SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: CV-12-458003

MOTION HEARD: 20120724

RE: Naylor Group Incorporated v Enfinity Canada EPC INC.

BEFORE: MASTER

COUNSEL: Chris Stanek, for the Contractor (Moving Party)

ENDORSEMENT

Motion brought to substitute letter of credit for posted cash security. The proposed letter of credit is made subject to ICC Publication 590 of the International Chamber of Commerce. Counsel argues that the term only applies to the underlying security and for RBC (the issuer) to deal with the guarantee. I am not satisfied that if an issue arises respecting the underlying security that RBC will not refuse to honour the letter of credit thereby potentially embroiling the Accountant in a lawsuit. If ICC Publication 590, as counsel states, does not concern the Accountant, there is no need for the letter of credit to be subject to it. By inserting the term, on its face the letter of credit is subject to ICC Publication 590 and there is a potential that the term will be invoked to deny payment. Section 44 (of the Construction Lien Act) contemplates payment of cash security in lieu of the lands and premises. Section 78(10) contemplates that in lieu of cash a financial guarantee bond or a letter of credit or a guarantee from a bank listed in Schedule I or to the Bank Act (Canada) can be posted. Implicit is that any such bond or letter of credit be free of any term or restrictions that potentially could give rise to the issuer/surety refusing to pay. A form of Financial Guarantee Bond is prescribed in Form 23. There is no form of letter of credit prescribed but the practice has been that its terms be equivalent. In my opinion the insertion of the subject term in respect of ICC Publication 590 is not equivalent and raises the potential that payment may be refused by RBC thus embroiling the Accountant in a lawsuit. Regardless of the fact that in the lawsuit the Accountant may be successful the mere fact of the potential of the lawsuit is sufficient to reject the form of the tendered letter of credit. Simply put the letter of credit is not equivalent to Form 23 in terms of conditions. For these reasons this ex parte motion is refused.

”Julian Polika”______________

Master Polika

DATE: July 24, 2012