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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2001 LC CASE SUMMARIES 732 N.Y.S.2d 215 (N.Y. App. 2001) [U.S.A.]
Topics: Fraud; Injunction; Irreparable Injury; Contract Dispute
Type of Lawsuit: Applicant sued issuer and beneficiary to enjoin honor.
Parties: Plaintiff/Appellant/Applicant/Mine Builder- Kvaerner U.S., Inc. (Counsel: Charles E. Williams, III) Defendant/Respondent/Issuer- Merita Bank PLC (Counsel: David A. Barrett) Defendant/Respondent/Beneficiary/Mine Contractor- Equatorial Tonopah
Underlying Transaction: Construction of a mine.
LC: Standby LC silent as to amount. Silent as to governing rules.
Decision: The New York Supreme Court, Appellate Division, First Department, Sullivan, P.J., Rosenberger, Nardelli, Rubin and Friedman, J.J. affirmed an order of the Supreme Court, New York County, Freedman, J., denying injunctive relief. Rationale: A breach of the underlying contract is an insufficient basis to enjoin payment of a LC absent fraud. Injunctive relief is not an available remedy where money damages are a suitable alternative.
Article
Factual Summary: To guarantee against defects in construction of a mine, contractor obtained an LC in favor of the owner. After the owner/beneficiary had paid 80% of the contract amount, it drew on the LC.57 2001 LC CASE SUMMARIES due to alleged construction defects. The applicant/ contractor sued for an injunction barring payment of the LC which the trial court denied. On appeal, affirmed.
Legal Analysis:
1. Injunction; Fraud vs. Contract Dispute: The applicant argued that the beneficiary "fabricated defects in the mine simply to justify the drawing down of the letter of credit". The appellate court indicated that the record did not support this contention and noted that the applicant's "own experts had issued reports detailing the mine's defects months before the attempted draw down." The court noted that the dispute did "not go to the heart of the transaction. . . At best, the evidence submitted merely supports allegations of breach of contract, not fraud, and as such is insufficient to justify enjoining payment of the letter of credit."
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