Transfield vs Luzon Hydro

7/26/2019 Transfield vs Luzon Hydro

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SECOND DIVISION

[G.R. No. 146717. November 22, 2004]

TRANSFIELD PHILIPPINES, INC.,petitioner, vs. L!"N H#DR"C"RP"RATI"N, ASTRALIA $%& NE' !EALAND (AN)INGGR"P LI*ITED $%& SECRIT# (AN)C"RP"RATI"N, respondents.

D E C I S I " N

TINGA, J.+

Subject of this case is the letter of credit which has evolved as the ubiquitousand most important device in international trade. creation of commerce andbusinessmen! the letter of credit is also unique in the number of parties involved andits supranational character.

"etitioner has appealed from the Decision#$%of the Court of ppeals in C&'.(.S" No. )$*+$ entitledTransfield Philippines, Inc. v. Hon. Oscar Pimentel, et al.!promul,ated on -$ anuar/ 0++$. #0%

On 0) 1arch $**2! petitioner and respondent 3u4on 5/dro Corporation

6hereinafter! 35C7 entered into a 8urn9e/ Contract#-%

whereb/ petitioner! as 8urn9e/Contractor! undertoo9 to construct! on a turn9e/ basis! a sevent/ 62+7&1e,awatth/dro&electric power station at the :a9un (iver in the provinces of :en,uet andIlocos Sur 6hereinafter! the "roject7. "etitioner was ,iven the sole responsibilit/ forthe desi,n! construction! commissionin,! testin, and completion of the "roject. #;%

8he 8urn9e/ Contract provides that< 6$7 the tar,et completion date of the "rojectshall be on $ une 0+++! or such later date as ma/ be a,reed upon betweenpetitioner and respondent 35C or otherwise determined in accordance with the8urn9e/ Contract= and 607 petitioner is entitled to claim e>tensions of time 6EO87 forreasons enumerated in the 8urn9e/ Contract! amon, which are variations! forcemajeure! and dela/s caused b/ 35C itself.#?%@urther! in case of dispute! the partiesare bound to settle their differences throu,h mediation! conciliation and such othermeans enumerated under Clause 0+.- of the 8urn9e/ Contract.#)%

8o secure performance of petitioners obli,ation on or before the tar,etcompletion date! or such time for completion as ma/ be determined b/ the partiesa,reement! petitioner opened in favor of 35C two 607 standb/ letters of credit bothdated 0+ 1arch 0+++ 6hereinafter referred to as the Securities7! to wit< Standb/3etter of Credit No. E++$$0)AB;++ with the local branch of respondent ustralia andNew ealand :an9in, 'roup 3imited 6N :an97 #2%and Standb/ 3etter of Credit No.I:DIDS:&++A; with respondent Securit/ :an9 Corporation 6S:C7#B%each in theamount of SB!*BB!*+2.++.#*%
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In the course of the construction of the project! petitioner sou,ht various EO8 tocomplete the "roject. 8he e>tensions were requested alle,edl/ due to severalfactors which prevented the completion of the "roject on tar,et date! such as forcemajeureoccasioned b/ t/phoon Zeb! barricades and demonstrations. 35C deniedthe requests! however. 8his ,ave rise to a series of le,al actions between the parties

which culminated in the instant petition.

8he first of the actions was a (equest for rbitration which 35C filed before theConstruction Industr/ rbitration Commission 6CIC7 on $ une $***. #$+%8his wasfollowed b/ another (equest for rbitration! this time filed b/ petitioner before theInternational Chamber of Commerce 6ICC7#$$%on - November 0+++. In botharbitration proceedin,s! the common issues presented were< #$7 whethert/phoon Zeband an/ of its associated events constituted force majeureto justif/ thee>tension of time sou,ht b/ petitioner= and #07 whether 35C had the ri,ht toterminate the 8urn9e/ Contract for failure of petitioner to complete the "roject ontar,et date.

1eanwhile! foreseein, that 35C would call on the Securities pursuant to thepertinent provisions of the 8urn9e/ Contract!#$0%petitionerin two separateletters#$-%both dated $+ u,ust 0+++advised respondent ban9s of the arbitrationproceedin,s alread/ pendin, before the CIC and ICC in connection with its alle,eddefault in the performance of its obli,ations. ssertin, that 35C had no ri,ht to callon the Securities until the resolution of disputes before the arbitral tribunals!petitioner warned respondent ban9s that an/ transfer! release! or disposition of theSecurities in favor of 35C or an/ person claimin, under 35C would constrain it tohold respondent ban9s liable for liquidated dama,es.

s petitioner had anticipated! on 02 une 0+++! 35C sent notice to petitioner that

pursuant to Clause B.0#$;%of the 8urn9e/ Contract! it failed to compl/ with itsobli,ation to complete the "roject. Despite the letters of petitioner! however! bothban9s informed petitioner that the/ would pa/ on the Securities if and when 35Ccalls on them.#$?%

35C asserted that additional e>tension of time would not be warranted=accordin,l/ it declared petitioner in defaultAdela/ in the performance of its obli,ationsunder the 8urn9e/ Contract and demanded from petitioner the pa/ment ofS2?!+++.++ for each da/ of dela/ be,innin, 0B une 0+++ until actual completionof the "roject pursuant to Clause B.2.$ of the 8urn9e/ Contract. t the same time!35C served notice that it would call on the securities for the pa/ment of liquidated

dama,es for the dela/.#$)%

On ? November 0+++! petitioner as plaintiff filed a Complaint for Injunction! withpra/er for temporar/ restrainin, order and writ of preliminar/ injunction! a,ainstherein respondents as defendants before the (e,ional 8rial Court 6(8C7 of 1a9ati.#$2%"etitioner sou,ht to restrain respondent 35C from callin, on the Securities andrespondent ban9s from transferrin,! pa/in, on! or in an/ manner disposin, of theSecurities or an/ renewals or substitutes thereof. 8he (8C issued a sevent/&two6207&hour temporar/ restrainin, order on the same da/. 8he case was doc9eted asCivil Case No. ++&$-$0 and raffled to :ranch $;B of the (8C of 1a9ati.

fter appropriate proceedin,s! the trial court issued an Order on * November

0+++! e>tendin, the temporar/ restrainin, order for a period of seventeen 6$27 da/sor until 0) November 0+++. #$B%
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8he (8C! in its Order#$*%dated 0; November 0+++! denied petitioners applicationfor a writ of preliminar/ injunction. It ruled that petitioner had no le,al ri,ht andsuffered no irreparable injur/ to justif/ the issuance of the writ. Emplo/in, theprinciple of independent contract in letters of credit! the trial court ruled that 35Cshould be allowed to draw on the Securities for liquidated dama,es. It debun9ed

petitioners contention that the principle of independent contract could be invo9edonl/ b/ respondent ban9s since accordin, to it respondent 35C is the ultimatebeneficiar/ of the Securities. 8he trial court further ruled that the ban9s were merecustodians of the funds and as such the/ were obli,ated to transfer the same to thebeneficiar/ for as lon, as the latter could submit the required certification of itsclaims.

Dissatisfied with the trial courts denial of its application for a writ of preliminar/injunction! petitioner elevated the case to the Court of ppeals viaa Petition forCertiorariunder (ule )?! with pra/er for the issuance of a temporar/ restrainin,order and writ of preliminar/ injunction. #0+%"etitioner submitted to the appellate court

that 35Cs call on the Securities was premature considerin, that the issue of itsdefault had not /et been resolved with finalit/ b/ the CIC andAor the ICC. Itasserted that until the fact of dela/ could be established! 35C had no ri,ht to drawon the Securities for liquidated dama,es.

(efutin, petitioners contentions! 35C claimed that petitioner had no ri,ht torestrain its call on and use of the Securities as pa/ment for liquidated dama,es. Itaverred that the Securities are independent of the main contract between them asshown on the face of the two Standb/ 3etters of Credit which both provide that theban9s have no responsibilit/ to investi,ate the authenticit/ or accurac/ of thecertificates or the declarants capacit/ or entitlement to so certif/.

In its Resolutiondated 0B November 0+++! the Court of ppeals issued atemporar/ restrainin, order! enjoinin, 35C from callin, on the Securities or an/renewals or substitutes thereof and orderin, respondent ban9s to cease and desistfrom transferrin,! pa/in, or in an/ manner disposin, of the Securities.

5owever! the appellate court failed to act on the application for preliminar/injunction until the temporar/ restrainin, order e>pired on 02 anuar/ 0++$.Immediatel/ thereafter! representatives of 35C trooped to N :an9 and withdrewthe total amount of S;!*?+!+++.++! thereb/ reducin, the balance in N :an9 toS$!B?0!B$;.++.

On 0 @ebruar/ 0++$! the appellate court dismissed the petition for certiorari. 8he

appellate court e>pressed conformit/ with the trial courts decision that 35C could callon the Securities pursuant to the first principle in credit law that the credit itself isindependent of the underl/in, transaction and that as lon, as the beneficiar/complied with the credit! it was of no moment that he had not complied with theunderl/in, contract. @urther! the appellate court held that even assumin, that the trialcourts denial of petitioners application for a writ of preliminar/ injunction waserroneous! it constituted onl/ an error of jud,ment which is not correctible b/certiorari! unli9e error of jurisdiction.

ndaunted! petitioner filed the instant Petition for Revieraisin, the followin,issues for resolution


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WHETHER THE INDEPENDENCE PRINCIPLE ON LETTERS OF CREDITMAY BE INVOKED BY A BENEFICIARY THEREOF WHERE THEBENEFICIARYS CALL THEREON IS WRONGFUL OR FRAUDULENT.

WHETHER LHC HAS THE RIGHT TO CALL AND DRAW ON THESECURITIES BEFORE THE RESOLUTION OF PETITIONERS AND LHCSDISPUTES BY THE APPROPRIATE TRIBUNAL.

WHETHER ANZ BANK AND SECURITY BANK ARE JUSTIFIED INRELEASING THE AMOUNTS DUE UNDER THE SECURITIES DESPITEBEING NOTIFIED THAT LHCS CALL THEREON IS WRONGFUL.

WHETHER OR NOT PETITIONER WILL SUFFER GRAVE ANDIRREPARABLE DAMAGE IN THE EVENT THAT:

. 35C IS 33OFED 8O C33 ND D(F ON! ND N :NG NDSEC(I8H :NG (E 33OFED 8O (E3ESE! 85E (E1ININ':3NCE O@ 85E SEC(I8IES "(IO( 8O 85E (ESO38ION O@85E DIS"8ES :E8FEEN "E8I8IONE( ND 35C.

:. 35C DOES NO8 (E8(N 85E 1ON8S I8 5D F(ON'@33HD(FN @(O1 85E SEC(I8IES.#0$%

"etitioner contends that the courts below improperl/ relied on the independenceprinciple on letters of credit when this case falls squarel/ within the fraud e>ceptionrule. (espondent 35C deliberatel/ misrepresented the supposed e>istence of dela/despite its 9nowled,e that the issue was still pendin, arbitration! petitionercontinues.

"etitioner asserts that 35C should be ordered to return the proceeds of theSecurities pursuant to the principle a,ainst unjust enrichment and that! under thepremises! injunction was the appropriate remed/ obtainable from the competentlocal courts.

On 0? u,ust 0++-! petitioner filed a !upplement to thePetition#00%and !upplemental "emorandum!#0-%alle,in, that in the course of theproceedin,s in the ICC rbitration! a number of documentar/ and testimonialevidence came out throu,h the use of different modes of discover/ available in the

ICC rbitration. It contends that after the filin, of the petition facts and admissionswere discovered which demonstrate that 35C 9nowin,l/ misrepresented thatpetitioner had incurred dela/s notwithstandin, its 9nowled,e and admission thatdela/s were e>cused under the 8urn9e/ Contractto be able to draw a,ainst theSecurities. (eiteratin, that fraud constitutes an e>ception to the independenceprinciple! petitioner ur,es that this warrants a rulin, from this Court that the call onthe Securities was wron,ful! as well as contrar/ to law and basic principles of equit/.It avers that it would suffer ,rave irreparable dama,e if 35C would be allowed to usethe proceeds of the Securities and not ordered to return the amounts it hadwron,full/ drawn thereon.

In its "anifestationdated B September 0++-!#0;%35C contends that thesupplemental pleadin,s filed b/ petitioner present erroneous and misleadin,information which would chan,e petitioners theor/ on appeal.
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In /et another "anifestationdated $0 pril 0++;!#0?%petitioner alle,es that on $B@ebruar/ 0++;! the ICC handed down its 8hird "artial ward! declarin, that 35Cwron,full/ drew upon the Securities and that petitioner was entitled to the return ofthe sums wron,full/ ta9en b/ 35C for liquidated dama,es.

35C filed a Counter#"anifestation dated 0* une 0++;!#0)%statin, thatpetitioners "anifestationdated $0 pril 0++; enlar,es the scope of its Petition forRevieof the -$ anuar/ 0++$ Decisionof the Court of ppeals. 35C notes thatthe Petition for Revie essentiall/ dealt onl/ with the issue of whether injunctioncould issue to restrain the beneficiar/ of an irrevocable letter of credit from drawin,thereon. It adds that petitioner has filed two other proceedin,s! to wit< 6$7 ICC CaseNo. $$0);A8EA1F! entitledTransfield Philippines Inc. v. $u%on H&dro Corporation! inwhich the parties made claims and counterclaims arisin, from petitionersperformanceAmisperformance of its obli,ations as contractor for 35C= and 607 CivilCase No. +;&--0! entitled Transfield Philippines, Inc. v. $u%on H&droCorporation before :ranch ?) of the (8C of 1a9ati! which is an action to enforce

and obtain e>ecution of the ICCs partial award mentioned inpetitioners "anifestationof $0 pril 0++;.

In its Commentto petitioners "otion for $eave to 'ile (ddendum to Petitioners"emorandum! 35C stresses that the question of whether the funds it drew on thesubject letters of credit should be returned is outside the issue in this appeal. t an/rate! 35C adds that the action to enforce the ICCs partial award is now full/ withinthe 1a9ati (8Cs jurisdiction in Civil Case No. +;&--0. 35C asserts that petitioner isen,a,ed in forum&shoppin, b/ 9eepin, this appeal and at the same time see9in, thesuit for enforcement of the arbitral award before the 1a9ati court.

(espondent S:C in its "emorandum! dated $+ 1arch 0++-#02%contends that the

Court of ppeals correctl/ dismissed the petition for certiorari. Invo9in, theindependence principle! S:C ar,ues that it was under no obli,ation to loo9 into thevalidit/ or accurac/ of the certification submitted b/ respondent 35C or into thelatters capacit/ or entitlement to so certif/. It adds that the act sou,ht to be enjoinedb/ petitioner was alread/ fait accompliand the present petition would no lon,erserve an/ remedial purpose.

In a similar fashion! respondent N :an9 in its "emorandumdated $- 1arch0++-#0B%posits that its actions could not be re,arded as unjustified in view of theprevailin, independence principle under which it had no obli,ation to ascertain thetruth of 35Cs alle,ations that petitioner defaulted in its obli,ations. 1oreover! it

points out that since the Standb/ 3etter of Credit No. E++$$0)AB;++ had been full/drawn! petitioners pra/er for preliminar/ injunction had been rendered moot andacademic.

t the core of the present controvers/ is the applicabilit/ of the independenceprinciple and fraud e>ception rule in letters of credit. 8hus! a discussion of the natureand use of letters of credit! also referred to simpl/ as credits! would provide a betterperspective of the case.

8he letter of credit evolved as a mercantile specialt/! and the onl/ wa/ tounderstand all its facets is to reco,ni4e that it is an entit/ unto itself. 8he relationshipbetween the beneficiar/ and the issuer of a letter of credit is not strictl/ contractual!

because both privit/ and a meetin, of the minds are lac9in,! /et strict compliancewith its terms is an enforceable ri,ht. Nor is it a third&part/ beneficiar/ contract!
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because the issuer must honor drafts drawn a,ainst a letter re,ardless of problemssubsequentl/ arisin, in the underl/in, contract. Since the ban9s customer cannotdraw on the letter! it does not function as an assi,nment b/ the customer to thebeneficiar/. Nor! if properl/ used! is it a contract of suret/ship or ,uarantee! becauseit entails a primar/ liabilit/ followin, a default. @inall/! it is not in itself a ne,otiable

instrument! because it is not pa/able to order or bearer and is ,enerall/ conditional!/et the draft presented under it is often ne,otiable.#0*%

In commercial transactions! a letter of credit is a financial device developed b/merchants as a convenient and relativel/ safe mode of dealin, with sales of ,oods tosatisf/ the seemin,l/ irreconcilable interests of a seller! who refuses to part with his,oods before he is paid! and a bu/er! who wants to have control of the ,oods beforepa/in,.#-+%8he use of credits in commercial transactions serves to reduce the ris9 ofnonpa/ment of the purchase price under the contract for the sale of ,oods. 5owever!credits are also used in non&sale settin,s where the/ serve to reduce the ris9 ofnonperformance. 'enerall/! credits in the non&sale settin,s have come to be 9nown

as standb/ credits.#-$%

8here are three si,nificant differences between commercial and standb/ credits.@irst! commercial credits involve the pa/ment of mone/ under a contract of sale.Such credits become pa/able upon the presentation b/ the seller&beneficiar/ ofdocuments that show he has ta9en affirmative steps to compl/ with the salesa,reement. In the standb/ t/pe! the credit is pa/able upon certification of a part/snonperformance of the a,reement. 8he documents that accompan/ the beneficiar/sdraft tend to show that the applicant has not performed. 8he beneficiar/ of acommercial credit must demonstrate b/ documents that he has performed hiscontract. 8he beneficiar/ of the standb/ credit must certif/ that his obli,or has notperformed the contract.#-0%

:/ definition! a letter of credit is a written instrument whereb/ the writer requestsor authori4es the addressee to pa/ mone/ or deliver ,oods to a third person andassumes responsibilit/ for pa/ment of debt therefor to the addressee. #--% letter ofcredit! however! chan,es its nature as different transactions occur and if carriedthrou,h to completion ends up as a bindin, contract between the issuin, andhonorin, ban9s without an/ re,ard or relation to the underl/in, contract or disputesbetween the parties thereto.#-;%

Since letters of credit have ,ained ,eneral acceptabilit/ in international tradetransactions! the ICC has published from time to time updates on the niform

Customs and "ractice 6C"7 for Documentar/ Credits to standardi4e practices in theletter of credit area. 8he vast majorit/ of letters of credit incorporate the C".#-?%@irstpublished in $*--! the C" for Documentar/ Credits has under,one severalrevisions! the latest of which was in $**-.#-)%

In )an* of the Philippine Islands v. De Ren& 'abric Industries, Inc.!#-2%this Courtruled that the observance of the C" is justified b/ rticle 0 of the Code ofCommerce which provides that in the absence of an/ particular provision in the Codeof Commerce! commercial transactions shall be ,overned b/ usa,es and customs,enerall/ observed. 1ore recentl/! in )an* of (merica, +T !( v. Court of (ppeals!#-B% this Court ruled that there bein, no specific provisions which ,overn the le,al

comple>ities arisin, from transactions involvin, letters of credit! not onl/ between or
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amon, ban9s themselves but also between ban9s and the seller or the bu/er! as thecase ma/ be! the applicabilit/ of the C" is undeniable.

rticle - of the C" provides that credits! b/ their nature! are separatetransactions from the sales or other contract6s7 on which the/ ma/ be based andban9s are in no wa/ concerned with or bound b/ such contract6s7! even if an/reference whatsoever to such contract6s7 is included in the credit. Consequentl/! theunderta9in, of a ban9 to pa/! accept and pa/ draft6s7 or ne,otiate andAor fulfill an/other obli,ation under the credit is not subject to claims or defenses b/ the applicantresultin, from his relationships with the issuin, ban9 or the beneficiar/. beneficiar/can in no case avail himself of the contractual relationships e>istin, between theban9s or between the applicant and the issuin, ban9.

8hus! the en,a,ement of the issuin, ban9 is to pa/ the seller or beneficiar/ ofthe credit once the draft and the required documents are presented to it. 8he so&called independence principle assures the seller or the beneficiar/ of promptpa/ment independent of an/ breach of the main contract and precludes the issuin,

ban9 from determinin, whether the main contract is actuall/ accomplished or not.nder this principle! ban9s assume no liabilit/ or responsibilit/ for the form!sufficienc/! accurac/! ,enuineness! falsification or le,al effect of an/ documents! orfor the ,eneral andAor particular conditions stipulated in the documents orsuperimposed thereon! nor do the/ assume an/ liabilit/ or responsibilit/ for thedescription! quantit/! wei,ht! qualit/! condition! pac9in,! deliver/! value or e>istenceof the ,oods represented b/ an/ documents! or for the ,ood faith or acts andAoromissions! solvenc/! performance or standin, of the consi,nor! the carriers! or theinsurers of the ,oods! or an/ other person whomsoever.#-*%

8he independent nature of the letter of credit ma/ be< 6a7 independence in

totowhere the credit is independent from the justification aspect and is a separateobli,ation from the underl/in, a,reement li9e for instance a t/pical standb/= or 6b7independence ma/ be onl/ as to the justification aspect li9e in a commercial letter ofcredit or repa/ment standb/! which is identical with the same obli,ations under theunderl/in, a,reement. In both cases the pa/ment ma/ be enjoined if in the li,ht ofthe purpose of the credit the pa/ment of the credit would constitute fraudulent abuseof the credit.#;+%

Can the beneficiar/ invo9e the independence principleJ

"etitioner insists that the independence principle does not appl/ to the instantcase and assumin, it is so! it is a defense available onl/ to respondent ban9s. 35C!

on the other hand! contends that it would be contrar/ to common sense to den/ thebenefit of an independent contract to the ver/ part/ for whom the benefit is intended.s beneficiar/ of the letter of credit! 35C asserts it is entitled to invo9e the principle.

s discussed above! in a letter of credit transaction! such as in this case! wherethe credit is stipulated as irrevocable! there is a definite underta9in, b/ the issuin,ban9 to pa/ the beneficiar/ provided that the stipulated documents are presentedand the conditions of the credit are complied with.#;$%"recisel/! the independenceprinciple liberates the issuin, ban9 from the dut/ of ascertainin, compliance b/ theparties in the main contract. s the principles nomenclature clearl/ su,,ests! theobli,ation under the letter of credit is independent of the related and ori,inatin,

contract. In brief! the letter of credit is separate and distinct from the underl/in,transaction.
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'iven the nature of letters of credit! petitioners ar,umentthat it is onl/ the issuin,ban9 that ma/ invo9e the independence principle on letters of creditdoes not impressthis Court. 8o sa/ that the independence principle ma/ onl/ be invo9ed b/ theissuin, ban9s would render nu,ator/ the purpose for which the letters of credit areused in commercial transactions. s it is! the independence doctrine wor9s to the

benefit of both the issuin, ban9 and the beneficiar/.

3etters of credit are emplo/ed b/ the parties desirin, to enter into commercialtransactions! not for the benefit of the issuin, ban9 but mainl/ for the benefit of theparties to the ori,inal transactions. Fith the letter of credit from the issuin, ban9! thepart/ who applied for and obtained it ma/ confidentl/ present the letter of credit tothe beneficiar/ as a securit/ to convince the beneficiar/ to enter into the businesstransaction. On the other hand! the other part/ to the business transaction! i.e.! thebeneficiar/ of the letter of credit! can be rest assured of bein, empowered to call onthe letter of credit as a securit/ in case the commercial transaction does not pushthrou,h! or the applicant fails to perform his part of the transaction. It is for this

reason that the part/ who is entitled to the proceeds of the letter of credit isappropriatel/ called beneficiar/.

"etitioners ar,ument that an/ dispute must first be resolved b/ the parties!whether throu,h ne,otiations or arbitration! before the beneficiar/ is entitled to callon the letter of credit in essence would convert the letter of credit into a mere,uarantee. urisprudence has laid down a clear distinction between a letter of creditand a ,uarantee in that the settlement of a dispute between the parties is not a pre&requisite for the release of funds under a letter of credit. In other words! thear,ument is incompatible with the ver/ nature of the letter of credit. If a letter of creditis drawable onl/ after settlement of the dispute on the contract entered into b/ theapplicant and the beneficiar/! there would be no practical and beneficial use forletters of credit in commercial transactions.

"rofessor ohn @. Dolan! the noted authorit/ on letters of credit! sheds more li,hton the issue ), the C)!t&%t P&'%e. The C)!t&%t)& sh++ /$ L'60'"te" D*2es

,)& De+$ ,)& e%h "$ ), the "e+$ )! the ,)++)1'!2 "$ 1'th)0t !ee" ), "e*!",&)* the E*/+)$e&.


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before the arbitral tribunals. 8o be able to declare the call on the Securities wron,fulor fraudulent! it is imperative to resolve! amon, others! whether petitioner was in fact,uilt/ of dela/ in the performance of its obli,ation. nfortunatel/ for petitioner! thisCourt is not called upon to rule upon the issue of defaultsuch issue havin, beensubmitted b/ the parties to the jurisdiction of the arbitral tribunals pursuant to the

terms embodied in their a,reement.#;2%

Fould injunction then be the proper remed/ to restrain the alle,ed wron,fuldraws on the SecuritiesJ

1ost writers a,ree that fraud is an e>ception to the independence principle."rofessor Dolan opines that the untruthfulness of a certificate accompan/in, ademand for pa/ment under a standb/ credit ma/ qualif/ as fraud sufficient to supportan injunction a,ainst pa/ment.#;B%8he remed/ for fraudulent abuse is an injunction.5owever! injunction should not be ,ranted unless< 6a7 there is clear proof of fraud= 6b7the fraud constitutes fraudulent abuse of the independent purpose of the letter ofcredit and not onl/ fraud under the main a,reement= and 6c7 irreparable injur/ mi,ht

follow if injunction is not ,ranted or the recover/ of dama,es would be seriousl/dama,ed.#;*%

In its complaint for injunction before the trial court! petitioner alle,ed that it isentitled to a total e>tension of two hundred fift/&three 60?-7 da/s which would movethe tar,et completion date. It ar,ued that if its claims for e>tension would be foundmeritorious b/ the ICC! then 35C would not be entitled to an/ liquidated dama,es.#?+%

'enerall/! injunction is a preservative remed/ for the protection of onessubstantive ri,ht or interest= it is not a cause of action in itself but merel/ aprovisional remed/! an adjunct to a main suit. 8he issuance of the writ of preliminar/

injunction as an ancillar/ or preventive remed/ to secure the ri,hts of a part/ in apendin, case is entirel/ within the discretion of the court ta9in, co,ni4ance of thecase! the onl/ limitation bein, that this discretion should be e>ercised based uponthe ,rounds and in the manner provided b/ law.#?$%

:efore a writ of preliminar/ injunction ma/ be issued! there must be a clearshowin, b/ the complaint that there e>ists a ri,ht to be protected and that the actsa,ainst which the writ is to be directed are violative of the said ri,ht. #?0%It must beshown that the invasion of the ri,ht sou,ht to be protected is material andsubstantial! that the ri,ht of complainant is clear and unmista9able and that there isan ur,ent and paramount necessit/ for the writ to prevent serious dama,e.#?-%1oreover! an injunctive remed/ ma/ onl/ be resorted to when there is a pressin,

necessit/ to avoid injurious consequences which cannot be remedied under an/standard compensation.#?;%

In the instant case! petitioner failed to show that it has a clear and unmista9ableri,ht to restrain 35Cs call on the Securities which would justif/ the issuance ofpreliminar/ injunction. :/ petitioners own admission! the ri,ht of 35C to call on theSecurities was contractuall/ rooted and subject to the e>press stipulations in the8urn9e/ Contract.#??%Indeed! the 8urn9e/ Contract is plain and unequivocal in that itconferred upon 35C the ri,ht to draw upon the Securities in case of default! asprovided in Clause ;.0.?! in relation to Clause B.2.0! thusceed 0+K of the Contract "rice. 8he Contractor shallpa/ 3iquidated Dama,es for Dela/ for each da/ of the dela/ on the followin, da/ withoutneed of demand from the Emplo/er.

#$2%nne> 3! Rollo! pp. -B-&;+0.

#$B%nne> N! Id.at ;+)&;+*.#$*%nne> O! Id.at ;$0&;0-.

#0+%Doc9eted as C&'.(. S" No. )$*+$.

#0$%Rollo! pp. 0?&0).

#00%Vol. II= Id.at 0&2B.

#0-%Id.at 2*&*0.

#0;%Id.at *?&*B

#0?%Id.at $+*&$$-.

#0)%Id.at )))&)2$.

#02%Id.at ?*B&)+2.

#0B%Id.at )$*&)-+.

#0*%oseph! 3etters of Credit< 8he Developin, Concepts and @inancin, @unctions! *; :NGIN' 3FO(N3 B?+&B?$ #$*22%citedin 1. G(GE3! 3E88E(S O@ C(EDI8 NDE(IN8E(N8ION3 8(DE 3F! -0$ 6$*B?7.

#-+%:an9 of merica v. Court of ppeals! '.(. No. $+?-*?! $+ December $**-! 00B SC(-?2 citin1Filliam S. Shaterian!EL"O(8&I1"O(8 :NGIN'< 85E INS8(1EN8S NDO"E(8IONS 8I3IED :H 1E(ICN EL"O(8E(S ND I1"O(8E(S ND 85EI(:NGS IN @INNCIN' @O(EI'N 8(DE! 0B;&-2; 6$*;27.

#-$%EM5 "artners v. :roadwa/ Natl :an9! -* @. Supp. 0d 02?! 6nited States Circuit Court! S.D. NewHor97 No. *) Civ. 2+*B 6(3C7! $* October $**B http


16/16

#;B%!upra note -0 at 0&)-.

#;*%1. G(GE3! 3E88E(S O@ C(EDI8 NDE( IN8E(N8ION3 8(DE 3F! -+* 6$*B?7.

#?+%Rollo! p. -*$.

#?$%:atan,as 3a,una 8a/abas :us Compan/! Inc. v. :itan,a! ;$? "hil. ;-.

#?0%Shin v. Court of ppeals! '.(. No. $$-)02!) @ebruar/ 0++$! -?$ SC( 0?2.

#?-%abat v. Court of ppeals! '.(. No. $00+B*!0- u,ust 0+++! --B SC( ??$= "hilippine Economicone uthorit/ v. Vian4on! '.(. No. $-$+0+! 0+ ul/ 0+++! --) SC( -+*=Valencia v. Courtof ppeals! '.(. No. $$*$$B!$* @ebruar/ 0++$! -?0 SC( 20= Cr/stal v. Cebu InternationalSchool! '.(. No. $-?;--!; pril 0++$! -?) SC( 0*)= On, Chin, Gian Chuan v. Court ofppeals! ;$? "hil. -)? 60++$7.

#?;%"hilippine National :an9 v. (itratto 'roup! Inc.! ;$; "hil. ;*; 60++$7.

#??%Rollo! p. -$.

#?)%nderscorin, supplied= Id.at *;&*?.

#?2%

Id.at $-0.#?B%-idenne> 3! (ollo. pp. -*0&-**= "etition for Certiorari! C (ollo! pp. 2&;-.

#?*%Salafranca v. "hilamlife Villa,e 5omeowners ssociation! Inc.! -)+ "hil. )?0= (ub/ IndustrialCorporation v. Court of ppeals! -;B "hil. ;B+= Victorias 1illin, Co.! Inc. v. Court of ppeals!-B* "hil. $B;.

#)+%rticle $$?*! Civil Code.

#)$%rt. $-+). 8he contractin, parties ma/ establish such stipulations! clauses! terms and conditions asthe/ ma/ deem convenient! provided the/ are not contrar/ to law! morals! ,ood customs!public order! or public polic/.

#)0%Rollo! p. ;*-.

#)-%4nar :rothers (ealt/ Compan/ v. Court of ppeals! '.(. No. $0B$+0! 2 1arch 0+++! -02 SC(-?*= Soriano v. Court of ppeals! ;$) "hil. 00) 60++$7= (odil Enterprises v. Court of ppeals!'.(. No. '.(. No. $0*)+*! 0* November 0++$! -2$ SC( 2*= nionban9 of the"hilippines v. Court of ppeals! -2+ "hil. B-2 6$***7.

#);%-B* "hil. 0+ 60+++7.

#)?%:3CGS 3F DIC8ION(H! p. $++B! citin13eonhart v. 1cCormic9! D.C. "a.! -*? @. Supp. $+2-.

#))%Vol. II! Rollo! pp. )))&))*.

#)2%8anto/! Sr. v. Court of ppeals! '.(. No. $;$;02! pril 0+! 0++$! -?2 SC( -0*.

#)B%:an,9o Silan,an Development :an9 v. Court of ppeals! ;$0 "hil. 2?? 60++$7.

#)*%8irona v. lejo! '.(. No. $0*-$-!October $+! 0++$! -)2 SC( $2= 1analo v. Court of ppeals!'.(. No. $;$0*2! October B! 0++$! -)) SC( 2?0.

#2+%8anto/! Sr. v. Court of ppeals! supra note )2.=Caviles v. Seventeenth Division! Court of ppeals!'.(. No. $0)B?2! September $B! 0++0! -B* SC( -+).
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Transfield vs Luzon Hydro

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