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Contracts — Suretyship — Ultimate liability for payment of overrun in movie production costs — Whether suretyship contract null because extended beyond limits within which entered into — Whether courts below violated strictissimi juris rule in interpreting suretyship contract.

In the early 1990s, a movie called Agaguk: Shadow of the Wolf was to be produced by an incorporated entity and financed by the Agaguk limited partnership through subscriptions for shares that would give the special partners a tax benefit. The financing was secured by a performance guarantee entered into with Performance Guarantees (Québec) inc. (“PGQI”). The performance guarantor also had to obtain guarantees called cut throughs from the applicant underwriters, who were members of Lloyd’s of London. Under the cut throughs, the beneficiaries could turn to the applicants directly if PGQI did not pay. The movie was not delivered to the distributors on time and was not as commercially successful as expected. The production costs were also higher than the projections in the prospectus.

In 1993, the respondent company brought a lawsuit against the applicants seeking reimbursement of the overrun in production costs, which, it said, were about $6.7 million. The Superior Court allowed the action. According to the judge, the production cost overrun amounted to $4,222,000. That judgment was affirmed in substance by the Court of Appeal, which reduced the amount of the debt by $388,488 because the award for that amount was not supported by the evidence. Apart from that, however, it confirmed that the cut throughs were suretyship contracts and that the respondent had a sufficient legal interest to institute the action against the applicants and claim the amounts paid to cover the overrun in the production costs specified in the budget for the movie, including the share of the costs attributable to the French portion of the production.