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In defense, it was claimed that the amount of the interest was in excess of the amount permitted under the applicable usury statute and, in fact, was a criminal interest rate in excess of 60% per annum. The basis for the claim was that the credit, not having been drawn on, was not available until the date of expiration. Accordingly, the 15% interest agreed would be calculated for that one date and far in excess of 60% per annum.

The question before the court, then, was what was the effective date of the credit. The parties called the court's attention to the decision in Kebet Holdings Ltd. v. 351173 B.C. Ltd. (1992) 74 B.C.L.R. (2d) 198 (C.A.). In discussing this decision, the court stated that "because the lender [in Kebet] was an obligant under the letter of credit, as opposed to a guarantor, Topic: Effective Date of LC and payment of the $421,830 debt was seen as a certainty, the court treated the letter of credit as an 'irrevocable promise to advance funds in the future.'"

Distinguishing Kebet, the court affirmed the trial court's decision, which reasoned that "[a] letter of credit may be 'credit advanced' on delivery, if the letter is effective and enforceable on delivery. On delivery of the letter of credit ... the holder of the letter, could draw upon or cash the letter. It was therefore credit advanced on the date the letter of credit was issued ...."

Comment: While LCs are not "cashed," the opinion does restate the basic proposition that a letter of credit is effective at the time that it is issued unless it expressly provides for another date of availability. Whether the date of availability is the same as the effective date for calculating interest for purposes of the Canadian criminal usury statute apparently was decided by Kebet, however, the decision seems odd because the credit had been extended and should have been booked on the issuance of the credit, regardless of whether or not it is able to be drawn until a later date, unless it provided that the credit is not available until a later date.

[JEB/llh]

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