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Note: Footprint Power Salem Harbor Development, L.P. (Owner/Beneficiary) engaged Iberdrola Energy Products, Inc. (Contractor/Applicant) whereby Contractor/Applicant would build a power station in Salem, Massachusetts. To secure its performance, Contractor/Applicant obtained an irrevocable performance letter of credit from Deutsche Bank AG (Issuer) in favor of Owner/Beneficiary. Subsequently, Owner/Beneficiary terminated the agreement for cause and notified Contractor/Applicant that Owner/Beneficiary intended to fully draw on the LC.

Contractor/Applicant then initiated arbitration proceedings “to arbitrate whether [Owner/Beneficiary] can draw on the Letter of Credit.” The underlying agreement provided for arbitration administered by the International Centre for Dispute Resolution (ICDR) and in accordance with ICDR rules (empowering ICDR arbitrators to rule on their own jurisdiction).

Owner/Beneficiary sued Contractor/Applicant to stay the arbitration. The Supreme Court of New York, Ostrager, J., denied the petition to stay the arbitration proceedings.

A provision of the underlying agreement provided that an “arbitration proceeding seeking relief on the merits of any Dispute may be commenced only after completion of the Project[.]” (emphasis added). Owner/Beneficiary argued that completion of the project was thus a condition precedent to commencement of any arbitration proceeding and that as an issue of contract interpretation, the matter was properly before the court. Contractor/Applicant argued that the underlying agreement vested the ICDR with the sole “power to determine matters of procedural arbitrability.” The Judge noted that the parties’ agreement did not modify any ICDR rules and that resolution of Owner/Beneficiary’s argument “would necessarily be within the purview of the arbitrator to determine given the arbitration agreement's incorporation of ICDR Rules”.

Following a proceeding before the ICDR where an “emergency arbitrator issued an ‘Interim Emergency Order’ that, in essence, enjoined [Owner/Beneficiary] from drawing on the [LC] until the issue of [Owner/Beneficiary]’s right to draw upon the [LC] could be addressed by the full ICDR arbitral panel”, Contractor/Applicant requested an order “confirming” the interim arbitral order. Owner/Beneficiary cross-motioned to vacate the order. The Supreme Court of New York, Ostrager, J., reserved Contractor/Applicant’s motion and denied Owner/Beneficiary’s motion.

Because the interim emergency order was not issued by a full panel of the ICDR, the Judge reserved the motion to confirm noting that “it [is] better practice to consider this motion in connection with an application for a temporary restraining order in aid of arbitration which [Contractor/Applicant] intends to submit tomorrow.”

Comment: Neither decision addresses the possibility that Owner/Beneficiary may draw without waiting for the arbitrator to decide “whether [Owner/Beneficiary] can draw”. Nor whether that question concerns the wrongfulness or rightfulness of a drawing based on U.S. UCC. 5-108, 5-109, 5-110 or other law applicable to the LC or based on contract law applicable to the underlying agreement. James G. Barnes contributed the comment to this summary.

[WMIV]

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