By Matthew Latella & Ben Sakamoto

 

On October 28, 2020, the Ontario Court of Appeal overturned a respected Commercial Court judge’s decision on a motion affecting a range of important legal issues, including the fraud exception to the autonomy principle regarding letters of credit. In 7636156 Canada Inc. (Re), 2020 ONCA 681, Ontario’s highest court clarified the law regarding a landlord’s right to call on a letter of credit (“LC”) when its tenant becomes bankrupt. The Court of Appeal confirmed that, under the autonomy principle, a bank’s obligation under an LC is independent of a tenant’s obligations under the lease, and clarified the fraud exception that allows a bank to refuse to pay on an LC. The case also holds implications for Canadian bankruptcy law.

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