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Transfield 1 Digest

Transfield entered into a contract with Luzon Hydro Corp. to construct hydroelectric plants. Transfield requested an extension due to typhoons and protests but Luzon Hydro did not approve and instead called funds from standby letters of credit, claiming default. Transfield objected, arguing arbitration was pending on the extension request. The court ruled for Luzon Hydro, stating the independence principle treats letters of credit as separate from the main contract, and the contract allowed calling funds in the case of default without needing to resolve all issues first.

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James Estrada Castro
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227 views1 page

Transfield 1 Digest

Transfield entered into a contract with Luzon Hydro Corp. to construct hydroelectric plants. Transfield requested an extension due to typhoons and protests but Luzon Hydro did not approve and instead called funds from standby letters of credit, claiming default. Transfield objected, arguing arbitration was pending on the extension request. The court ruled for Luzon Hydro, stating the independence principle treats letters of credit as separate from the main contract, and the contract allowed calling funds in the case of default without needing to resolve all issues first.

Uploaded by

James Estrada Castro
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Transfield Philippines vs Luzon Hydro Electric Corp.

(GR No 146717, Nov 22, 2004, Tinga) FACTS: Transfield entered into a turn-key contract with Luzon Hydro Corp. (LHC).Under the contract, Transfield were to construct a hydro-electric plants in Benguet and Ilocos. The contract provides for a period for which the projectis to be completed and also allows for the extension of the period provided that the extension is based on justifiable grounds such as fortuitous event. In order to guarantee performance by Transfield, two stand-by letters of credit were required to be opened. During the construction of the plant, Transfield requested for extension of time citing fortuitous events brought about by typhoon, barricades and demonstration. LHC did not give due course to the extension of the period prayed for but referred the matter to arbitration committee. In the meanwhile, because of the delay in the construction of the plant, LHC called on the stand-by letters of credit because of default. However, the demand was objected by Transfield on the ground that there is still pending arbitration on their request for extension of time. LHC invoked the independence principle. On the other hand, Transfield claims fraud on the part of LHC on calling the stand-by letters of credit. ISSUE: WON there is fraud on the part of LHC for calling the stand-by letters of credit. RULING: Under the independence principle, a LC accommodation is entirely distinct and separate, independent agreement. It is not supposed to be affected by the main contract upon which it rests. The court held for the LHC. Following the independence principle, evengranting that there is still issue to be resolved arising from the turn-key project. This issue is not supposed to affect the obligation of the bank to pay the letter of credit in question. The court stressed that a LC accommodation is intended to benefit not only the beneficiary therein but the applicant thereon. On the issue of fraud, the SC held that there is nothing in the turn-key contract which states that all issues between the parties must be resolved first before LHC can call on the stand-by LC but the contract provides that if Transfield defaults, then LHC can call on these stand-by LC.

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