Canadian Design and Construction Report staff writer
The Surety Association of Canada (SAC) is pushing back against what its president calls “unwarranted overreaction and hyperbole” following a court order that temporarily paused claims on performance bonds issued on behalf of Earth Boring Co. Limited.
While some industry observers have raised alarms, suggesting the move compromises owner protections, the SAC argues the decision is a pragmatic, temporary measure designed to get projects completed, not to let sureties off the hook.
“With apologies to Mark Twain, rumours about the death of performance bonds are wildly exaggerated, and the noise that has followed the issuance of the Order is just that: A lot of noise with no real substance behind it,” wrote Steve Ness, President of the SAC, in a recent article.
The issue stems from a May 28 Order from the Ontario Superior Court of Justice under a Companies’ Creditors Arrangement Act (CCAA) proceeding. The order allows Earth Boring to continue its business and preserve its assets while also temporarily prohibiting project owners (obligees) from making claims on the company’s performance bonds.
The ruling triggered significant concern, with some law firms and industry participants describing the order as “precedent-setting”. Critics have suggested the stay “removes an important protection bargained for by public owners and contractors” and effectively shields sureties from their obligations. Some have even suggested the order could portend the end of performance bonds as a viable security tool.
The SAC firmly refutes this interpretation, calling the assertion that the stay shields the surety “quite simply, absurd”.
“The imposition of a stay is not the same as a revocation of the instrument,” Ness said in a news release. “It simply hits the pause button by placing a temporary freeze on any further action by creditors. The objective is to provide the debtor (in this case Earth Boring) with breathing room to consolidate their resources, refocus their efforts, and enable them to carry on business as an operating entity, thus avoiding a ‘run on the bank’ that would trigger a full-on failure.”
The SAC stresses several key points that it feels have been overlooked in the industry reaction:
- The stay is temporary: Under the court order, the stay is set to expire on Aug. 15, unless extended by the court. The surety remains responsible for all its liabilities under the bond, which remains in full force.
- The order was unopposed: The SAC article highlights that no parties—including the project owners and the surety, Aviva Canada—objected to Earth Boring’s CCAA application. The court order itself notes that no one appeared in opposition despite being duly served. This, the SAC argues, “speaks volumes” and suggests all stakeholders agreed this was the optimal approach to keep the projects moving.
- Payment bonds are not affected: A critical distinction ignored by critics, according to Ness, is that the stay applies only to performance bonds. The corresponding labour and material payment bonds “remain open for business”. This allows the surety to become a “key facilitator” by reviewing and paying valid claims from subcontractors and suppliers, incentivizing them to remain on the job and ensuring a smoother completion process.
By keeping the payment bond process active, the surety can work cooperatively with all parties to bring the projects “across the finish line”. Far from harming project owners, the SAC insists this co-ordinated approach allows Earth Boring to continue operations and complete the ongoing work, which benefits all parties.
Should the rescue effort fail and the contractor ultimately defaults, “the performance bond remains in force, providing the Obligees with its full protection,” Ness said. “All things considered, the anxiety and hand-wringing angst over the stay order and its implications seem to be much ado about nothing.”
