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Note: Canadian Imperial Bank of Commerce(Issuer) issued a standby LC in the amount of US$400,000 payable to the Royal Bank of Canada on the application of Carl G. Treco Contractors(Applicant), the General Contractor of a shopping mall expansion project in Nassau, Bahamas. Torway Company Limited was the structural steel Subcontractor for this project and Applicant provided the standby in order to enable the Subcontractor to obtain materials for the project.

A dispute arose over after Royal Bank drew on the funds available under the standby. Accordingly, Subcontractor and the company handling its back office matters, ASDA Holdings Ltd. sued the Royal Bank for breach of contract, breach of duty, and negligent misrepresentation. The Superior Court of Justice, P.M. Perell, J., found for the Royal Bank and dismissed the action with costs.

Subcontractor claimed that the LC was issued for the benefit of Royal Bank in name only. Accordingly Subcontractor claimed that as a result of the Royal Bank's breaches of duty, including the manner in which the Royal Bank made demand on the LC, Subcontractor did not receive the full benefit of the LC and the Royal Bank was responsible for its loss.

The court rejected this argument, finding that the LC served as Royal Bank's security for a revolving loan demand agreement between Subcontractor and Royal Bank through which Subcontractor made purchases.

[JEB/jjdd]

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