly required any “suit or action” to be commenced within two years of the earlier of substantial performance or the date on which Global was declared in default by VanMar, and that this two-year bond limitation period had expired before VanMar sued. In the alternative, Travelers invoked the statutory two-year limitation period under section 4 of the Limitations Act, 2002, contending that VanMar discovered or ought to have discovered its claim at least by March 14, 2022. VanMar responded that neither the contractual nor statutory limitation period began to run simply because it had declared Global in default and advised Travelers of that default. It maintained there was an additional, implied requirement that the limitation period would only start once VanMar gave formal notice that it was calling on Travelers to perform under the bond and to respond to a claim.

Bond wording and policy terms at issue

The court’s analysis centred on the wording of the performance bond. The precondition clause stated that Travelers was obliged to act “[w]henever the Principal shall be, and declared by the Obligee to be, in default under the Contract, the Obligee having performed the Obligee’s obligations thereunder…” From this, the judge identified three preconditions: Global must be in default; VanMar must have declared Global in default; and VanMar must not itself be in default. There was no dispute that Global had been in default at various times and that VanMar had performed its own obligations. The key question was whether VanMar’s declarations of default—particularly as embodied in the March 14, 2022 letter—were sufficient to trigger both Travelers’ obligations and the running of the contractual limitation period, or whether an additional, implied notice of intent to call on the bond was required. The bond’s limitation clause was equally central. It provided that “any suit or action must be commenced before the expiration of two years from the earlier of… the date on which the Principal is declared in default by the Obligee.” The judge noted that this wording directly tied the start of the two-year period to the declaration of default, not to a later, separate step of giving formal notification of a claim to the surety. VanMar urged a commercial and purposive interpretation, arguing that, in real-world construction practice, it would be unrealistic and inefficient to require sureties to be treated as if a full bond claim existed each time a routine subcontractor default occurred. VanMar maintained that the bond should be interpreted to make Travelers’ obligations arise only once VanMar had formally elected to call upon the surety, even if the three textual preconditions were already satisfied. This argument effectively sought to read into the bond an additional term delaying the commencement of the limitation period until VanMar’s formal notice of a claim. Travelers, by contrast, relied on the plain text. It argued that only VanMar could declare Global in default under the subcontract; that VanMar had done so repeatedly and expressly by March 14, 2022; and that once the three preconditions were met, the limitation clock began running under the bond.

Court’s analysis of the contractual limitation period

The judge held that the “plain language of the Bond clearly favours Travelers’ position.” The three preconditions were clearly articulated in the bond, and the March 14, 2022 letter, reinforced by cross-examination evidence from VanMar’s representative, confirmed that those preconditions were met as of that date. In that letter, VanMar expressly stated that Global was in significant default, had been declared in default many times, and that VanMar had performed its own obligations. The judge found that this correspondence crystallized the situation and removed any doubt that the contractual preconditions had been satisfied. On that basis, the court concluded that by at least March 14, 2022, VanMar had declared Global to be in default under the subcontract within the meaning of the bond, thereby triggering Travelers’ potential obligations and commencing the two-year limitation period specified in the bond. The court rejected VanMar’s attempt to read in an implied term that the bond limitation period would only commence once VanMar gave a separate, formal notice that it was calling on Travelers to perform its obligations. While acknowledging the commercial logic behind VanMar’s concern that involving the surety for every minor default could be impractical, the judge found that VanMar’s interpretation would itself cause serious commercial difficulties. If Travelers’ obligations were not triggered, and the limitation period not commenced, until VanMar chose to provide a formal notice of intent to claim, VanMar could indefinitely delay that step. That would leave the surety exposed to unquantified and potentially stale risks for years, undermining the ability of a surety to assess and manage risk and to investigate claims in a timely way. The court underscored that a contractual limitation period is intended to provide finality at a definite point in time. Allowing the obligee to postpone the start of that period at will would defeat that purpose and be commercially unsound. The judge also addressed VanMar’s reliance on post-March 14, 2022 correspondence as evidence of the parties’ intention that Travelers’ obligations only arise upon formal notice of a claim. The court held that the relevant intention is that of the parties at the time of contracting, not their later conduct, and that the subsequent letters did not show any agreement to depart from the clear bond language. They simply showed that VanMar was still attempting to resolve matters with Global without immediate recourse to the surety, not that VanMar lacked the right to make a bond claim as of March 14, 2022.

Reluctance to rewrite clear contract terms

Drawing on appellate and Supreme Court of Canada authority, the judge reaffirmed that courts should be reluctant to rewrite unambiguous contract language or to imply terms that effectively create a new bargain. Where the parties’ intention is plainly expressed in the agreement, courts “should not stray beyond the four corners” of the document. Surrounding circumstances and commercial context can assist interpretation, but they cannot be used to deviate from clear text or to craft a new agreement under the guise of interpretation. In the judge’s view, the words of the bond were clear and unambiguous, and the implied terms proposed by VanMar were neither necessary nor compatible with what the parties actually agreed. The court therefore declined to imply a requirement of separate formal notice to trigger Travelers’ obligations or the limitation period.

Disposition and outcome

Having found that all contractual preconditions were met by March 14, 2022, the court held that the bond’s two-year contractual limitation period commenced no later than that date and expired no later than March 14, 2024. Because VanMar commenced its action on April 1, 2024, the claim was brought after the expiry of the contractual limitation period and was therefore barred. On that basis, the court granted Travelers’ motion and dismissed the action in its entirety without needing to address the alternative statutory limitation argument under the Limitations Act, 2002. The decision left the question of costs open. The judge directed that any party seeking costs should deliver written submissions, with specified page limits and timelines, and indicated that if no submissions were filed, the parties would be deemed to have settled costs between themselves. No specific monetary amount for damages, indemnity under the bond, or costs was fixed in the decision. Accordingly, the successful party in this case is the defendant, Travelers Insurance Company of Canada, which obtained summary dismissal of VanMar’s claim on the basis of the expired contractual limitation period. The total monetary award in favour of the successful party cannot be determined from the decision, as no damages or quantified costs were ordered or specified in the reasons.