The Supreme Court of Canada (SCC) has denied leave to appeal the recent ruling by the Alberta Court of Appeal (ABCA) in the case of Pacific Atlantic Pipeline Construction (PAPC) versus Coastal GasLink Pipeline (CGL).

In this ruling, the ABCA refused to prevent CGL from drawing on a letter of credit (L/C) provided by PAPC pending the conclusion of arbitration between the two companies.

Fraud exception

Canadian courts have consistently upheld the importance of L/Cs in international trade and typically do not interfere with a beneficiary's right to draw upon them, except in cases of clearly demonstrated fraud.

The ABCA's decision reaffirms that fraud remains the only exception to the right of a beneficiary to draw on an L/C and a court can intervene to prevent a beneficiary from drawing on an L/C only if there is clear evidence of fraud.

Delaying tactics

The SCC's refusal to grant leave to appeal effectively ends a six-month effort by PAPC to prevent CGL from drawing on the L/C.

But the case does indicate that a counterparty can delay a draw on an L/C by dragging claims through the courts, even without proving or alleging fraud by the beneficiary.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.