TBD for the LOC: The Court Adjourns Motion Regarding Letters of Credit to Vacate Claims for Lien

Vacating a lien from title using a letter of credit as security

Vacating the registration of a claim for lien from title to a property is a common and routine procedure in construction litigation.

Typically, a party who wishes to remove a lien from title brings a motion without notice and pays security into court in the amount of the claim for lien plus 25% for security for costs (up to certain thresholds). The security paid into court stands as security for the claim for lien, instead of the property. Common forms of security paid into court are lien bonds, cash, and letters of credit.

Letter of credit challenged in court

In the recent case of TruGrp Inc. v Karmina Holdings Inc., 2024 ONSC 2165, a letter of credit was paid into court as security for two claims for lien. The registrations were vacated from title to the property by court order. The lien claimant then brought a motion to set aside the order.

The lien claimant took issue with language on the letter of credit, which allowed the issuing bank to choose not to renew the letter of credit and exchange it for a bank draft. This provision is commonly used in letters of credit to vacate liens. The lien claimant also contacted the office of the Accountant for the Superior Court of Justice, who stated that a court order would be necessary to replace or release the letter of credit paid into court.

This creates a potential gap where the letter of credit is not renewed by the issuing bank but the court accountant does not accept the bank draft as a replacement without a court order directing it to accept the bank draft. The lien claimant in this case was concerned that, if this did happen, the lien claimant could have no security at all for its lien.

TBD: The court adjourns the motion

The court adjourned the motion and requested submissions from the accountant and the issuing bank. We will update our blog when the decision is rendered, so stay tuned here.