The Ontario Superior Court of Justice recently considered an application by Piaggio & C.S.p.A. (“Piaggio”), an Italian manufacturer of motorcycles and scooters, arising from a dispute in connection with a refusal of payment by the Bank of Nova Scotia (the “Bank”) under three letters of credit (the “LCs”). The case (2011 ONSC 2567) is instructive of the care required when taking letters of credit and presenting them for payment.

The Bank's Refusal

The Bank’s refusal to pay funds to Piaggio pursuant to the LC’s was on the basis that the named beneficiary of the LC’s did not conform to the name on the draw documents in a material respect. The Bank also refused to honour one of the LC’s on the basis that Piaggio did not provide all of the original amendments to the first LC. Piaggio sought an order from the Court requiring the Bank to honour the LCs and pay the face amount of each with interest.

The Beneficiary Description Issue

The Bank’s Position

Piaggio and the Bank disputed the materiality of the differences between the named beneficiary on all three of the LCs versus the presentation documents provided to the Bank. The Bank took the position that it could not honour the LCs on the basis that there were material discrepancies between the named beneficiary in the LCs (“PIAGGIO AND C.S.P.A./APRILIA” or “PIAGGIO AND C.S.P.A. (APRILIA)”) and Piaggio’s name as set out in the presentation documents (“Piaggio & C.S.p.A.”), which was Piaggio’s proper legal name.

Piaggio’s Position

Piaggio argued that the discrepancies between the LCs and the presentation documentation were minor and that, given the documents passing between itself and the Bank, there was no question that Piaggio was the only entity that could possibly be the proper beneficiary under the LCs. Piaggio pointed to a number of factors supporting this argument, including the following: (i) the Bank, by way of letter to Piaggio, confirmed it was issuing a letter of credit to “Piaggio & C.S.P.A.” as beneficiary; (ii) the Bank’s SWIFT communications that confirmed the LC amendments described the beneficiary of the LCs as “Piaggio & C.S.P.A.”; (iii) the address of the beneficiary was identical on all three LCs and related amendments; and (iv) there was no legal entity called either “Piaggio & C.S.p.A/Aprilia” or “Piaggio & C.S.p.A.(Aprilia)”, therefore, the Bank was not at risk by paying the funds to Piaggio.

The Court’s Reasoning

The Court noted that letters of credit are generally strictly construed according to their terms. Since the Bank had a strict obligation to pay under the LCs, the beneficiary of such LCs had an obligation to strictly comply with the terms and conditions of the LCs. However, the bank noted that minor discrepancies between the LCs and the presentation documents were not fatal. Accordingly, the Court proceeded to consider whether the discrepancies in the beneficiary’s name were minor.

In evaluating the evidence, the Court considered the decision of the Supreme Court of Canada (“SCC”) in Bank of Nova Scotia v. Angelica-Whitewear Ltd., wherein the SCC stated that when the parties involved are dealing in documents, not goods, the documents are of paramount importance. However, the SCC also stated that there was latitude for minor variations of discrepancies that were not sufficiently material to justify a refusal for payment under a letter of credit, including: (i) the use of words in the singular, rather than plural; (ii) superfluous adjectives descriptive of the goods; (iii) numbers in sets rather than in totals; and (iv) obvious typographical errors either in the letter of credit or the documents.

In this case, the Court determined that the correct name of the beneficiary was fundamental. In order to determine if “Piaggio & C.S.p.A.” was the same legal entity as the beneficiaries named in the LCs, the Bank would have had to look beyond the presentation documents themselves. Therefore, the Court concluded that the addition of the word “Aprilia” was more than a typographical error and was material. In addition, in this case the Canadian customer, not the Bank, named the beneficiary in the LCs. As such, it was not the Bank’s responsibility to determine the true name of the beneficiary. Rather, it was up to the Canadian customer or Piaggio to correct the mistake. Had Piaggio insisted on amending the LCs to reflect its proper legal name, Piaggio would have avoided this problem. On these bases, the Bank was justified in refusing to pay Piaggio under the LCs.

Loss of Original LC Documentation

The Court noted that even if the misnamed beneficiary was a minor discrepancy, the Bank would still have been justified in refusing to pay the first LC due to the failure of Piaggio to produce all of the original amendments relating thereto or, in lieu thereof, to provide the Bank with an affidavit deposing that the original LC amendment could not be found and had not been sold, assigned or transferred together with a comprehensive indemnity and a bond.


While the result may come as no surprise to commercial parties that regularly deal in letters of credit, this case highlights one of the risks associated therewith. The beneficiary must strictly meet the draw conditions in order to obtain payment from the financial institution issuing the letter of credit. Letters of credit should be carefully reviewed prior to acceptance, and any conditions negotiated in advance. Errors on the face of the letters of credit should not be accepted.

Beneficiaries of letters of credit are cautioned to review their existing letters of credit for any errors, and at the time of presentation to ensure that the letters of credit and presenting documentation match. Further, the beneficiary should take care in the custody of the letter of credit.

On presentation, all documentation required by the letter of credit, along with the original letter of credit, should be presented at the place specified in the letter of credit. In the event of loss of the original letter of credit, it may be possible in some cases to draw on the letter of credit by presenting the bank with a copy of the letter of credit, an affidavit relating to its loss, together with an indemnity and bond.