Type of Lawsuit: Issuer sued beneficiary for return of LC proceeds.

Parties: Plaintiff/Respondent/Issuer- Canadian Imperial Bank of Commerce (Counsel: Joseph Bisceglia)

Defendant/Appellant/Beneficiary/Service Provider- Sault Ste. Marie Public Utilities Commission (Counsel: Michael Barrack and James Melville)

Underlying Transaction: Utility services connected with real property.

LC: Commercial standby LC. Silent as to amount. Silent as to governing rules.

Decision: The Court of Appeals for Ontario in a per curiam opinion by Carthy, Doherty and M.

Rosenberg, J.J., reversed the decision of the trial court in favor of the issuer and dismissed the action.

Rationale: Where there is no proof of fraud, payment by an issuer in favor of a beneficiary is final.

Factual Summary: Standby was issued in favor of beneficiary as security for provision of utility services by beneficiary for applicant's real properties. The trial judge found that although accounts were current, beneficiary drew on the LC, making the statement that applicant was in arrears although the LCs "were called to have cash replace the letter of credit pledged as security deposits for services to be rendered by the beneficiary to the applicant...." Issuer honored the LC and subsequently sued beneficiary for making a false representation of fact. The trial court, Caputo, J., entered judgment for issuer. On appeal, reversed and dismissed.

Legal Analysis:

1. Fraud; Finality: The issuer argued that the beneficiary had made a false representation that funds were due. Noting that the trial judge relied on language in beneficiary's demand letter, the appellate court observed that the language "tracked the language of the LC," so that "no inference against beneficiary could be drawn from the use of that language". The appellate court further stated that the trial court's finding that beneficiary misled issuer into advancing payment by claiming applicant was in arrears was inconsistent with its finding that issuer was aware that applicant was not in arrears on its accounts when it advanced payment on the LC. Finally, the appellate court stated that the trial court's decision was contrary to the evidence, which "clearly established that the issuer knew full well that applicant had obtained the LC for the beneficiary's benefit to satisfy the beneficiary's requirement that the applicant provide a security deposit to the issuer"


The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.