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St. Michael’s, one of Canada’s most prominent hospitals, bills itself as an 'urban angel' to vulnerable and disadvantaged residents of downtown Toronto.

Christopher Katsarov/The Globe and Mail

St. Michael’s Hospital says the insurance company liable for construction work on its redevelopment project cannot use the recent discovery of e-mails that the insurer alleges are proof of collusion in the bidding process to avoid its obligations.

Zurich Insurance Co. Ltd. provided insurance-like contracts known as surety bonds for more than $1-billion worth of public-sector contracts awarded to Bondfield Construction Co. Ltd., which has operated under bankruptcy protection since April, 2019. The $300-million redevelopment of St. Michael’s Hospital was its largest contract.

Court records show that Unity Health, a network of Toronto hospitals that includes St. Michael’s, asserts that Zurich, which guaranteed completion of the redevelopment project through the surety bonds, has known of alleged unfairness in the procurement process since 2015.

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The documents are Unity Health’s statement of defence and counterclaim in a lawsuit from the insurer.

The hospital is asking the courts to dismiss the lawsuit and order Zurich to provide the funds to finish construction, which is 2½ years behind schedule. Bondfield’s contract has been terminated, leaving Zurich as the last funding resort.

St. Michael’s, one of Canada’s most prominent hospitals, bills itself as an “urban angel” to vulnerable and disadvantaged residents of downtown Toronto. The centrepiece of the reconstruction is a 17-storey patient care tower that was scheduled to be finished in November, 2017. The hospital recently opened two floors of it for COVID-19 patients.

Jennifer Stranges, a spokesperson for Unity Health, said it is unacceptable that the hospital cannot count on Zurich to meet its commitments.

“We are, however, optimistic that a Canadian court will see Zurich’s argument for what it is – the latest in a series of attempts to avoid paying out on the surety bonds they issued to back construction,” Ms. Stranges said in an e-mail to The Globe and Mail.

Zurich asked an Ontario court in April to rule that its obligations to pay for construction work on the project are now void. The insurer alleges in court filings that e-mails one of its consultants discovered in March “appear to prove collusion” in the procurement.

Zurich accuses Bondfield of providing a secret e-mail address to a St. Michael’s official so he could pass information about the bidding process to the company’s former chief executive.

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In a statement of claim, Zurich says that when it agreed to guarantee Bondfield’s work, it was unaware of these alleged “secret back-channel communications.” The insurance company accuses John Aquino, Bondfield’s former CEO, of supplying Vas Georgiou, the former St. Michael’s executive in charge of the redevelopment project, with a “secret Blackberry device,” which the pair used to communicate and ensure that Bondfield underbid its competitors for the contract, awarded in 2015.

Zurich is suing Bondfield, Mr. Aquino, Mr. Georgiou and Unity Health. None of the allegations have been proved in court.

Bondfield is owned by Mr. Aquino, his younger brother, Steven Aquino, and their father, Ralph Aquino. The company removed John Aquino as CEO in October, 2018, and replaced him with his brother. Steven Aquino declined to comment.

John Aquino said in an e-mail that he does not currently have a lawyer representing him in this matter, and did not comment on Unity Health’s court filing. Mr. Georgiou’s lawyer did not respond to a request for comment.

In its statement of defence, Unity Health asserts that Zurich learned about allegations of unfairness in the procurement process from stories published in The Globe in the fall of 2015. In November of that year, St. Michael’s fired Mr. Georgiou after a Globe investigation revealed he was involved in two business ventures with Mr. Aquino while he was evaluating potential bidders on the hospital project.

“The highly publicized investigative reporting suggested that Bondfield had won its bid as a result of its relationship and collusion with Mr. Georgiou,” Unity Health alleges. “Zurich’s allegations that it learned something new in March, 2020, are not tenable.”

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Unity Health says in its court filing that Zurich did not take any steps to end its obligations under the bonds in 2015. Nor did Zurich conduct any due diligence on the project, either before or after issuing the surety bonds. (Zurich issued the bonds in January, 2015, nine months before The Globe published its first story.)

In a statement to The Globe, Zurich Canada CEO Saad Mered said the lawsuit reflects the insurer’s “very serious concerns” about the integrity of the bidding process. “The allegations regarding the defendants’ conduct, as outlined in the court documents, speak for themselves,” he said.

At a hearing on Tuesday on a motion from Unity Health seeking a summary judgment in the matter, Ontario Superior Court Justice Barbara Conway said she is not prepared to do that at this time.

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