The landlord, Clarica, drew $677,979.24 on an irrevocable letter of credit provided by the bankrupt tenant, Lava, as security for a commercial lease.
The receiver for Lava applied for an order requiring Clarica to account for the funds drawn in excess of its statutory entitlement under the Commercial Tenancies Act and the Bankruptcy and Insolvency Act.
The application judge granted the order.
On appeal, the Court of Appeal reversed the decision, holding that under the principle of the autonomy of letters of credit, the funds paid by the bank were the bank's property, not the bankrupt tenant's.
Therefore, the receiver had no legal right to recover the funds from the landlord.