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

Last Updated: June 30 2015
Article by Danielle Marechal

Most Read Contributor in Canada, October 2018

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, Maxam proposed the advancement of a $15 million, six-month "Bridge Loan" to 893, and the Bridge Loan was ultimately advanced.  Both the Bridge Loan and the Term Sheet contained an exclusivity provision prohibiting 893 from entering into any agreement with a third party in respect of any "similar transaction", given the substantial effort that Maxam would expend to complete the documentation required for the Credit Agreement.

After lengthy negotiations, Maxam, 893, and others finally executed the Credit Agreement. Under the Credit Agreement, a credit facility of "up to $30 million" for five years was made available to 893. During the process of finalizing the Credit Agreement, several disputes had arisen between the parties, resulting in tension in their relationship. As such, shortly after the Credit Agreement was entered into, 893 contacted a third party financer, the defendant 729171 Alberta Inc. (729), with a request to borrow $15 million on a short term basis. 729 advanced the money to 893 and 893 completed its purchase of a car dealership using the 729 loan, such that 893 never drew down on the $30 million credit facility provided to it by Maxam. Upon learning that 893 had used alternate financing to acquire that car dealership, Maxam issued a notice of default to 893 under the Bridge Loan asserting that the 729 loan was in breach the exclusivity provisions. Maxam ultimately filed a statement of claim alleging breach of contract, among other things.

One of the main issues before the Court was whether there was a breach of the Credit Agreement and, more specifically, whether 893 was obliged to borrow funds from Maxam to finance the acquisition of the car dealership.

Maxam took the position that if 893's obligation to borrow from the credit facility was not found in the express words of the Credit Agreement, then the obligation to do so was an implied term of the Credit Agreement, as it would be commercially absurd to interpret 893's ability to withdraw funds under the Credit Agreement as optional. The Court ultimately rejected Maxam's position, finding that there was no express wording in the Credit Agreement obliging 893 to draw down on the funds and that such a term could not be implied.2 In doing so, the Court began by emphasizing the sophisticated nature of both parties as well as the fastidious way in which Maxam had considered and drafted the various agreements. The Court used Maxam's meticulous approach to drafting the agreements as well as past examples of Maxam's strict adherence to the written terms of the agreements to support the Court's opinion that Maxam viewed the relationship between it and 893 as being governed by a strict reading of the language in the agreements.3

The Court then turned to the wording of the Credit Agreement and concluded that a plain reading of the terms in the Credit Agreement did not impose an obligation on 893 to utilize the funds made available to it under the Credit Agreement. In coming to this conclusion, the Court focused on the permissive language contained in the Credit Agreement, such as the "Credit Facility will be made available" and 893 has requested that Maxam "make available to it a mezzanine credit." The Court concluded that this language did not impose a mandatory obligation upon 893 to draw funds and that, in essence, 893 was provided the option to draw funds or not.4

After determining that the Credit Agreement contained no express requirement on 893 to drawdown on funds, the Court considered whether there was an implied term obligating 893 to utilize the funds made available under the Credit Agreement. The Court found that an implied term requiring 893 to draw down upon the credit facility was not necessary to give business efficacy to the agreement.5 Maxam stood to earn in excess of $17 million in interest by making the credit facility available to 893, a fact that the Court concluded was "entirely consistent with business efficacy." The Court also emphasized that implying such a term would be inconsistent with the Credit Agreement as a whole, particularly in light of language in the Credit Agreement expressly excluding any prior understandings or agreements relating to the Credit Agreement in conjunction with the sophistication of Maxam and its solicitors and the care and detail taken in drafting the agreements.6

The Court also rejected Maxam's assertion that accepting the characterization of the Credit Agreement as an option leads to an absurd result. In doing so, the Court emphasized that resorting to construing a term in a contract through the rule against absurdity occurs only when ambiguity exists. In this case, the Court did not find any ambiguity in respect of the language of the Credit Agreement, nor did the Court find the outcome absurd or inconsistent with the Credit Agreement, concluding that while there was no doubt that 893 expected to utilize the credit facility provided by Maxam and that Maxam too expected this, that does not in itself create a legally binding and enforceable obligation.7

Not all loan arrangements contemplate an obligation to borrow, and the inclusion in a credit agreement of covenants requiring the payment of standby fees for making a credit facility available and work fees  provide the lender with sufficient protection. However in those situations where the lender's expected return is based primarily upon draws being made, the Maxam Opportunities decision serves as a reminder that in the absence of clear language requiring a borrower to drawdown on a credit facility, courts will not be willing to imply such a term into a credit agreement, particularly where great care has been taken in drafting the agreement and where the lender stands to obtain a substantial benefit should the borrower choose to drawdown on the facility.  


Maxam Opportunities Fund Limited Partnership v. 729171 Alberta Inc., 2015 BCSC 271. [Maxam Opportunities]. The detailed judgment addressed several issues. This commentary focuses on the contractual terms relating to the contractual or implied obligation to borrow. 

2 Maxam Opportunities, at paras. 111 and 123.

3 Maxam Opportunities, at para. 109.

4 Maxam Opportunities, at paras. 112 and 113.

Maxam Opportunities, at paras. 121 – 123.

6 Maxam Opportunities, at para. 122.

Maxam Opportunities, at para. 126.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions