An insolvent developer applied for interpretation of a subdivision agreement and standby letter of credit securing municipal works in a development project.
The developer argued that the municipality could use proceeds from the letter of credit to pay unsecured trade creditors who had supplied goods and services before the developer’s insolvency.
The court held that the agreement limited the municipality’s entitlement to prospective costs associated with completion or rectification of municipal works and did not authorize retroactive payment to unsecured creditors.
The court rejected reliance on the autonomy doctrine governing letters of credit, noting that permitting such retroactive payments would be fraudulent where the bank had not secured those obligations.
The application for the requested interpretation was dismissed.
