- Hearsay
- Posts
- Making demands
Making demands
Fraud vs. commercial certainty at the SCC. Plus constructive expropriation, the SCC's official year in review, and Indigenous languages in the legislature.
Dylan Gibbs
April 08, 2024
Happy Monday. And welcome to the other side of the 2024 total solar eclipse.
— Dylan Gibbs
TODAY'S DOCKET | 5 min read |
SCC weighs in on letters of credit, criticizing Greek ministry in the process
The official year in review
Coal royalties and constructive expropriation
Indigenous languages in the legislature
CONTRACTS
Did the SCC water down letters of credit?
Letters of credit guarantee that contracting parties get paid. A bank that issues a letter of credit needs to cough up the dough on demand — virtually no questions asked. If there’s a dispute, the paying party can fight to get their money back, but the recipient gets to keep the money in the meantime. Pay now, fight later.
There’s only one exception: fraud. And it’s covered by the Supreme Court’s latest decision.
What happened: Bombardier sold firefighting planes to Greece’s defence ministry, agreeing to pay damages if it didn’t subcontract enough manufacturing work to Greek suppliers. Two letters of credit secured the potential damages. A Greek bank (now Eurobank) agreed to pay the ministry. And National Bank of Canada agreed to reimburse Eurobank.
Bombardier didn’t hit the Greek supplier quota, which led to arbitration. The ministry initially promised to sit through the arbitration proceedings without demanding payment. But then it changed its mind. So, while the ministry pressured Eurobank to pay, the parties asked anyone who would listen whether the ministry was allowed to renege on its promise.
The arbitration tribunal ordered the ministry to stick to its word — no making demands until the end of the arbitration.
And Quebec’s Superior Court made a similar order, directing the ministry not to demand payment and Eurobank not to pay.
But a Greek court said the ministry had every right to call for the money.
Faced with escalating demands from the ministry, Eurobank paid the letter of credit just before the scheduled release of the arbitration decision. And the ministry never gave the money back — even after Bombardier won the arbitration. So Bombardier went to court to stop National Bank from reimbursing Eurobank with Bombardier’s cash.
At the SCC: The judges split 7:2, with Justice Kasirer writing for the majority. Justice Kasirer said the ministry’s conduct was fraudulent, and Eurobank — a knowing participant — adopted that fraud as its own.
The ministry’s fraud was demanding payment right at the finish line of the arbitration, violating both its initial promise to Bombardier and the tribunal’s interim order. It was also fraud to keep Eurobank’s money after losing the arbitration.
Eurobank wasn’t just suspicious about the ministry’s conduct — it had “clear knowledge” of the fraud because it knew about the tribunal’s interim order and the looming arbitration decision.
And Eurobank participated in the fraud by paying the ministry anyway.
The dissent took issue… with Justice Kasirer and the lower courts ignoring the Greek court’s ruling. Justice Côté (joined by Justice Karakatsanis) said Eurobank had no choice but to follow a binding ruling made by a Greek court about a letter of credit governed by Greek law.
Justice Côté also said the arbitration tribunal’s interim order didn’t carry the same weight as a court order — violating the interim order was a breach of contract, but not fraud. Justice Kasirer saw it differently:
[A] breach of contract, without more, is not fraud. However, a breach of contract, like any other behaviour in a transaction that “import[s] some aspect of impropriety, dishonesty or deceit”, can amount to fraud.
HEARSAY ROUNDUP
Canadiana
🗓️ The Supreme Court released its year in review for 2023.
🗣️ Ontario MPPs no longer need permission to speak Indigenous languages in the legislature.
💰 Israel supporters filed a judicial review application challenging Canada’s decision to restore UNRWA funding.
🌳 Last week, the Alberta Court of Appeal held that Canada and Alberta didn’t constructively expropriate coal royalties by taking steps to phase out coal development. Everyone agreed that constructive expropriation requires the government to acquire an interest “in or flowing from” the expropriated property. Altius Royalty Corporation argued that Canada and Alberta acquired an interest by avoiding healthcare and environmental expenses caused by coal. But the Court said that wasn’t enough. According to the Court, constructive expropriation requires correspondence between the interest acquired by the government and the interest lost by the owner.
All government regulation and legislation is intended to be in the public interest. Extending the concept of “advantage” as the appellant suggests could have a tremendous impact on the public purse and legislative decision making…
“[D]e facto expropriations are very rare in Canada”. Under the appellants’ reasoning, they would become frequent if not ubiquitous.
THINGS NOT TO DO AS A LAWYER
→ Don’t use an “alternative path” to circumvent a judge’s directions. A provincial court judge in Alberta seized himself with bail proceedings after a guilty plea. He made it clear to counsel that he should be the one deciding bail. But instead of going back to the same judge, defence counsel filed a bail review and secured her client’s release through a different court. The judge said he didn’t have jurisdiction to find the lawyer guilty of contempt — because the conduct happened outside his court — but he let his reasons serve as a reprimand.
[The lawyer’s] actions here are deserving of sanction. She acted in direct – and almost immediate – disobedience of my explicit directions. When lawyers disagree with a court’s ruling, their remedy lies in an appeal; it is not open to them to – as [the lawyer] candidly conceded she did – “find an alternative path” to achieve their goal(s).
QUESTIONABLE SUITS
Try to contemplate the mind of someone who would buy a Fleshlight and sue for false advertising when "performance" doesn't improve.
— Rob Freund (@RobertFreundLaw)
Apr 6, 2024
 | That’s all for today. Govern yourself accordingly. You can also find me on LinkedIn and X/Twitter @DylanJGibbs. If someone sent you this email, subscribe here. |
SHARE HEARSAY
Don’t keep us a secret. Get your friends to sign up and you’ll be rewarded. You can find your custom referral link in the email version of Hearsay.
