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Global rules on foreign direct investment (FDI)
Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
Canada | Publication | December 9, 2020
Based on basic principles of letters of credit and parties’ intentions (reflected in the specific lease and letter of credit language), the Ontario Court of Appeal confirms that a letter of credit is not rendered unenforceable by a landlord or limited to three months’ rent as a result of a disclaimer of the lease, i.e., rights against third parties relating to a lease survive.
In May 2020, we published a legal update that provided a general overview on tenant insolvency issues for commercial landlords in Alberta. In the context of our general recommendations relating to letters of credit issued by third-party lenders as security for a tenant’s obligations under a lease, we noted an Ontario Superior Court of Justice decision, 7636156 Canada Inc. v OMERS Realty Corporation, which was subsequently appealed. On October 28, 2020, the Ontario Court of Appeal (the Court) released its decision,1 which is the subject of this legal update.
Following the assignment in bankruptcy of 7636156 Canada Inc. (the tenant), OMERS Realty Corporation (the landlord) made a demand to draw on the $2.5 million letter of credit (the LOC) issued by a bank. The lease between the tenant and the landlord stipulated that the LOC would continue to stand as security should a disclaimer of the lease in connection with any bankruptcy of the tenant occur. Under its terms, if the lease is disclaimed in connection with any bankruptcy of the tenant, then the landlord could draw a portion or all of the LOC amount.
The trustee in bankruptcy over the tenant brought a motion to disallow the draws made by the landlord, and the motion judge limited the recovery by the landlord under the LOC to the landlord’s preferred claim for three months’ accelerated rent under federal bankruptcy legislation. The motion judge relied on the Cummer-Yonge Investments Ltd. v Fagot (Cummer-Yonge) decision and reasoned that a disclaimer of a lease by a trustee in bankruptcy extinguishes all obligations of a tenant under a lease (including the third-party obligations and those being secured by a letter of credit).
The Court unanimously overturned the motion judge’s decision, holding that the motion judge erred in its findings. The Court confirmed the landlord was entitled to draw on the full amount of the LOC obtained under the lease with the bankrupt tenant instead of being limited to its preferred claim of three months’ worth of accelerated rent under bankruptcy legislation. The Court’s key conclusions are as follows:
For a general overview on tenant insolvency issues for commercial landlords, please see our legal update.
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Cross-border acquisitions and investments increasingly trigger foreign direct investment (FDI) screening requirements.
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On February 2, 2024, the Belgian Presidency of the Council of the European Union confirmed that the Committee of Permanent Representatives had signed the Artificial Intelligence (AI) Regulation, referred to as the AI Act. Approval by the EU Parliament followed on 13 March 2024, and the AI Act is likely to appear in the EU’s Official Journal around May 2024. The AI Act aims to establish a stringent legal framework governing the development, marketing, and utilisation of artificial intelligence within the region, thereby marking a significant advancement in the regulation of this burgeoning domain.
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In the recent decision of Euronav Shipping NV (Euronav) v Black Swan Petroleum DMCC (BSP) [2024] EWHC 986 (Comm) (the Judgment), the English Commercial Court has underscored the role of comity in international disputes.
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