SUPERIOR COURT OF JUSTICE - ONTARIO
IN THE MATTER OF the Construction Act, RSO 1990, c. C.30, as amended
RE: SUNDANCE DEVELOPMENT CORPORATION, Plaintiff
- and -
ISLINGTON CHAUNCEY RESIDENCE CORP., Defendant
BEFORE: Master Todd Robinson
COUNSEL: M. Lichtenstein, for the defendant
HEARD: In writing; ex parte
ENDORSEMENT
1I am unable to grant this ex parte motion to vacate the lien of Sundance Development Corporation (“Sundance”) until several issues with the materials and security have been addressed.
2Firstly, a copy of Sundance’s claim for lien has not been submitted. The registered claim for lien, with any schedules, must be available for the court’s review in any vacating motion to verify both the claimed amount of the lien and the quantum of required security.
3Secondly, the letter of credit submitted for approval as security for the lien is unacceptable in its current form. It makes no reference to being issued in respect of the subject premises or Sundance’s claim for lien, and the language used by the issuing bank is variant from the form of letter of credit generally accepted by the court. More importantly, the letter of credit is made subject to the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce. The terms of that document are not before me, absent which I am unable to ascertain if there are conditions under which the bank may properly refuse to honour a demand on the letter of credit contrary to the intent of lien security within the scheme of Construction Act. I have the same concern as expressed by Master Polika in Naylor Group Incorporated v Enfinity Canada EPC INC., 2012 ONSC 4365, which involved a motion to substitute existing security for a letter of credit made subject to ICC Publication 590. Master Polika held as follows:
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 [sic] 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.
4Amendments to the former Construction Lien Act sought to address references to international conventions in letters of credit. The current Construction Act contemplates that a letter of credit containing reference to an international commercial convention may be acceptable security, but such a letter of credit is only acceptable where the convention text is written into the terms of the credit and the letter of credit is unconditional and accepted by a bank listed in Schedule I to the Bank Act (Canada) that is operating in Ontario: Construction Act, s. 44(5.1). It is not clear to me from the language of the letter of credit that the UCP document contains no additional conditions available to the bank not reflected in the text of the letter of credit. I am thereby not satisfied that the letter of credit is truly unconditional (other than standard conditions of automatic renewal and cancellation). I share Master Polika’s view: if the UCP document is not relevant to enforceability of the letter of credit by the Accountant, then there is no need for the letter of credit to be subject to it.
5Supplementary materials and a new letter of credit, or alternative security, may be submitted directly to my Assistant Trial Coordinator by email. Counsel may wish to consult Appendix II in Glaholt’s Conduct of Lien, Trust and Adjudication Proceedings, 2020 (or its predecessor, Conduct of a Lien Action) for a draft form of letter of credit commonly accepted by the court. If moving counsel wishes to make submissions on the foregoing, then a case teleconference may be arranged through my Assistant Trial Coordinator for that purpose. In the absence of supplementary materials being filed or a teleconference being arranged within ten (10) days, this motion shall be deemed dismissed without prejudice to bringing it again with a complete record and appropriate security.
MASTER TODD ROBINSON
DATE: January 11, 2021