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Note:Gulf International Bank B.S.C. (Gulf), issued a standby on behalf of Kemtec, a subsidiary of Groupe Lavalin that was established to conduct business in the manufacturing of oil products, in favor of various suppliers. Issuer sued a banking syndicate consisting of Morgan Bank of Canada, TD Bank, and others for breach of a duty to disclose credit information regarding the Applicant who was a common debtor.

Applicant had an existing credit facility with the syndicate. When Applican's financial situation weakened, the syndicate re-negotiated its credit agreement with Applicant and imposed various conditions on the relationship. Among the conditions, Applicant was required to maintain its standby LC facilities with Gulf. Applicant ultimately ceased operations and a supplier drew on an outstanding LC, which was honored by Gulf. Gulf had not been informed by the syndicate of the deterioration of Applicant's credit situation.

Gulf subsequently sued the syndicate for a breach of the syndicate's duty as a banker to inform Gulf of Applicant's status. The Superior Court of Montreal ruled in favor of Gulf, but the Quebec Court of Appeal, Beauregard, Rothman and Otis, JJ.A., reversed, finding that the syndicate had not breached a duty to keep a third party creditor informed.

The appellate court determined that there was no breach of duty since Gulf was experienced and sophisticated in matters of international finance and had the ability to obtain any information it deemed relevant to evaluate its credit relationship with Applicant. Evidence indicated that Gulf was aware of Applicant's weakening financial situation, its relationship with the syndicate, and the conditions the syndicate placed on Applicant's credit facility, but that Gulf never sought authorization from Applicant to inquire into its credit status with the syndicate. Absent such an authorization, the syndicate could not have provided information to Gulf in any event.

Comment by Professor Jean Stoufflet (University of Clermont - Ferrand) on the French text: The Banking Syndicate which was financing the Kemtec transactions should have informed it of the financial difficulties of Kemtec. The Cour Supérieure de Montréal considered that there has been effectively a breach by le Syndicat of the duty of information owed to Gulf International in its quality of issuer of irrevocable letters of credit. The decision is reformed by the Court of Appeal: i) because the banks of the syndicate were experienced professionals and had the elements necessary to appreciate the situation of Kemtec and ii) because Gulf had no possibility to withdraw its undertaking in favor of Kemtec's creditors. Nevertheless, it seems that the Court of Appeal does not exclude as a matter of principle, the existence of a professional duty of information in such circumstances. This position could be criticized since there was no contractual relation between the syndicate and Gulf International Bank. In my view an information duty has necessarily a contractual basis.

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