Article

Type of Lawsuit: Applicant sued issuer for wrongful honor.

Parties: Plaintiff/Appellant/Applicant- Gook Country Estates Ltd. (Counsel: R. Burke) Defendant/Apellee/Issuer- The Toronto Dominion Bank (Counsel: T.M. Cohen) Beneficiary/Third Party- Her Majesty the Queen in Right of the Province of British Ministry of Transportation and Highways and Minister of Finance and Corporate Relations of the Province of British Columbia.

Underlying Transaction: Construction of roads and installation of other services.

LC: Standby LC for CAD560,750. Subject to UCP500.

Decision: The British Columbia, Court of Appeal, Levine, JJ.A., dismissed an appeal from a judgment in favor of issuer by the Supreme Court of British Columbia, Powers, J.

Rationale: When a credit was payable to a Minister signifying the office and not a particular individual, the issuer properly paid a drawing on the Ministry stationery signed by a representative of the same title at a different address, and was entitled to reimbursement by the applicant when the proper entity drew on the credit even though there was a typographical error regarding the address of the representative. The address did not identify the named beneficiary but was surplusage.

Prior History: Gook Country Estates Ltd. v. Toronto Dominion Bank, 2000 B.C.D. Civ. J. 3809; abstracted at 2001 Annual Survey of Letter of Credit Law & Practice 223.

Factual Summary: As a prerequisite for the subdivision of property in British Columbia owned by the applicant, a developer,, the British Columbia Minister of Transportation and Highways (Ministry) required that certain roads be built and services installed. The applicant contracted with Ministry to complete the required construction. In compliance with Ministry's requirements, an LC was issued in its favor in the amount of CAD560,750. To obtain the LC, the applicant provided the issuer with an indemnity agreement that stated, "it is understood and agreed that any demand or request made upon you for payment under this credit by the beneficiary will be your sufficient authority to pay thereunder and you shall not be required to determine the validity or sufficiency of such demand or request." Upon receipt of the indemnity agreement, the bank issued a letter of credit in favor of the "Minister of Finance and Corporate Relations of the Province of British Columbia as represented by: The District Highways Manager of the Ministry of Transportation and Highways, District located at 213-1911 Fourth Avenue, Prince George, B.C. V2L 3H9". The LC also required that the number and date of the LC be referred to in any demand. The LC was based on a form that was provided to the applicant by the beneficiary and then forwarded to the issuer by the applicant. As a result of disputes regarding the project, the applicant instructed the issuer to notify the beneficiary that the LC would not be renewed. In response, the beneficiary notified the applicant that unless the LC was renewed and the work completed, it would draw on the LC. The applicant failed to respond, and the beneficiary notified the issuer of its intention to draw. The issuer advised the applicant of the beneficiary's intention, and the applicant acknowledged receipt of that advice in a letter stating, "The Ministry will now be in the position of having to do all of those things which we wanted to do but didn't have their permission to proceed. They will have to account for everything spent in great detail." The demand referred to the number of the LC and stated, "since the required works have not been completed and the developer does not wish to extend the irrevocable letter of credit, let this letter be our demand for payment in the amount of CAD560,750." The demand was signed by the District Highways Manager for the North Caribou District. The demand did not mention the date of the LC and the beneficiary's address in the LC did not match the address of the beneficiary in the demand. Despite these deficiencies, the issuer honored. Once paid, the.39 2001 LC CASE SUMMARIES beneficiary completed the work for the subdivision, although the applicant disputed whether work was complete. Claiming that the issuer had wrongfully dishonored, the applicant sued the beneficiary for breach of contract and the issuer for wrongful honor. The claims against the beneficiary were settled out of court. Without regard to this settlement, the applicant continued to pursue its claim against the issuer. The trial court dismissed the action. On appeal, affirmed.

Legal Analysis:

1.Reimbursement: The applicant claimed that it was excused from its undertaking to reimburse because the issuer paid a different beneficiary than the one named in the LC. The beneficiary named in the LC was "The District Highways Manager of the Ministry of Transportation and Highways, District located at 213-1911 Fourth Avenue, Prince George, B.C. V2L 3H9. The drawing, however, was "made on the letterhead of the Ministry of Transportation and Highways, North Caribou District, sharing a mailing address in Quesnel and was signed by "John Cook, A/District Highways Manager, North Caribou District". The court noted it referred to the LC number, the amount of the claim, and included the original LC. The appellate court also noted that the applicant knew that the demand would be made by the person who made it and made no objection "until many months later". The appellate court rejected the applicant's misguided reliance on the doctrine of strict compliance when the objections are "technical".

2. Examination; Method, Surplusage: The applicant claimed that it was not obligated to reimburse the issuer where it paid a beneficiary whose drawing revealed a different address and a title as an "acting" manager signified by the letter "A" used in front of "Manager". In concluding that the issuer properly honored, the appellate court weighed the entire reference to the beneficiary, the fact that the applicant was aware that this person was entitled to draw, and the significance of the error.

3. Compliance; Typographical Error: The applicant sought to avoid its obligation to reimburse because the issuer honored a drawing by the beneficiary at a different address. In concluding that the beneficiary was the same entity to whom the LC was issued, the appellate court considered all of the factors regarding the name of the beneficiary, including the entire text of the LC, the entire text of the drawing statement, the expectations of the applicant, and the absence of timely objection.

4. Estoppel; Reimbursement: In weighing whether the applicant properly objects to payment by the issuer, the court noted as a factor the failure of the applicant to object "until many months later".

5. Compliance; Standard; Discrepancies Minor: The applicant argued that the rule of standard compliance extended to any difference between the LC and the drawing. The appellate court rejected this argument, indicating that "facially comply with the form of the letter of credit. Minor variations and discrepancies, however, may not disentitle the Bank to honour the demand."

6. Compliance; Named Beneficiary: The applicant argued that the issuer wrongfully paid a person not named as the beneficiary. The LC stated "The District Highways Manager of the Ministry of Transportation and Highways, District located at 213-1911 Fourth Avenue, Prince George, B.C. V2L 3H9." The drawing was "made on the letterhead of the Ministry of Transportation and Highways, North Caribou District, sharing a mailing address in Quesnel and was signed by "John Cook, A/District Highways Manager, North Caribou District". Considering that the factors, including the similarity of the amounts, data, and the presence of the original LC indicated a proper drawing by the intended beneficiary with the minor exception of a different address, the appellate court rejected this argument. It noted "the letter of credit did not specify that a particular individual was required to sign the demand, nor was such a requirement necessary." The requirement that the original of the letter of credit be presented ensured that there could be no mistake that the person making the demand was entitled to payment.

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