Notice vs declaring default, a surety's options after a performance bond default, and an Ontario case holding a slow surety liable up to its $2M penal sum.
Education only / verify at source / not legal advice. This guide explains, in general terms, how a performance bond claim moves from a warning to a declaration of default to a surety's response, and what one Ontario court said about a surety that was slow to respond. It draws on the published judgment, three law-firm commentaries and Ontario's public Form 32 performance bond. Global Guarantors publishes industry education. We aren't a surety, broker, insurer or law firm. The decision discussed here is under appeal. Your own bond wording, your contract and the advice of your own counsel always control.
Start here: Surety 101 · Bond wordings and public specimens
A performance bond is a promise made in advance. The surety tells the owner, or obligee, that if the bonded contractor fails to perform, the surety will respond within the limits of the bond. Most of the time that promise is never tested.
A December 2025 decision of the Ontario Superior Court of Justice, Graphic Packaging International Canada, ULC v. 2477621 Ontario Inc. et al., 2025 ONSC 7210 (2025 CanLII 134390), is a sharp illustration of what can go wrong for a surety on the far side of a declared default. The court held the surety liable to the owner up to the full $2,000,000 penal sum of the bond, after finding that it had answered a clear default with a sweeping document request and, eventually, a denial the court did not accept. The decision is under appeal, and lawyers at two construction-law firms say some of its general statements go too far. It is still worth studying, because it puts the practical steps of a performance bond claim under a bright light.
This guide walks through the usual sequence after a default, the Ontario case and its critics, and a checklist. For background on how performance bonds fit with bid and payment bonds, start with our contract surety hub.
Most performance bond disputes start with words. A contractor falls behind, the owner grows worried, and letters begin to move. Whether those letters amount to a claim on the bond depends on the bond's wording, and the difference between a warning and a declaration matters a great deal.
Some performance bonds separate the process into distinct steps. The bond in the case below did, according to BLG. Ontario's public-contract Form 32 has a similar sequence, but its "considering default" meeting is optional:
Under Form 32, the owner's request for a Pre-Notice Meeting "does not constitute a Notice under this Bond … nor is it a precondition to the giving of a Notice," and the surety has no obligation under the bond until it receives a Notice (Form 32, ss. 1–2).
In the bond at issue in Graphic Packaging, BLG's commentary quotes § 3.1 as requiring the owner to "provide notice to [247] and [Talisman] that [Graphic] is considering declaring a Contractor Default", and § 3.2 as requiring the owner to "[declare] a Contractor Default and [notify Talisman]" as a condition precedent to the surety's liability. (The bracketed names are BLG's.)
BLG summarizes the general Canadian position this way: a surety's obligation to respond promptly does not arise until a formal demand has been made, and that demand must be "clear, direct, and unequivocal." Before a proper claim, the surety has no duty to investigate and no right to step into a dispute between the owner and contractor on its own. In BLG's words, this ensures that the obligee, not the surety, bears responsibility for deciding whether the contractor's conduct warrants escalation.
For an owner, a letter expressing concern is not necessarily a declaration of default. For a surety, a clear warning is a signal to engage early, even before the formal clock starts.
Our guide to surety claims basics explains the general shape of a bond claim, including the documents owners and claimants usually assemble.
Once a surety accepts that it is liable under a performance bond, standard forms typically give it a menu of ways to perform. The exact list, and the conditions attached to each option, depend on the form. The US AIA A312 performance bond, the Canadian CCDC 221 performance bond and Ontario's Form 32 each have their own wording, and a custom bond can change any of them.
Ontario's Form 32 is a useful worked example. Form 32 is the performance bond prescribed for Ontario public contracts under s. 85.1 of the Construction Act. It was not the bond in the Graphic Packaging case; it is used here only as a contrast, to show what a written, step-by-step response process looks like. Our field card on the Ontario Construction Act Form 32 performance bond summarizes the form.
Ontario Form 32 (public contracts). Other bonds differ; the bond in the case study was a modified US-style form.
| Option, once liability is accepted | What it involves |
|---|---|
| Remedy the default | The surety remedies the contractor's default |
| Complete the contract | The surety completes the contract in accordance with its terms |
| Obtain bids | The surety obtains bids, arranges a contract between the owner and the lowest responsible bidder, and funds completion less the Balance of Contract Price |
| Pay the owner | The surety pays the lesser of the Bond Amount or the owner's Direct Expenses plus its proposed cost of completion, less the Balance of Contract Price |
Source: Ontario Court Forms, Form 32 (version date August 1, 2019; effective October 1, 2019).
Under Form 32, the surety's position is one of three: it accepts liability, refuses it with specific reasons, or says it cannot yet determine whether the conditions precedent are met. If it has accepted liability, it "shall promptly select and commence" one of these options. Form 32 also says that "the Surety shall not be liable for a greater sum than the Bond Amount under any circumstances."
Form 32 also sets timelines. Under its terms:
| Step | Form 32 timing |
|---|---|
| Pre-Notice Meeting (optional, if the owner asks) | Surety proposes a meeting within seven business days, or longer if all agree |
| Acknowledgement of a Notice | Within four business days of receiving the Notice, asking for the Information the surety needs |
| Post-Notice Conference | Surety proposes a conference within five business days, or longer if agreed |
| Surety's Position | Within a reasonable time, and no later than twenty business days after the Notice, or longer if agreed |
| Deadline to sue on the bond | Two years from the earlier of substantial performance or the surety's receipt of the Notice |
Form 32 expressly lets the surety request "information and documentation" and access to knowledgeable personnel and the site after a Notice, and lets the owner carry out Necessary Interim Work and Mitigation Work during the investigation, with reasonable costs reimbursable if the surety's liability is later established. That is one of the main contrasts with the bond in the Ontario case, which, as BLG quotes the court, "contained no provision entitling Talisman to make the document request."
The case is Graphic Packaging International Canada, ULC v. 2477621 Ontario Inc. et al., 2025 ONSC 7210 (2025 CanLII 134390), decided by Justice Akazaki of the Ontario Superior Court of Justice on December 24, 2025, after a hearing on October 24, 2025. The defendants were 2477621 Ontario Inc. ("247") and Talisman Casualty Insurance Company, LLC ("Talisman").
Although the case was decided in Ontario, the work was in Quebec. According to the law-firm summaries, Graphic Packaging ("Graphic") sold a contaminated former paper mill in Jonquière, Quebec, to 247 under an agreement of purchase and sale. Quebec environmental law still required Graphic, as the mill's last operator, to rehabilitate the site. 247 took on the demolition: it was to deliver a scope of work within 30 days and complete the demolition within 24 months.
The agreement required 247 to provide a performance bond naming Graphic as obligee. Talisman issued it, for $2,000,000 (para. 57). (Paragraph numbers on this page, written "para.", refer to the numbered paragraphs of the judgment on CanLII.)
The judgment itself never names the bond form. It refers to the bond's § 3 notice provisions, a § 5 setting out four surety options, and other numbered sections. BLG describes the bond as based on the AIA A312-2010 form used in the United States, with modifications negotiated by 247, rather than the standard CCDC form common on Canadian projects. Among the changes BLG identifies: the bond removed the requirement that Graphic terminate the agreement before the surety's obligations were triggered. BLG also notes that the bond imposed notice requirements on 247 that common Canadian forms do not, and that it included a condition precedent requiring Graphic to agree to pay the "Balance of the Contract Price", defined as "those monies due and payable to the Purchaser per the terms of the [APS]".
247 did not deliver the scope of work within 30 days and did not complete, or by the summaries' accounts even meaningfully start, the demolition within 24 months. The Field Law summary quotes the court's description of a "complete failure to honour its contractual commitments."
Graphic warned the surety and asked for the meeting the bond provided for; Talisman did not respond. After default was declared, Talisman sent a broad document request and eventually denied liability, while Graphic, under pressure from Quebec's Environment Ministry, retook the site and completed the work with a replacement contractor. It then moved for summary judgment against both 247 and Talisman.
Dates from 2017 to 2019 and the February 2026 appeal note are as reported by BLG (February 2026). The 2025 hearing and decision dates come from the judgment.
| When | What happened |
|---|---|
| Start of the agreement | 247 must deliver a scope of work in 30 days and finish demolition in 24 months; Talisman's $2,000,000 performance bond names Graphic as obligee |
| April 2017 | Graphic writes to 247 about its concerns and the missed 30-day scope of work |
| July 12, 2017 | Graphic notifies Talisman of the missed deadline and asks for the conference the bond provides; Talisman does not respond |
| September 21, 2017 | A further letter, which the court treated as the declaration of default |
| October 6, 2017 | Talisman sends a broad document request with a 10-day deadline |
| December 24, 2017 | The 24-month demolition deadline passes; per the court, only 247 is in breach |
| When | What happened |
|---|---|
| March 9, 2018 | Graphic makes a "formal declaration" of default and says it is seeking replacement bids |
| June 2018 | The Ministry approves a demolition plan and a permit issues |
| August 21, 2018 | Graphic tells 247 and Talisman its replacement contractor will start on August 27, 2018 |
| September 2018 | Graphic obtains an interlocutory injunction to retake the site |
| November 2018 | Graphic excludes 247 from the site |
| March 15, 2019 | Talisman provisionally denies liability |
| July 24, 2019 | Talisman formally denies liability |
| When | What happened |
|---|---|
| October 24, 2025 | Summary judgment motion heard |
| December 24, 2025 | Decision: 247 and Talisman held liable; Talisman's liability limited to $2,000,000 |
| February 2026 | BLG reports that both Talisman and 247 have filed notices of appeal |
When Talisman formally denied liability in July 2019, BLG reports that it relied on several grounds: that Graphic was itself in default, that the declaration of default was deficient, that the Balance of the Contract Price condition had not been met, that Talisman had been prejudiced by Graphic's conduct, and that the grace periods Graphic gave 247 had prejudiced it and varied the bonded contract (as BLG and Glaholt Bowles report). In the litigation, Talisman also sought "boomerang" summary judgment dismissing the claim.
The court rejected each of Talisman's defences. The main findings, with paragraph references where the judgment's own wording is quoted, are set out below.
BLG reports that the court spent much of the decision on the sequence of each side's obligations under the agreement of purchase and sale, and concluded that as of December 24, 2017, the only party in breach was 247. That removed the foundation of Talisman's "owner default" defence.
According to all three commentaries, the court held that Graphic gave the notices the bond required, both the warning that it was considering default and the declaration itself. Glaholt Bowles and Field Law report that it also read Graphic's correspondence about retaining a demolition contractor as satisfying the condition that Graphic agree to pay the Balance of the Contract Price. BLG notes that Graphic said that balance was "nil" under the agreement.
The court was critical of Talisman's response to the claim. It said that "Talisman adopted a snowblower approach to bury Graphic in a documents and data request resembling a documentary discovery request in litigation" (para. 86). According to the commentaries, the court found that this bond gave Talisman no right to the documents it demanded, but did give it a right to a meeting, which Talisman never took up when Graphic asked for one.
The court contrasted what Talisman did with what the bond required. The court said that "[i]nstead of coming to Graphic's aid and electing an option under the four options under § 5 after it clearly knew 247 had not even started the contracted work, Talisman threw obstacles in Graphic's way and eventually denied liability altogether," and that "it chose inaction, obstruction, and ultimately an illogical statement of denial of liability" (para. 128). Given Talisman's slow responses, the commentaries report, the court found that Graphic acted reasonably in moving ahead with a replacement contractor without Talisman's consent.
Talisman argued that the grace periods Graphic gave 247 materially varied the contract and discharged the surety. The court disagreed: "Allowing the contractor more time to perform the work, even past the deadline for completion, cannot prejudice the surety" (para. 135). In the same paragraph it observed that "Graphic exhibited extraordinary reserve by not suing 247 and Talisman right after it served notice..." (para. 135). The Glaholt Bowles commentary explains why that reasoning held on these facts: Talisman had timely notice of 247's delay and advance notice that Graphic was considering default, so it had ample opportunity to engage.
The amounts in the judgment show how a penal sum works in practice.
| Item | Amount | Who it applies to |
|---|---|---|
| Completion costs found by the court (para. 139) | $6,672,713.45 | 247 (contractor) |
| Holdback added to the contractor's liability (para. 141) | $750,000 | 247 only, not Talisman |
| Bond penal sum and limit of the surety's liability (paras. 150, 166) | $2,000,000 | Talisman (surety), concurrently with 247 |
The invoices were not contested, so there was no genuine issue for trial on damages (as Field Law reports). 247's counterclaim was dismissed (para. 167).
The court also explained why $2,000,000 was the ceiling. It described that figure as the maximum of Talisman's liability "not because it operated as a contractual limit, but rather because it was the outside value of the contract Talisman undertook to perform if 247 defaulted" (para. 122).
Two cautions apply to these figures. First, "held liable" describes the judgment, not a payment; nothing in the sources says what, if anything, has been paid. Second, the court did not decide whether Talisman can recover from 247 (para. 150). In general, a surety that pays on a bond may seek to recover from the contractor or any indemnitors, but that question was left open here.
The case is extreme on its facts, but the risks it shows are general. They apply to owners as much as to sureties.
A performance bond surety usually has more than one way to respond, and depending on the facts, some of those options may cost less than paying the full penal sum. Remedying the default, completing the work or arranging a replacement contractor are choices the surety can only make while they are still open. Once an owner hires its own replacement contractor, the surety may lose the chance to control how the work is completed. That does not mean a surety must accept every claim on sight. It means the investigation has to be real, timely and tied to the questions the bond raises: is the contractor in default, has the owner met the conditions precedent, and which option makes sense?
Graphic Packaging shows the end point of that path. By the time Talisman formally denied liability in July 2019, the owner had obtained an injunction, excluded the contractor from the site, and, as BLG reports, had told Talisman in August 2018 that its replacement contractor would start on August 27, 2018. The court measured damages by what the owner actually spent to complete, and those costs exceeded the bond. The Field Law commentary draws the lesson that "a performance bond requires action, not investigation alone."
In this case the surety was held liable only up to $2,000,000, against completion costs the court found to be $6,672,713.45; the balance of the damages remained recoverable against the contractor (as Glaholt Bowles puts it). In general, a judgment against a defaulting contractor can be hard to collect, and a penal sum set below the eventual cost of completion can leave an owner with an unsecured gap. Nothing in the sources says what has been collected in this case. Our guide to accepting and verifying bonds as a public owner covers checking a bond at the start of a project, including Ontario's s. 85.1 requirements for public contracts.
Three other owner-side points stand out:
A performance bond protects the owner. Subcontractors and suppliers who go unpaid when a contractor defaults usually look to the companion labour and material payment bond instead, which has its own notice rules and deadlines. Our subcontractor payment bond claim guide walks through that process in the US and Canada.
Construction and surety lawyers were quick to comment, and not all of them agreed with the court. The views below are the firms' own.
BLG argues that the court's statement that the bond gave Talisman no right to request documents should not be read broadly. It says that at common law, the very nature of a performance bond gives the surety a right to investigate a claim and make reasonable document requests, citing the British Columbia decision Fraser Gate Apartment Ltd. v. Western Surety Co. In BLG's reading, the court's comments are tied to a request it found overbroad and largely irrelevant, and the right conclusion is that "a surety is not entitled to make overly broad and irrelevant document requests," not that a surety cannot investigate at all. BLG also objects to the court's comparison of performance bonds to letters of credit.
BLG also says the decision does not reflect the distinction between a notice that the owner is considering default and an actual declaration of default, and points to the inconsistency over which letter was the declaration. In its view, if a proper declaration was not made before March 2018, criticism of the surety's earlier inaction would be unwarranted.
On the court's statement that more time "cannot prejudice the surety" (para. 135), BLG says the proposition goes too far. It cites the British Columbia decision MGN Constructors Inc. v. AXA Pacific Insurance Company for the point that extensions can carry real costs for a surety, and the Supreme Court of Canada's decision in Ferrara v. National Surety Co. for the point that an unconsented extension of a fixed completion time can discharge a surety that suffers prejudice. BLG accepts that the court may well have been right that there was no prejudice on these facts.
Glaholt Bowles notes the caution that the case involved "a bespoke, non-Canadian bond" and general statements that may go too far, and agrees only up to a point. It says the better reading is narrow: the real problem was not that Talisman investigated, but that the court viewed the investigation as inadequate: an overbroad request used in place of meaningful action while the owner was under regulatory pressure. Its advice to sureties is to ensure "a timely, targeted and meaningful investigation" and to avoid the "snowblower" approach.
Taken together, the commentaries suggest reading Graphic Packaging as a strong warning about inaction on extreme facts, under an unusual bond, rather than as a new general rule. And because both defendants have appealed, the Court of Appeal for Ontario may yet have the last word.
This checklist is general education, not legal advice. Every item comes back to the bond's own wording; use it as a set of questions to take to your counsel, broker or surety professional.
For owners and obligees
For sureties, brokers and contractors
Does a performance bond surety have to pay the full penal sum? Not necessarily. The penal sum is a ceiling, not a payment amount. Under standard forms the surety can usually choose among options such as remedying the default, completing the work, arranging a replacement contractor or paying the owner, and under Form 32 it is never liable for more than the Bond Amount.
When does a surety's duty to respond begin? Generally, when the owner has made a proper claim under the bond's terms, usually a clear declaration of default with notice to the surety. BLG summarizes the Canadian position as requiring a "clear, direct, and unequivocal" demand. A warning that the owner is considering default may trigger a right to a meeting, depending on the bond.
Does giving the contractor extra time release the surety? It depends on the facts and the bond. The court in Graphic Packaging said more time "cannot prejudice the surety" (para. 135), but BLG and Glaholt Bowles both call that too broad.
Can a surety ask the owner for documents? Often, depending on the bond. Form 32 expressly lets the surety request the information it needs. In Graphic Packaging, the court found that the particular bond gave no right to the documents demanded, but commentators say a surety still has a common-law right to investigate with appropriate requests.
Is this case binding outside Ontario? It is a first-instance decision of the Ontario Superior Court of Justice, made on a motion for summary judgment rather than after a full trial. It involved a custom bond, and it is under appeal. How much weight it carries elsewhere is a question for your own counsel.
Retrieved or confirmed October 21, 2026 (PT).
