Borrower Not Required To Drawdown On A Credit Facility Absent Clear Language To The Contrary

In the recent decision of Maxam Opportunities¹, the British Columbia Supreme Court determined that, absent clear language to the contrary, a lender cannot require a borrower to draw on funds made available to the borrower under a credit agreement, despite the fact that substantial effort has been invested by the lender to set up the credit facility.

In this case, the plaintiffs (collectively Maxam), were private equity funds providing financing to Canadian companies. The defendant, 893353 Alberta Inc. (893), was seeking funding to acquire additional car dealerships and entered into a "Term Sheet" with Maxam, under which the parties would move forward with the purpose of consummating a mezzanine loan agreement (the Credit Agreement). The parties experienced several delays in finalizing the Credit Agreement and eventually 893 was at a critical stage in finalizing the purchase of one of the car dealerships. With the conclusion of the Credit Agreement still uncertain,