In the Ontario Superior Court’s decision of TruGrp v Karmina, 2024 ONSC 2165 (see our article here), the court adjourned TruGrp’s motion challenging the adequacy of a letter of credit as security to vacate a claim for lien, pending submissions from the accountant of the Superior Court and the issuing bank, the Bank of Montreal.
Recently, the court released its endorsement in TruGrp v Karmina, 2024 ONSC 4643, following up on the prior decision.
The court noted the accountant and the Bank of Montreal provided written positions for the court’s review.
With respect to the language in the letter of credit that allowed the Bank of Montreal to decline renewal of the letter of credit upon 30 days’ notice, the accountant stated a letter of credit with such language is acceptable security. The accountant also stated a further court order with respect to the use of the bank draft as security would only be required in circumstances where the letter of credit is being replaced by a bank draft from a party other than the issuing bank. The Bank of Montreal agreed with the accountant’s position.
As a result of the accountant’s written position, TruGrp ultimately did not proceed with the motion.
While the court therefore did not render a decision, the accountant’s position was clear that letters of credit with similar, commonly used renewal provisions are in fact valid security to vacate a claim for lien.
This short endorsement provides much needed clarity and returns certainty to the use of letters of credit as security to vacate construction liens.
Richard Yehia, James MacLellan and Evan Ivkovic are lawyers with Borden Ladner Gervais. Send Industry Perspectives Op-Ed comments and column ideas to editor@dailycommercialnews.com.
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