Preview
FILED: NEW YORK COUNTY CLERK 11/15/2023 02:56 PM INDEX NO. 655653/2023
NYSCEF DOC. NO. 13 RECEIVED NYSCEF: 11/15/2023
EXHIBIT 7
FILED: NEW
FILED: NEW YORK
YORK COUNTY
COUNTY CLERK
CLERK 04/14/2023
11/15/2023 10:30
02:56 AM
PM INDEX NO.
INDEX NO. 650865/2023
655653/2023
NYSCEF DOC. NO. 130
13 RECEIVED NYSCEF: 04/08/2023
11/15/2023
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK: COMMERCIAL DIVISION PART 48
----------------------------------------------------------------------------------- X
STRABAG SPA, INDEX NO. 650865/2023
Plaintiff,
MOTION DATE N/A
-v-
MOTION SEQ. NO. 001
CREDIT AGRICOLE CIB,
Defendant. DECISION + ORDER ON
MOTION
----------------------------------------------------------------------------------- X
HON. ANDREA MASLEY:
The following e-filed documents, listed by NYSCEF document number (Motion 001) 8, 9, 31, 39, 40, 41,
66, 67, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78
were read on this motion to/for INJUNCTION/RESTRAINING ORDER .
Upon the foregoing documents, it is
Plaintiff Strabag, SpA, (Strabag), the contractor, moves pursuant to CPLR article
63 for a preliminary injunction enjoining and restraining defendant Crédit Agricole CIB
(Bank), located in New York, from honoring any effort by the project owner Alto Maipo
(Owner)1 to draw funds from the Bank’s standby letter of credit because there is no
legitimate reason for such a draw down, according to Strabag.
Background
The purpose of the project at issue “is to convey water through the tunnels and
into the powerhouses where it is run through the turbines and power is generated” to
supply power to Santiago Chile. (NYSCEF 56, Norberto Corredor 2 aff ¶¶8, 22.) The
1 Owner’s motion to intervene as a defendant in this action was granted. (NYSCEF
Doc. No. [NYSCEF] 65, March 6, 2023 Order.)
2 Corredor is the General Manager of the Owner. (NYSCEF 56, Corredor aff ¶ 4.) His
affidavit is filed in support of the motion to intervene (motion sequence number 002).
650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 1 of 22
Motion No. 001
1 of 22
FILED: NEW
FILED: NEW YORK
YORK COUNTY
COUNTY CLERK
CLERK 04/14/2023
11/15/2023 10:30
02:56 AM
PM INDEX NO.
INDEX NO. 650865/2023
655653/2023
NYSCEF DOC. NO. 130
13 RECEIVED NYSCEF: 04/08/2023
11/15/2023
Owner engaged Strabag “to design, engineer, and construct a portion of the [Owner’s
Hydroelectric Power Project in Chile]” (the Project). (Id. ¶ 9.) In August 2022, Strabag
declared substantial completion. (NYSCEF 127, Strabag November 17, 2022 letter.)
On December 2, 2022, the Owner informed Strabag it disputed that Strabag had
achieved Substantial Completion and refused to grant Strabag any relief from liquidated
damages. (NYSCEF 128, December 2, 2022, Owner’s Letter to Strabag.) December
31, 2022 is the Guaranteed Critical Milestone Date (GCMD) for Strabag’s Substantial
Completion of Critical Milestones D and E, after which the Owner may drawdown on the
$90 million letter of credit issued pursuant to the February 19, 2018 Amended and
Restated Lump Sum Fixed Price Tunnel Complex Construction Contract (the Contract)
if Strabag owes liquidated damages for the delay. (NYSCEF 120, Contract § 6.4.4,
§7.1.3.2; NYSCEF 19, Table 1 to Appendix A of Contract at 5-6 [$6 to $7 million
monthly for Critical Milestone D and $4 to $5 million monthly for Critical Milestone E].)
Otherwise, the background of this case is set forth in the comprehensive March 3, 2023
Order of International Chamber of Commerce (ICC) Emergency Arbitrator van Hooft
(NYSCEF 77, Arbitration Order), and will not be repeated here except as necessary to
the decision.
Contentions
The Owner seeks to draw down $16 million on the letter of credit because
Strabag allegedly owes liquidated damages for Strabag’s alleged failure to complete
milestones D and E on the Project prior to December 31, 2022, the GCMD. According
to the Owner, the Project is completely shut down and no longer generating electricity or
revenue which is entirely Strabag’s fault. (NYSCEF 56, Corredor aff ¶ 79.) The Owner
650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 2 of 22
Motion No. 001
2 of 22
FILED: NEW
FILED: NEW YORK
YORK COUNTY
COUNTY CLERK
CLERK 04/14/2023
11/15/2023 10:30
02:56 AM
PM INDEX NO.
INDEX NO. 650865/2023
655653/2023
NYSCEF DOC. NO. 130
13 RECEIVED NYSCEF: 04/08/2023
11/15/2023
insists that Strabag cannot achieve substantial completion until (1) tests are performed
and (2) Strabag repairs two partial tunnel collapses. The Owner opines that the water
tests cannot be performed because of the collapsed tunnels, not because of lack of
water. (Id. ¶ 49.)
The Owner intends to continue to draw on the letter of credit of $90 million.
(NYSCEF 56, Norberto Corredor aff ¶ 68.) The Owner contends that “[t]he actual
losses incurred by Alto Maipo as a direct result of the Project shutdown exceed the
applicable and incurred [Late Critical Milestone Payments] for Critical Milestone D ($6
million per month) and Critical Milestone E ($4 million per month).” (Id. ¶ 66.) As a
result of the shutdown, the Owner “suffered losses in excess of $10 million in January
and is projecting losses of more than $16 million for February 2023 alone.” (Id. ¶ 67.)
Strabag counters that the Owner’s proposed drawdown on the letter of credit is
fraudulent because Strabag achieved substantial completion under the Contract.
Strabag also objects to the Owner’s assertion that the collapsed tunnels demonstrate
Strabag’s failure to achieve substantial completion. Rather, Strabag asserts that the
collapses were not discovered until the end of the year, 3 long after the Owner had taken
control of the Project in March 2022.4 Moreover, Strabag insists that it achieved
3 The Owner identified a damaged tunnel or partial collapse on December 29, 2022.
(NYSCEF 56, Corredor aff ¶¶ 27-34.) A second tunnel collapse was identified in
January 2023. (Id.¶ 35-36 )
4
The Owner “agreed to issue Critical Milestone Work Transfer Notices for Critical
Milestones D, E, and F on 2 May 2022. The issuance of these notices transferred care,
custody, control, operation and maintenance of Critical Milestones D, E, and F and the
risk of all loss to Alto Maipo.” (NYSCEF 1, Complaint 39; NYSCEF 102, March 25,
2022 Email from J. Dib (President of the Owner), re Alto Maipo – 3 Units Reached
Commercial Operation Date (COD per NYSCEF 120, Contract at 9/146) [“Alto Maipo is
now providing carbon free energy to the country and will play a critical role in
650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 3 of 22
Motion No. 001
3 of 22
FILED: NEW
FILED: NEW YORK
YORK COUNTY
COUNTY CLERK
CLERK 04/14/2023
11/15/2023 10:30
02:56 AM
PM INDEX NO.
INDEX NO. 650865/2023
655653/2023
NYSCEF DOC. NO. 130
13 RECEIVED NYSCEF: 04/08/2023
11/15/2023
substantial completion before the tunnel collapses which occurred during the
subsequent warranty period, not prior to substantial completion. Alternatively, Strabag
asserts that delays caused by lack of water excuse both substantial completion and
liquidated damages under the Contract.
The requirements for Strabag’s substantial completion are delineated in § 7.1.1.1
of the Contract which provides:
"‘Substantial Completion’ of any Critical Milestone shall be
achieved when each of the following conditions (the ‘Critical
Milestone Substantial Completion Conditions’) have been
met:
(a) Contractor has completed performance of all of the Work
related to such Critical Milestone Work, except for any
remaining items set forth in the Punch List and the Warranty
work, and such Critical Milestone Work is capable of safe
and reliable operation in accordance with all Applicable Laws
and Good Industry Practices;
(b) Contractor has completed and Owner has accepted as
completed, each of the Acceptance Tests required to be
performed by Contractor prior to the applicable Guaranteed
Critical Milestone Date in accordance with Section 8.2;
provided, that Contractor shall not be required to perform
any wet tests and Acceptance Tests at the time of
Substantial Completion of Critical Milestones A 1, A2, B1 ,
B2, and C (as defined in Appendix A), it being understood
that wet tests and Acceptance Tests shall be performed in
connection with Critical Milestones D, E, and F prior to
Substantial Completion thereof;
(c) with the exception of the remaining items set forth in the
Punch List agreed or determined pursuant to Section 7.2.2,
all portions of such Critical Milestone Work have been
substantially completed and can be safely and reliably used
for their intended purposes in accordance with all Applicable
Laws, and all portions of such Critical Milestone Work can
accelerating the decarbonization of Chile”]; NYSCEF 103, April 14, 2022 Email from
Alcala, re Alto Maipo – Alfalfal II Unit 1 Reached COD.
650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 4 of 22
Motion No. 001
4 of 22
FILED: NEW
FILED: NEW YORK
YORK COUNTY
COUNTY CLERK
CLERK 04/14/2023
11/15/2023 10:30
02:56 AM
PM INDEX NO.
INDEX NO. 650865/2023
655653/2023
NYSCEF DOC. NO. 130
13 RECEIVED NYSCEF: 04/08/2023
11/15/2023
legally and safely be operated or utilized for their intended
purposes, including emergency operations;
(d) Contractor has performed all of its obligations pursuant to
Section 2.16.2 with respect to such Critical Milestone Work,
except to the extent set forth in the Punch List;
(e) The Punch List Amount has been defined pursuant to
Section 7.2.4 and Contractor has delivered the Punch List /
Warranty Security in accordance with Article 15; and
(f) Owner has delivered a Critical Milestone Substantial
Completion Certificate to Contractor pursuant to Section
7.1.1.3 with respect to such Critical Milestone Work.”
(NYSCEF 120, Contract at 86.5)
Analysis
For injunctive relief under CPLR 6301, the movant must establish likelihood of
success on the merits of the action; the danger of irreparable harm in the absence of a
preliminary injunction; and a balance of equities in favor of the moving party. (Gliklad v
Cherney, 97 AD3d 401, 402 [1st Dept 2012] [citations omitted].) “A preliminary
injunction should not be granted unless the right thereto is plain from the undisputed
facts and there is a clear showing of necessity and justification.” (O'Hara v Corporate
Audit Co., 161 AD2d 309, 310 [1st Dept 1990] [citations omitted].)
On February 15, 2023, the Owner initiated an arbitration proceeding before the
ICC pursuant to the Contract. (NYSCEF 72, Email confirming filing; NYSCEF 120,
Contract § 18.) While Strabag moves under CPLR 6301, Strabag’s request for a TRO
and preliminary injunction is effectively in support of that arbitration pursuant to CPLR
5 NYSCEF pagination.
650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 5 of 22
Motion No. 001
5 of 22
FILED: NEW
FILED: NEW YORK
YORK COUNTY
COUNTY CLERK
CLERK 04/14/2023
11/15/2023 10:30
02:56 AM
PM INDEX NO.
INDEX NO. 650865/2023
655653/2023
NYSCEF DOC. NO. 130
13 RECEIVED NYSCEF: 04/08/2023
11/15/2023
7502.6 Accordingly, there will be no inconsistent adjudications because this court is not
deciding the ultimate issues before the ICC.
To secure its performance of this now eleven-year project, Strabag agreed to a
$200 million letter of credit as performance security in 2018.7 (NYSCEF 117, Mario
Theurl8 aff ¶ 24; NYSCEF 120, Contract §§ 6.4.4, 6.4.5, 15.7.1; NYSCEF 1, compl. ¶
14.) On May 17, 2018, the Bank issued the Letter of Credit currently at issue in this
dispute which provides:
“13. THIS LETTER OF CREDIT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE
TERMS OF THE INTERNATIONAL STANDBY PRACTICES
(‘ISP98’) . . . . AS TO MATTERS NOT GOVERNED BY THE
ISP98, THIS LETTER OF CREDIT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, INCLUDING,
WITHOUT LIMITATION, THE UNIFORM COMMERCIAL
CODE AS IN EFFECT IN THE STATE OF NEW YORK.”
(NYSCEF 116, Letter of Credit at 8-10.)
The draw may be made for one of six permitted reasons. (Id. at 11.) The relevant
reason for the drawdown here is “THE BENEFICIARY IS PERMITTED TO DO SO IN
ACCORDANCE WITH SECTION 15.3.4 OF THE CONTRACT.” (Id. at 11.) Section
15.3.4 provides that the Owner
“may draw on the [Letter of Credit] (a) to pay any Late
Critical Milestone Payments owed and unpaid by Contractor
or (b) in case of any Contractor Event of Default in an
aggregate amount not to exceed the amount that Owner
6 In addition to the three prongs standard under article 63, the standard under CPLR
7502(c) is whether “the award to which the applicant may be entitled may be rendered
ineffectual without such provisional relief.” (Project Orange Assoc., LLC v General Elec.
Intl., 23 Misc 3d 764 [Sup Ct, NY County 2009].)
7 The letter of credit has since been reduced to $90 million. (NYSCEF 117, Theurl aff ¶
25.)
8 Theurl is Strabag’s General Manager. (NYSCEF 117, Theurl aff ¶ 1.)
650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 6 of 22
Motion No. 001
6 of 22
FILED: NEW
FILED: NEW YORK
YORK COUNTY
COUNTY CLERK
CLERK 04/14/2023
11/15/2023 10:30
02:56 AM
PM INDEX NO.
INDEX NO. 650865/2023
655653/2023
NYSCEF DOC. NO. 130
13 RECEIVED NYSCEF: 04/08/2023
11/15/2023
reasonably believes would be payable to it in respect of all of
its remedies hereunder.”
(NYSCEF 120, Contract at 126.)
Strabag challenges the Owner’s right to a late Critical Milestone Payment, or any
payment for that matter, because Strabag insists it either achieved substantial
completion or substantial completion is excused due to lack of water to conduct testing
or because the Owner took control of the Project. 9 Strabag’s responsibilities to achieve
substantial completion are set forth in § 7.1.1.1 of the Contract, which is set forth in full
above. However, under the independence principle the Bank is not involved in
assessing Strabag’s compliance with the Contract or the Owner’s compliance with
Amendment 2.
“[A] bank that issues a letter of credit is not required to look beyond the payment
documents presented by the beneficiary in order to ascertain whether the parties to the
underlying transaction have complied with their respective duties and
obligations.” (Archer Daniels Midland Co. v JP Morgan Chase Bank, N.A., 2011 WL
855936 *4 [SD NY 2011].)
“Letters of credit are commercial instruments that provide a
seller or lender (the beneficiary) with a guaranteed means of
payment from a creditworthy third party (the issuer) in lieu of
9 The court rejects Strabag’s argument that pursuant to § 7.3.3 of the Contract,
substantial completion is presumed since the Owner took control of the Project. The
May 2, 2022 Amendment 2 modified the provision on which Strabag relies for this
argument: “On the date of delivery of the Critical Milestone Work Transfer Notice for
Critical Milestone D (assuming that Substantial Completion of Critical Milestone D has
not yet occurred), the Performance Security will be reduced by the amount of forty five
million Dollars (US$45,000,000). At Substantial Completion of Critical Milestone D
(assuming that the Critical Milestone Work Transfer Notice for Critical Milestone D has
been delivered), the Performance Security will be further reduced by the amount of
twenty-five million Dollars (US$25,000,000).” (NYSCEF 100, Amendment 2 [emphasis
added].)
650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 7 of 22
Motion No. 001
7 of 22
FILED: NEW
FILED: NEW YORK
YORK COUNTY
COUNTY CLERK
CLERK 04/14/2023
11/15/2023 10:30
02:56 AM
PM INDEX NO.
INDEX NO. 650865/2023
655653/2023
NYSCEF DOC. NO. 130
13 RECEIVED NYSCEF: 04/08/2023
11/15/2023
relying solely on the financial status of a buyer or borrower
(the applicant). Historically, letters of credit have been used
to assure predictability and stability in mercantile
transactions by diminishing a seller's risk of nonpayment and
a buyer's risk of nondelivery due to insufficient funds.”
(Nissho Iwai Europe PLC v Korea First Bank, 99 NY2d 115, 119 [2002] [citation
omitted].)
New York applies the “independence principle” to letters of credit, which “requires
strict compliance with facially valid requests for payment under a letter of
credit.” (Archer Daniels, 2011 WL 855936 *4 [citations omitted].) “[A]n issuing bank's
obligations under a letter of credit are separate from, and independent of, the rights and
obligations of the parties to the underlying commercial transaction.” (Id., citing 410
Sixth Ave. Foods, Inc. v 410 Sixth Ave., Inc., 197 AD2d 435, 436 [1st Dept 1993].)
However, fraud is an exception to the independence principle. (3M Co. v HSBC
Bank USA, N.A., 2018 WL 1989563, *9 [SD NY, Apr. 25, 2018, No. 16 CIV. 5984
(PGG)].) In New York, the fraud exception is codified in UCC § 5-109(a) which
provides:
“If a presentation is made that appears on its face strictly to
comply with the terms and conditions of the letter of credit,
but a required document is forged or materially fraudulent, or
honor of the presentation would facilitate a material fraud by
the beneficiary on the issuer or applicant[,] . . . [t]he issuer,
acting in good faith, may honor or dishonor the presentation .
...
(UCC § 5-109 [a] and [a] [2].)
The exception is narrow to ensure “the smooth operation of international
commerce” by preventing pre-payment litigation. (3M Co., 2018 WL 1989563 at *9.)
The conditions necessary before the fraud exception apply are: (1) “fraud must be found
650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 8 of 22
Motion No. 001
8 of 22
FILED: NEW
FILED: NEW YORK
YORK COUNTY
COUNTY CLERK
CLERK 04/14/2023
11/15/2023 10:30
02:56 AM
PM INDEX NO.
INDEX NO. 650865/2023
655653/2023
NYSCEF DOC. NO. 130
13 RECEIVED NYSCEF: 04/08/2023
11/15/2023
either in the documents or must have been committed by the beneficiary on the issuer
or applicant”; and (2) the “fraud must be ‘material.’” (UCC § 5-109, Official Comment 1
[citation omitted].) “Material fraud by the beneficiary occurs only when the beneficiary
has no colorable right to expect honor and where there is no basis in fact to support
such a right to honor.” (Id.) The circumstances must “plainly show that the underlying
contract forbids the beneficiary to call a letter of credit.” (Id.) The fraud exception will
apply “where the beneficiary's conduct has ‘so vitiated the entire transaction that the
legitimate purposes of the independence of the issuer's obligation would no longer be
served.’” (Id., quoting Ground Air Transfer, Inc. v Westate's Airlines, Inc., 899 F2d
1269, 1272-73 [1st Cir 1990].) Finally, “[t]he courts should be skeptical of claims of
fraud by one who has signed a ‘suicide’ or clean credit and thus granted a beneficiary
the right to draw by mere presentation of a draft.” (UCC § 5-109, Official Comment 3.)
Accordingly, to satisfy the likelihood of success prong for a preliminary injunction,
Strabag must establish the likelihood of success on Strabag’s fraud theory; a contract
dispute is not sufficient. (See 410 Sixth Ave. Foods, Inc. v 410 Sixth Ave., Inc., 197
AD2d 435, 437 [1st Dept 1993] [“At best, the evidence supports solely mutual
allegations of breach of contract, not fraud.”].)
Here, Strabag argues that the Owner improperly withheld substantial completion
certification while gaining access to and commercially operating the project by
promising to give Strabag an extension of time for delays caused by lack of water.
However, on the eve of the deadline, December 31, 2022, the Owner allegedly
discovered the collapsed tunnels and blamed the collapses on Strabag and Strabag for
delays. Relying on Rockwell Intern. Sys., Inc. v Citibank, N.A., Strabag argues that one
650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 9 of 22
Motion No. 001
9 of 22
FILED: NEW
FILED: NEW YORK
YORK COUNTY
COUNTY CLERK
CLERK 04/14/2023
11/15/2023 10:30
02:56 AM
PM INDEX NO.
INDEX NO. 650865/2023
655653/2023
NYSCEF DOC. NO. 130
13 RECEIVED NYSCEF: 04/08/2023
11/15/2023
party cannot put another party into default and draw on the letter of credit as a result of
the default; to do so constitutes fraud which bars a drawdown on a letter of credit. (719
F2d 583 [2d Cir 1983].) In Rockwell, following the fall of the Shah of Iran, the new
government instructed Rockwell to stop working on a project then attempted to
drawdown on a letter of credit asserting that Rockwell had defaulted. (Id.; see also
Archer Daniels, 2011 WL 855936 *5 [a government buying rice could not draw on a
letter of credit where there was no report certifying problems with the rice—the buyer’s
representation to the bank as to the reason for the drawdown was “almost certainly
false” based on unrebutted documentary evidence and the fact that 2/3 of the shipment
had yet to reach the port].) Here, Strabag describes a classic bait and switch.
First, the Owner asserts that the court is barred from analyzing Strabag’s
likelihood of success to establish that the Owner’s draw on the letter of credit is
fraudulent because the Emergency Arbitrator has found otherwise. 10
On February 16, 2023, Strabag initiated an emergency arbitration before the ICC
pursuant to the Contract. (NYSCEF 120, Contract § 18.) Strabag was seeking to stop
the Owner from drawing on the letter of credit at issue in this case. (NYSCEF 52,
Application ¶ 127.) Strabag’s position in the emergency arbitration was:
10The Owner also suggests that this court should be guided by the Independent
Adjudicator who on March 2, 2023 dismissed Strabag’s Request for Determination on
the same issue because he lacked jurisdiction letter of credit issues. (NYSCEF 76,
Ruling on Jurisdiction of Independent Adjudicator to Hear Strabag’s Request for
Determination No. 2, Substantial Completion Dispute, ¶ 35.) Section 2.29.1.3 of
Amendment 2 to the Contract specifically provides: “the Independent Adjudicator shall
not consider, and shall not issue a Determination with respect to, any dispute between
the Parties relating to any draw on a letter of credit posted by the Contractor in favor of
Owner.” (NYSCEF 100, Amendment 2 at 11.) The Owner’s suggestion that the court
should follow the Independent Adjudicator is misleading at best.
650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 10 of 22
Motion No. 001
10 of 22
FILED: NEW
FILED: NEW YORK
YORK COUNTY
COUNTY CLERK
CLERK 04/14/2023
11/15/2023 10:30
02:56 AM
PM INDEX NO.
INDEX NO. 650865/2023
655653/2023
NYSCEF DOC. NO. 130
13 RECEIVED NYSCEF: 04/08/2023
11/15/2023
“Respondent’s draw on its Performance Security is in
furtherance of a fraud and premised on a wrongful claim for
liquidated damages based on project delays that [the Owner]
expressly agreed are excusable. Applicant asserts that it
urgently requires emergency relief to prevent [the Owner]
from retaining the proceeds of its draw and from making
further drawings under the Performance Security.”
(NYSCEF 77, Arbitration Order ¶ 76.)
The Owner’s position in the emergency arbitration was that:
“113. … Strabag improperly seeks to prevent [the Owner] from exercising its
bargained-for-rights to draw on the Performance Security, a clean irrevocable
letter of credit which secures the Late Critical Milestones Payments owed and
unpaid by Strabag as a result of its failure to achieve Critical Milestones by the
Guaranteed Substantial Completion Date of 31 December 2022.
114. [The Owner] asserts that the specific relief that [Strabag] seeks, is not
permitted under the Contract, the law applicable to the Parties’ Contract and the
Performance Security, and, in any event is inextricably bound with the highly
complex and fact-intensive issue of whether Strabag achieved Substantial
Completion which should not and cannot be determined in emergency
proceedings as this would imply prejudging on those issues.”
(NYSCEF 77, Arbitration Order ¶¶ 113-114.)
As to likelihood of success, the Emergency Arbitrator found that the framework of
ICC emergency proceedings constrained her from making a finding of likelihood of
success because it would impermissibly entail her prejudging the merits of the dispute.
(NYSCEF 77, Arbitration Order ¶¶ 196-203, 205.) She explained:
“205. It is not plain from the ‘moving papers’ that Substantial
Completion has been reached or that Strabag is entitled to
an extension, as asserted by Applicant. The Emergency
Arbitrator is therefore not able to conclude that [the Owner]
has committed a material fraud in stating that it complied
with Section 15.3.4 of the Contract. The Emergency
Arbitrator is not able to conclude either that Respondent ‘has
no colorable claim.’
206. As far as [Strabag]’s assertion is concerned that [the
Owner]’s draw would also be in furtherance of a fraud
650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 11 of 22
Motion No. 001
11 of 22
FILED: NEW
FILED: NEW YORK
YORK COUNTY
COUNTY CLERK
CLERK 04/14/2023
11/15/2023 10:30
02:56 AM
PM INDEX NO.
INDEX NO. 650865/2023
655653/2023
NYSCEF DOC. NO. 130
13 RECEIVED NYSCEF: 04/08/2023
11/15/2023
because it has manufactured a scheme that allowed it to
obtain the benefit of its bargain (commercial operation of the
Critical Milestone Work) while simultaneously delaying and
rejecting Substantial Completion to collect Late Critical
Milestone Payments from Strabag, the Emergency Arbitrator
considers that it has been insufficiently substantiated. It has
therefore not been established that [the Owner] has
committed a material fraud in this manner.”
(Id. ¶¶ 205-206.)
The court rejects the Owner’s collateral estoppel argument because the
Emergency Arbitrator effectively abstained from deciding likelihood of success to avoid
prejudging, which could be viewed as a different standard on likelihood of success.
While an arbitration award could certainly have preclusive effect, it will not collaterally
estop a court when the arbitrator applies a different standard. (Matter of Sherwyn
Toppin Mktg. Consultants, Inc. v New York State Liquor Auth., 103 AD3d 648, 651 [2d
Dept 2013] [collateral estoppel did not apply where the prior action utilized a “higher and
different burden of proof” than that required in the current action].)
Here in New York, we assess the facts as of the date of the preliminary injunction
request and predict likelihood of success based on what we know at the time. A
decision to grant a preliminary injunction is not “law of the case.” (J.A. Preston Corp. v
Fabrication Enterprises, Inc., 68 NY2d 397, 402 [1986] [“The granting or refusal of a
temporary injunction does not constitute the law of the case or an adjudication on the
merits, and the issues must be tried to the same extent as though no temporary
injunction had been applied for.”]; Triple D & E, Inc. v Van Buren, 72 Misc 2d 569, 574
[Sup Ct 1972], affd, 42 AD2d 841 [2d Dept 1973] [“The denial or award of a temporary
injunction does not establish the law of the case. The conclusion arrived at from the
preliminary motion may be altered when all of the facts have been explored at
650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 12 of 22
Motion No. 001
12 of 22
FILED: NEW
FILED: NEW YORK
YORK COUNTY
COUNTY CLERK
CLERK 04/14/2023
11/15/2023 10:30
02:56 AM
PM INDEX NO.
INDEX NO. 650865/2023
655653/2023
NYSCEF DOC. NO. 130
13 RECEIVED NYSCEF: 04/08/2023
11/15/2023
a plenary trial.”].) Moreover, the Emergency Arbitrator fails to acknowledge the shifting
burden of proof between likelihood of success and irreparable harm. (See Sau Thi Ma v
Xaun T. Lien, 198 AD2d 186, 186 [1st Dept 1993] [reversing the denial of a preliminary
injunction where such relief would preserve the status quo and where there would be
irreparable harm because “a substantial amount of money may be dissipated or
otherwise unavailable for recovery …”].) Accordingly, the court will analyze whether
Strabag has established a likelihood of success.
Whether Strabag achieved substantial completion is in dispute. Where facts are
in sharp dispute, a preliminary injunction should not be granted. (O’Neill v Poitras, 158
AD2d 928, 928-929 [4th Dept 1990].) However, another contract provision excuses the
delay if the delay is due to the unavailability of water sufficient to conduct “Acceptance
Tests.” The Owner fails to address the Contract provision in its brief, instead focusing
on irrelevant arguments such as whether Strabag timely informed the court that it had
initiated the Emergency Arbitration as required by the Contract’s arbitration provision.
However, at argument, the Owner referred the court to its brief filed in the Independent
Adjudicator proceeding which addresses the Contract.11 (NYSCEF __, tr 34:9-15;12
NYSCEF 71, Owner’s Response to Request for Determination No. 2, Feb. 15, 2023.)
Contrary to Strabag’s objections, the Contract clearly provides that Strabag has
testing obligations. Strabag’s “Scope of Work” is defined in the Contract as:
“(a) all work and services required in connection with the
design, engineering, procurement, permitting, fabrication,
manufacture, investigation, excavation, construction …
dewatering, … testing and completion of the Tunnel
11 The Owner’s Response to Request for Determination No. 2, Feb. 15, 2023, is not
mentioned in the Owner’s Memo of Law.
12 Parties are directed to file the March 20, 2023 transcript in NYSCEF.
650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 13 of 22
Motion No. 001
13 of 22
FILED: NEW
FILED: NEW YORK
YORK COUNTY
COUNTY CLERK
CLERK 04/14/2023
11/15/2023 10:30
02:56 AM
PM INDEX NO.
INDEX NO. 650865/2023
655653/2023
NYSCEF DOC. NO. 130
13 RECEIVED NYSCEF: 04/08/2023
11/15/2023
Complex (including completion of all Acceptance Tests and
operation of the Tunnel Complex through Tunnel Complex
Substantial Completion), …
(c) attendance and support during the AM-CO510
Electromechanical Contractor's testing and
commissioning,…
(e) the correction of defects and any actions required to
comply with the Warranty[.]”
(NYSCEF 120, Contract § 1.1; see also id. § 7.1.1.1(b) [requiring the completion of
“Acceptance Tests” and, for Critical Milestones D, E, and F, “wet tests and Acceptance
Tests”].)
Appendix D contains the Testing Guidelines which Strabag must follow when
fulfilling its Contractual Testing obligations.
“1. General[.] Upon completion of construction and
throughout start-up and commissioning of each functional
unit, Contractor shall perform various tests to demonstrate
that such functional unit and any part thereof comply with the
Contract, including the Acceptance Tests. The tests, and
the sequence in which they shall be performed, are
described in general terms in this Appendix D. The
Contractor shall develop the detailed inspection and test
schedule and the details of the tests. Water filling, Wet Test,
and Acceptance Test procedures will be defined in
cooperation with the Owner and the Electromechanical
Contractor and shall be subject to Owner's Approval.”
(NYSCEF 20, Appendix D at 4.)
However, it is clear from the record at this time, that the Owner’s rejection of
substantial completion came well before the collapses of the tunnels were discovered.
(NYSCEF 105, December 2, 2022, Owner’s Letter to Strabag.) Indeed, according to the
Owner, the earliest evidence of a problem was “November 24-25, 2022 during
performance testing of [another contracto]'s work.” (NYSCEF 56, Corredor aff ¶ 27.)
650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 14 of 22
Motion No. 001
14 of 22
FILED: NEW
FILED: NEW YORK
YORK COUNTY
COUNTY CLERK
CLERK 04/14/2023
11/15/2023 10:30
02:56 AM
PM INDEX NO.
INDEX NO. 650865/2023
655653/2023
NYSCEF DOC. NO. 130
13 RECEIVED NYSCEF: 04/08/2023
11/15/2023
Even if the collapsed tunnels, and not a lack of water, are to blame for Strabag’s failure
to achieve substantial completion, Strabag’s assertion that the collapses occurred
during the warranty period is supported by a clear reading of the contract and the
Owner fails to address Strabag’s warranty argument.13 Accordingly, the court is left with
Strabag’s argument that its substantial completion delay was excused by lack of water.
The parties entered into Amendment 2 on May 2, 2022, which allowed the
Owner to take over two of the powerplants and to generate desperately needed
revenue. (NYSCEF 100, Amendment 2.) In exchange, “Strabag would be excused
from any delays caused by [the Owner], delays to testing caused by a lack of available
water, and delays caused by events set out in Section 11 of the Amended & Restated
Contract,” e.g., delays caused by “Contractor encounters any national, archaeological,
paleontological or other historically significant a
Preview
FILED: NEW YORK COUNTY CLERK 11/15/2023 02:56 PM INDEX NO. 655653/2023 NYSCEF DOC. NO. 13 RECEIVED NYSCEF: 11/15/2023 EXHIBIT 7 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 04/14/2023 11/15/2023 10:30 02:56 AM PM INDEX NO. INDEX NO. 650865/2023 655653/2023 NYSCEF DOC. NO. 130 13 RECEIVED NYSCEF: 04/08/2023 11/15/2023 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: COMMERCIAL DIVISION PART 48 ----------------------------------------------------------------------------------- X STRABAG SPA, INDEX NO. 650865/2023 Plaintiff, MOTION DATE N/A -v- MOTION SEQ. NO. 001 CREDIT AGRICOLE CIB, Defendant. DECISION + ORDER ON MOTION ----------------------------------------------------------------------------------- X HON. ANDREA MASLEY: The following e-filed documents, listed by NYSCEF document number (Motion 001) 8, 9, 31, 39, 40, 41, 66, 67, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78 were read on this motion to/for INJUNCTION/RESTRAINING ORDER . Upon the foregoing documents, it is Plaintiff Strabag, SpA, (Strabag), the contractor, moves pursuant to CPLR article 63 for a preliminary injunction enjoining and restraining defendant Crédit Agricole CIB (Bank), located in New York, from honoring any effort by the project owner Alto Maipo (Owner)1 to draw funds from the Bank’s standby letter of credit because there is no legitimate reason for such a draw down, according to Strabag. Background The purpose of the project at issue “is to convey water through the tunnels and into the powerhouses where it is run through the turbines and power is generated” to supply power to Santiago Chile. (NYSCEF 56, Norberto Corredor 2 aff ¶¶8, 22.) The 1 Owner’s motion to intervene as a defendant in this action was granted. (NYSCEF Doc. No. [NYSCEF] 65, March 6, 2023 Order.) 2 Corredor is the General Manager of the Owner. (NYSCEF 56, Corredor aff ¶ 4.) His affidavit is filed in support of the motion to intervene (motion sequence number 002). 650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 1 of 22 Motion No. 001 1 of 22 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 04/14/2023 11/15/2023 10:30 02:56 AM PM INDEX NO. INDEX NO. 650865/2023 655653/2023 NYSCEF DOC. NO. 130 13 RECEIVED NYSCEF: 04/08/2023 11/15/2023 Owner engaged Strabag “to design, engineer, and construct a portion of the [Owner’s Hydroelectric Power Project in Chile]” (the Project). (Id. ¶ 9.) In August 2022, Strabag declared substantial completion. (NYSCEF 127, Strabag November 17, 2022 letter.) On December 2, 2022, the Owner informed Strabag it disputed that Strabag had achieved Substantial Completion and refused to grant Strabag any relief from liquidated damages. (NYSCEF 128, December 2, 2022, Owner’s Letter to Strabag.) December 31, 2022 is the Guaranteed Critical Milestone Date (GCMD) for Strabag’s Substantial Completion of Critical Milestones D and E, after which the Owner may drawdown on the $90 million letter of credit issued pursuant to the February 19, 2018 Amended and Restated Lump Sum Fixed Price Tunnel Complex Construction Contract (the Contract) if Strabag owes liquidated damages for the delay. (NYSCEF 120, Contract § 6.4.4, §7.1.3.2; NYSCEF 19, Table 1 to Appendix A of Contract at 5-6 [$6 to $7 million monthly for Critical Milestone D and $4 to $5 million monthly for Critical Milestone E].) Otherwise, the background of this case is set forth in the comprehensive March 3, 2023 Order of International Chamber of Commerce (ICC) Emergency Arbitrator van Hooft (NYSCEF 77, Arbitration Order), and will not be repeated here except as necessary to the decision. Contentions The Owner seeks to draw down $16 million on the letter of credit because Strabag allegedly owes liquidated damages for Strabag’s alleged failure to complete milestones D and E on the Project prior to December 31, 2022, the GCMD. According to the Owner, the Project is completely shut down and no longer generating electricity or revenue which is entirely Strabag’s fault. (NYSCEF 56, Corredor aff ¶ 79.) The Owner 650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 2 of 22 Motion No. 001 2 of 22 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 04/14/2023 11/15/2023 10:30 02:56 AM PM INDEX NO. INDEX NO. 650865/2023 655653/2023 NYSCEF DOC. NO. 130 13 RECEIVED NYSCEF: 04/08/2023 11/15/2023 insists that Strabag cannot achieve substantial completion until (1) tests are performed and (2) Strabag repairs two partial tunnel collapses. The Owner opines that the water tests cannot be performed because of the collapsed tunnels, not because of lack of water. (Id. ¶ 49.) The Owner intends to continue to draw on the letter of credit of $90 million. (NYSCEF 56, Norberto Corredor aff ¶ 68.) The Owner contends that “[t]he actual losses incurred by Alto Maipo as a direct result of the Project shutdown exceed the applicable and incurred [Late Critical Milestone Payments] for Critical Milestone D ($6 million per month) and Critical Milestone E ($4 million per month).” (Id. ¶ 66.) As a result of the shutdown, the Owner “suffered losses in excess of $10 million in January and is projecting losses of more than $16 million for February 2023 alone.” (Id. ¶ 67.) Strabag counters that the Owner’s proposed drawdown on the letter of credit is fraudulent because Strabag achieved substantial completion under the Contract. Strabag also objects to the Owner’s assertion that the collapsed tunnels demonstrate Strabag’s failure to achieve substantial completion. Rather, Strabag asserts that the collapses were not discovered until the end of the year, 3 long after the Owner had taken control of the Project in March 2022.4 Moreover, Strabag insists that it achieved 3 The Owner identified a damaged tunnel or partial collapse on December 29, 2022. (NYSCEF 56, Corredor aff ¶¶ 27-34.) A second tunnel collapse was identified in January 2023. (Id.¶ 35-36 ) 4 The Owner “agreed to issue Critical Milestone Work Transfer Notices for Critical Milestones D, E, and F on 2 May 2022. The issuance of these notices transferred care, custody, control, operation and maintenance of Critical Milestones D, E, and F and the risk of all loss to Alto Maipo.” (NYSCEF 1, Complaint 39; NYSCEF 102, March 25, 2022 Email from J. Dib (President of the Owner), re Alto Maipo – 3 Units Reached Commercial Operation Date (COD per NYSCEF 120, Contract at 9/146) [“Alto Maipo is now providing carbon free energy to the country and will play a critical role in 650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 3 of 22 Motion No. 001 3 of 22 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 04/14/2023 11/15/2023 10:30 02:56 AM PM INDEX NO. INDEX NO. 650865/2023 655653/2023 NYSCEF DOC. NO. 130 13 RECEIVED NYSCEF: 04/08/2023 11/15/2023 substantial completion before the tunnel collapses which occurred during the subsequent warranty period, not prior to substantial completion. Alternatively, Strabag asserts that delays caused by lack of water excuse both substantial completion and liquidated damages under the Contract. The requirements for Strabag’s substantial completion are delineated in § 7.1.1.1 of the Contract which provides: "‘Substantial Completion’ of any Critical Milestone shall be achieved when each of the following conditions (the ‘Critical Milestone Substantial Completion Conditions’) have been met: (a) Contractor has completed performance of all of the Work related to such Critical Milestone Work, except for any remaining items set forth in the Punch List and the Warranty work, and such Critical Milestone Work is capable of safe and reliable operation in accordance with all Applicable Laws and Good Industry Practices; (b) Contractor has completed and Owner has accepted as completed, each of the Acceptance Tests required to be performed by Contractor prior to the applicable Guaranteed Critical Milestone Date in accordance with Section 8.2; provided, that Contractor shall not be required to perform any wet tests and Acceptance Tests at the time of Substantial Completion of Critical Milestones A 1, A2, B1 , B2, and C (as defined in Appendix A), it being understood that wet tests and Acceptance Tests shall be performed in connection with Critical Milestones D, E, and F prior to Substantial Completion thereof; (c) with the exception of the remaining items set forth in the Punch List agreed or determined pursuant to Section 7.2.2, all portions of such Critical Milestone Work have been substantially completed and can be safely and reliably used for their intended purposes in accordance with all Applicable Laws, and all portions of such Critical Milestone Work can accelerating the decarbonization of Chile”]; NYSCEF 103, April 14, 2022 Email from Alcala, re Alto Maipo – Alfalfal II Unit 1 Reached COD. 650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 4 of 22 Motion No. 001 4 of 22 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 04/14/2023 11/15/2023 10:30 02:56 AM PM INDEX NO. INDEX NO. 650865/2023 655653/2023 NYSCEF DOC. NO. 130 13 RECEIVED NYSCEF: 04/08/2023 11/15/2023 legally and safely be operated or utilized for their intended purposes, including emergency operations; (d) Contractor has performed all of its obligations pursuant to Section 2.16.2 with respect to such Critical Milestone Work, except to the extent set forth in the Punch List; (e) The Punch List Amount has been defined pursuant to Section 7.2.4 and Contractor has delivered the Punch List / Warranty Security in accordance with Article 15; and (f) Owner has delivered a Critical Milestone Substantial Completion Certificate to Contractor pursuant to Section 7.1.1.3 with respect to such Critical Milestone Work.” (NYSCEF 120, Contract at 86.5) Analysis For injunctive relief under CPLR 6301, the movant must establish likelihood of success on the merits of the action; the danger of irreparable harm in the absence of a preliminary injunction; and a balance of equities in favor of the moving party. (Gliklad v Cherney, 97 AD3d 401, 402 [1st Dept 2012] [citations omitted].) “A preliminary injunction should not be granted unless the right thereto is plain from the undisputed facts and there is a clear showing of necessity and justification.” (O'Hara v Corporate Audit Co., 161 AD2d 309, 310 [1st Dept 1990] [citations omitted].) On February 15, 2023, the Owner initiated an arbitration proceeding before the ICC pursuant to the Contract. (NYSCEF 72, Email confirming filing; NYSCEF 120, Contract § 18.) While Strabag moves under CPLR 6301, Strabag’s request for a TRO and preliminary injunction is effectively in support of that arbitration pursuant to CPLR 5 NYSCEF pagination. 650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 5 of 22 Motion No. 001 5 of 22 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 04/14/2023 11/15/2023 10:30 02:56 AM PM INDEX NO. INDEX NO. 650865/2023 655653/2023 NYSCEF DOC. NO. 130 13 RECEIVED NYSCEF: 04/08/2023 11/15/2023 7502.6 Accordingly, there will be no inconsistent adjudications because this court is not deciding the ultimate issues before the ICC. To secure its performance of this now eleven-year project, Strabag agreed to a $200 million letter of credit as performance security in 2018.7 (NYSCEF 117, Mario Theurl8 aff ¶ 24; NYSCEF 120, Contract §§ 6.4.4, 6.4.5, 15.7.1; NYSCEF 1, compl. ¶ 14.) On May 17, 2018, the Bank issued the Letter of Credit currently at issue in this dispute which provides: “13. THIS LETTER OF CREDIT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE TERMS OF THE INTERNATIONAL STANDBY PRACTICES (‘ISP98’) . . . . AS TO MATTERS NOT GOVERNED BY THE ISP98, THIS LETTER OF CREDIT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, INCLUDING, WITHOUT LIMITATION, THE UNIFORM COMMERCIAL CODE AS IN EFFECT IN THE STATE OF NEW YORK.” (NYSCEF 116, Letter of Credit at 8-10.) The draw may be made for one of six permitted reasons. (Id. at 11.) The relevant reason for the drawdown here is “THE BENEFICIARY IS PERMITTED TO DO SO IN ACCORDANCE WITH SECTION 15.3.4 OF THE CONTRACT.” (Id. at 11.) Section 15.3.4 provides that the Owner “may draw on the [Letter of Credit] (a) to pay any Late Critical Milestone Payments owed and unpaid by Contractor or (b) in case of any Contractor Event of Default in an aggregate amount not to exceed the amount that Owner 6 In addition to the three prongs standard under article 63, the standard under CPLR 7502(c) is whether “the award to which the applicant may be entitled may be rendered ineffectual without such provisional relief.” (Project Orange Assoc., LLC v General Elec. Intl., 23 Misc 3d 764 [Sup Ct, NY County 2009].) 7 The letter of credit has since been reduced to $90 million. (NYSCEF 117, Theurl aff ¶ 25.) 8 Theurl is Strabag’s General Manager. (NYSCEF 117, Theurl aff ¶ 1.) 650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 6 of 22 Motion No. 001 6 of 22 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 04/14/2023 11/15/2023 10:30 02:56 AM PM INDEX NO. INDEX NO. 650865/2023 655653/2023 NYSCEF DOC. NO. 130 13 RECEIVED NYSCEF: 04/08/2023 11/15/2023 reasonably believes would be payable to it in respect of all of its remedies hereunder.” (NYSCEF 120, Contract at 126.) Strabag challenges the Owner’s right to a late Critical Milestone Payment, or any payment for that matter, because Strabag insists it either achieved substantial completion or substantial completion is excused due to lack of water to conduct testing or because the Owner took control of the Project. 9 Strabag’s responsibilities to achieve substantial completion are set forth in § 7.1.1.1 of the Contract, which is set forth in full above. However, under the independence principle the Bank is not involved in assessing Strabag’s compliance with the Contract or the Owner’s compliance with Amendment 2. “[A] bank that issues a letter of credit is not required to look beyond the payment documents presented by the beneficiary in order to ascertain whether the parties to the underlying transaction have complied with their respective duties and obligations.” (Archer Daniels Midland Co. v JP Morgan Chase Bank, N.A., 2011 WL 855936 *4 [SD NY 2011].) “Letters of credit are commercial instruments that provide a seller or lender (the beneficiary) with a guaranteed means of payment from a creditworthy third party (the issuer) in lieu of 9 The court rejects Strabag’s argument that pursuant to § 7.3.3 of the Contract, substantial completion is presumed since the Owner took control of the Project. The May 2, 2022 Amendment 2 modified the provision on which Strabag relies for this argument: “On the date of delivery of the Critical Milestone Work Transfer Notice for Critical Milestone D (assuming that Substantial Completion of Critical Milestone D has not yet occurred), the Performance Security will be reduced by the amount of forty five million Dollars (US$45,000,000). At Substantial Completion of Critical Milestone D (assuming that the Critical Milestone Work Transfer Notice for Critical Milestone D has been delivered), the Performance Security will be further reduced by the amount of twenty-five million Dollars (US$25,000,000).” (NYSCEF 100, Amendment 2 [emphasis added].) 650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 7 of 22 Motion No. 001 7 of 22 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 04/14/2023 11/15/2023 10:30 02:56 AM PM INDEX NO. INDEX NO. 650865/2023 655653/2023 NYSCEF DOC. NO. 130 13 RECEIVED NYSCEF: 04/08/2023 11/15/2023 relying solely on the financial status of a buyer or borrower (the applicant). Historically, letters of credit have been used to assure predictability and stability in mercantile transactions by diminishing a seller's risk of nonpayment and a buyer's risk of nondelivery due to insufficient funds.” (Nissho Iwai Europe PLC v Korea First Bank, 99 NY2d 115, 119 [2002] [citation omitted].) New York applies the “independence principle” to letters of credit, which “requires strict compliance with facially valid requests for payment under a letter of credit.” (Archer Daniels, 2011 WL 855936 *4 [citations omitted].) “[A]n issuing bank's obligations under a letter of credit are separate from, and independent of, the rights and obligations of the parties to the underlying commercial transaction.” (Id., citing 410 Sixth Ave. Foods, Inc. v 410 Sixth Ave., Inc., 197 AD2d 435, 436 [1st Dept 1993].) However, fraud is an exception to the independence principle. (3M Co. v HSBC Bank USA, N.A., 2018 WL 1989563, *9 [SD NY, Apr. 25, 2018, No. 16 CIV. 5984 (PGG)].) In New York, the fraud exception is codified in UCC § 5-109(a) which provides: “If a presentation is made that appears on its face strictly to comply with the terms and conditions of the letter of credit, but a required document is forged or materially fraudulent, or honor of the presentation would facilitate a material fraud by the beneficiary on the issuer or applicant[,] . . . [t]he issuer, acting in good faith, may honor or dishonor the presentation . ... (UCC § 5-109 [a] and [a] [2].) The exception is narrow to ensure “the smooth operation of international commerce” by preventing pre-payment litigation. (3M Co., 2018 WL 1989563 at *9.) The conditions necessary before the fraud exception apply are: (1) “fraud must be found 650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 8 of 22 Motion No. 001 8 of 22 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 04/14/2023 11/15/2023 10:30 02:56 AM PM INDEX NO. INDEX NO. 650865/2023 655653/2023 NYSCEF DOC. NO. 130 13 RECEIVED NYSCEF: 04/08/2023 11/15/2023 either in the documents or must have been committed by the beneficiary on the issuer or applicant”; and (2) the “fraud must be ‘material.’” (UCC § 5-109, Official Comment 1 [citation omitted].) “Material fraud by the beneficiary occurs only when the beneficiary has no colorable right to expect honor and where there is no basis in fact to support such a right to honor.” (Id.) The circumstances must “plainly show that the underlying contract forbids the beneficiary to call a letter of credit.” (Id.) The fraud exception will apply “where the beneficiary's conduct has ‘so vitiated the entire transaction that the legitimate purposes of the independence of the issuer's obligation would no longer be served.’” (Id., quoting Ground Air Transfer, Inc. v Westate's Airlines, Inc., 899 F2d 1269, 1272-73 [1st Cir 1990].) Finally, “[t]he courts should be skeptical of claims of fraud by one who has signed a ‘suicide’ or clean credit and thus granted a beneficiary the right to draw by mere presentation of a draft.” (UCC § 5-109, Official Comment 3.) Accordingly, to satisfy the likelihood of success prong for a preliminary injunction, Strabag must establish the likelihood of success on Strabag’s fraud theory; a contract dispute is not sufficient. (See 410 Sixth Ave. Foods, Inc. v 410 Sixth Ave., Inc., 197 AD2d 435, 437 [1st Dept 1993] [“At best, the evidence supports solely mutual allegations of breach of contract, not fraud.”].) Here, Strabag argues that the Owner improperly withheld substantial completion certification while gaining access to and commercially operating the project by promising to give Strabag an extension of time for delays caused by lack of water. However, on the eve of the deadline, December 31, 2022, the Owner allegedly discovered the collapsed tunnels and blamed the collapses on Strabag and Strabag for delays. Relying on Rockwell Intern. Sys., Inc. v Citibank, N.A., Strabag argues that one 650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 9 of 22 Motion No. 001 9 of 22 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 04/14/2023 11/15/2023 10:30 02:56 AM PM INDEX NO. INDEX NO. 650865/2023 655653/2023 NYSCEF DOC. NO. 130 13 RECEIVED NYSCEF: 04/08/2023 11/15/2023 party cannot put another party into default and draw on the letter of credit as a result of the default; to do so constitutes fraud which bars a drawdown on a letter of credit. (719 F2d 583 [2d Cir 1983].) In Rockwell, following the fall of the Shah of Iran, the new government instructed Rockwell to stop working on a project then attempted to drawdown on a letter of credit asserting that Rockwell had defaulted. (Id.; see also Archer Daniels, 2011 WL 855936 *5 [a government buying rice could not draw on a letter of credit where there was no report certifying problems with the rice—the buyer’s representation to the bank as to the reason for the drawdown was “almost certainly false” based on unrebutted documentary evidence and the fact that 2/3 of the shipment had yet to reach the port].) Here, Strabag describes a classic bait and switch. First, the Owner asserts that the court is barred from analyzing Strabag’s likelihood of success to establish that the Owner’s draw on the letter of credit is fraudulent because the Emergency Arbitrator has found otherwise. 10 On February 16, 2023, Strabag initiated an emergency arbitration before the ICC pursuant to the Contract. (NYSCEF 120, Contract § 18.) Strabag was seeking to stop the Owner from drawing on the letter of credit at issue in this case. (NYSCEF 52, Application ¶ 127.) Strabag’s position in the emergency arbitration was: 10The Owner also suggests that this court should be guided by the Independent Adjudicator who on March 2, 2023 dismissed Strabag’s Request for Determination on the same issue because he lacked jurisdiction letter of credit issues. (NYSCEF 76, Ruling on Jurisdiction of Independent Adjudicator to Hear Strabag’s Request for Determination No. 2, Substantial Completion Dispute, ¶ 35.) Section 2.29.1.3 of Amendment 2 to the Contract specifically provides: “the Independent Adjudicator shall not consider, and shall not issue a Determination with respect to, any dispute between the Parties relating to any draw on a letter of credit posted by the Contractor in favor of Owner.” (NYSCEF 100, Amendment 2 at 11.) The Owner’s suggestion that the court should follow the Independent Adjudicator is misleading at best. 650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 10 of 22 Motion No. 001 10 of 22 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 04/14/2023 11/15/2023 10:30 02:56 AM PM INDEX NO. INDEX NO. 650865/2023 655653/2023 NYSCEF DOC. NO. 130 13 RECEIVED NYSCEF: 04/08/2023 11/15/2023 “Respondent’s draw on its Performance Security is in furtherance of a fraud and premised on a wrongful claim for liquidated damages based on project delays that [the Owner] expressly agreed are excusable. Applicant asserts that it urgently requires emergency relief to prevent [the Owner] from retaining the proceeds of its draw and from making further drawings under the Performance Security.” (NYSCEF 77, Arbitration Order ¶ 76.) The Owner’s position in the emergency arbitration was that: “113. … Strabag improperly seeks to prevent [the Owner] from exercising its bargained-for-rights to draw on the Performance Security, a clean irrevocable letter of credit which secures the Late Critical Milestones Payments owed and unpaid by Strabag as a result of its failure to achieve Critical Milestones by the Guaranteed Substantial Completion Date of 31 December 2022. 114. [The Owner] asserts that the specific relief that [Strabag] seeks, is not permitted under the Contract, the law applicable to the Parties’ Contract and the Performance Security, and, in any event is inextricably bound with the highly complex and fact-intensive issue of whether Strabag achieved Substantial Completion which should not and cannot be determined in emergency proceedings as this would imply prejudging on those issues.” (NYSCEF 77, Arbitration Order ¶¶ 113-114.) As to likelihood of success, the Emergency Arbitrator found that the framework of ICC emergency proceedings constrained her from making a finding of likelihood of success because it would impermissibly entail her prejudging the merits of the dispute. (NYSCEF 77, Arbitration Order ¶¶ 196-203, 205.) She explained: “205. It is not plain from the ‘moving papers’ that Substantial Completion has been reached or that Strabag is entitled to an extension, as asserted by Applicant. The Emergency Arbitrator is therefore not able to conclude that [the Owner] has committed a material fraud in stating that it complied with Section 15.3.4 of the Contract. The Emergency Arbitrator is not able to conclude either that Respondent ‘has no colorable claim.’ 206. As far as [Strabag]’s assertion is concerned that [the Owner]’s draw would also be in furtherance of a fraud 650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 11 of 22 Motion No. 001 11 of 22 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 04/14/2023 11/15/2023 10:30 02:56 AM PM INDEX NO. INDEX NO. 650865/2023 655653/2023 NYSCEF DOC. NO. 130 13 RECEIVED NYSCEF: 04/08/2023 11/15/2023 because it has manufactured a scheme that allowed it to obtain the benefit of its bargain (commercial operation of the Critical Milestone Work) while simultaneously delaying and rejecting Substantial Completion to collect Late Critical Milestone Payments from Strabag, the Emergency Arbitrator considers that it has been insufficiently substantiated. It has therefore not been established that [the Owner] has committed a material fraud in this manner.” (Id. ¶¶ 205-206.) The court rejects the Owner’s collateral estoppel argument because the Emergency Arbitrator effectively abstained from deciding likelihood of success to avoid prejudging, which could be viewed as a different standard on likelihood of success. While an arbitration award could certainly have preclusive effect, it will not collaterally estop a court when the arbitrator applies a different standard. (Matter of Sherwyn Toppin Mktg. Consultants, Inc. v New York State Liquor Auth., 103 AD3d 648, 651 [2d Dept 2013] [collateral estoppel did not apply where the prior action utilized a “higher and different burden of proof” than that required in the current action].) Here in New York, we assess the facts as of the date of the preliminary injunction request and predict likelihood of success based on what we know at the time. A decision to grant a preliminary injunction is not “law of the case.” (J.A. Preston Corp. v Fabrication Enterprises, Inc., 68 NY2d 397, 402 [1986] [“The granting or refusal of a temporary injunction does not constitute the law of the case or an adjudication on the merits, and the issues must be tried to the same extent as though no temporary injunction had been applied for.”]; Triple D & E, Inc. v Van Buren, 72 Misc 2d 569, 574 [Sup Ct 1972], affd, 42 AD2d 841 [2d Dept 1973] [“The denial or award of a temporary injunction does not establish the law of the case. The conclusion arrived at from the preliminary motion may be altered when all of the facts have been explored at 650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 12 of 22 Motion No. 001 12 of 22 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 04/14/2023 11/15/2023 10:30 02:56 AM PM INDEX NO. INDEX NO. 650865/2023 655653/2023 NYSCEF DOC. NO. 130 13 RECEIVED NYSCEF: 04/08/2023 11/15/2023 a plenary trial.”].) Moreover, the Emergency Arbitrator fails to acknowledge the shifting burden of proof between likelihood of success and irreparable harm. (See Sau Thi Ma v Xaun T. Lien, 198 AD2d 186, 186 [1st Dept 1993] [reversing the denial of a preliminary injunction where such relief would preserve the status quo and where there would be irreparable harm because “a substantial amount of money may be dissipated or otherwise unavailable for recovery …”].) Accordingly, the court will analyze whether Strabag has established a likelihood of success. Whether Strabag achieved substantial completion is in dispute. Where facts are in sharp dispute, a preliminary injunction should not be granted. (O’Neill v Poitras, 158 AD2d 928, 928-929 [4th Dept 1990].) However, another contract provision excuses the delay if the delay is due to the unavailability of water sufficient to conduct “Acceptance Tests.” The Owner fails to address the Contract provision in its brief, instead focusing on irrelevant arguments such as whether Strabag timely informed the court that it had initiated the Emergency Arbitration as required by the Contract’s arbitration provision. However, at argument, the Owner referred the court to its brief filed in the Independent Adjudicator proceeding which addresses the Contract.11 (NYSCEF __, tr 34:9-15;12 NYSCEF 71, Owner’s Response to Request for Determination No. 2, Feb. 15, 2023.) Contrary to Strabag’s objections, the Contract clearly provides that Strabag has testing obligations. Strabag’s “Scope of Work” is defined in the Contract as: “(a) all work and services required in connection with the design, engineering, procurement, permitting, fabrication, manufacture, investigation, excavation, construction … dewatering, … testing and completion of the Tunnel 11 The Owner’s Response to Request for Determination No. 2, Feb. 15, 2023, is not mentioned in the Owner’s Memo of Law. 12 Parties are directed to file the March 20, 2023 transcript in NYSCEF. 650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 13 of 22 Motion No. 001 13 of 22 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 04/14/2023 11/15/2023 10:30 02:56 AM PM INDEX NO. INDEX NO. 650865/2023 655653/2023 NYSCEF DOC. NO. 130 13 RECEIVED NYSCEF: 04/08/2023 11/15/2023 Complex (including completion of all Acceptance Tests and operation of the Tunnel Complex through Tunnel Complex Substantial Completion), … (c) attendance and support during the AM-CO510 Electromechanical Contractor's testing and commissioning,… (e) the correction of defects and any actions required to comply with the Warranty[.]” (NYSCEF 120, Contract § 1.1; see also id. § 7.1.1.1(b) [requiring the completion of “Acceptance Tests” and, for Critical Milestones D, E, and F, “wet tests and Acceptance Tests”].) Appendix D contains the Testing Guidelines which Strabag must follow when fulfilling its Contractual Testing obligations. “1. General[.] Upon completion of construction and throughout start-up and commissioning of each functional unit, Contractor shall perform various tests to demonstrate that such functional unit and any part thereof comply with the Contract, including the Acceptance Tests. The tests, and the sequence in which they shall be performed, are described in general terms in this Appendix D. The Contractor shall develop the detailed inspection and test schedule and the details of the tests. Water filling, Wet Test, and Acceptance Test procedures will be defined in cooperation with the Owner and the Electromechanical Contractor and shall be subject to Owner's Approval.” (NYSCEF 20, Appendix D at 4.) However, it is clear from the record at this time, that the Owner’s rejection of substantial completion came well before the collapses of the tunnels were discovered. (NYSCEF 105, December 2, 2022, Owner’s Letter to Strabag.) Indeed, according to the Owner, the earliest evidence of a problem was “November 24-25, 2022 during performance testing of [another contracto]'s work.” (NYSCEF 56, Corredor aff ¶ 27.) 650865/2023 STRABAG SPA vs. CREDIT AGRICOLE CIB Page 14 of 22 Motion No. 001 14 of 22 FILED: NEW FILED: NEW YORK YORK COUNTY COUNTY CLERK CLERK 04/14/2023 11/15/2023 10:30 02:56 AM PM INDEX NO. INDEX NO. 650865/2023 655653/2023 NYSCEF DOC. NO. 130 13 RECEIVED NYSCEF: 04/08/2023 11/15/2023 Even if the collapsed tunnels, and not a lack of water, are to blame for Strabag’s failure to achieve substantial completion, Strabag’s assertion that the collapses occurred during the warranty period is supported by a clear reading of the contract and the Owner fails to address Strabag’s warranty argument.13 Accordingly, the court is left with Strabag’s argument that its substantial completion delay was excused by lack of water. The parties entered into Amendment 2 on May 2, 2022, which allowed the Owner to take over two of the powerplants and to generate desperately needed revenue. (NYSCEF 100, Amendment 2.) In exchange, “Strabag would be excused from any delays caused by [the Owner], delays to testing caused by a lack of available water, and delays caused by events set out in Section 11 of the Amended & Restated Contract,” e.g., delays caused by “Contractor encounters any national, archaeological, paleontological or other historically significant a