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Transfield Philippines vs Luzon Hydro Electric Corp On 5 November 2000, petitioner as plaintiff filed a Complaint for
Injunction, with prayer for temporary restraining order and writ of
preliminary injunction, against herein respondents as defendants
FACTS: before the Regional Trial Court (RTC) of Makati.
Transfield Philippines (Transfield) entered into a turn-key contract Petitioner sought to restrain respondent LHC from calling on the
with Luzon Hydro Corp. (LHC). Securities and respondent banks from transferring, paying on, or
in any manner disposing of the Securities or any renewals or
Under the contract, Transfield were to construct a hydro-electric substitutes thereof.
plants in Benguet and Ilocos.
The RTC issued a seventy-two (72)-hour temporary restraining
Transfield was given the sole responsibility for the design, order on the same day. The case was docketed as Civil Case No.
construction, commissioning, testing and completion of the 00-1312 and raffled to Branch 148 of the RTC of Makati.
Project.
After appropriate proceedings, the trial court issued an Order on 9
The Turnkey Contract provides that: November 2000, extending the temporary restraining order for a
period of seventeen (17) days or until 26 November 2000.[18]
(1) the target completion date of the Project shall be on 1 June
2000, or such later date as may be agreed upon between RTC: DENIED PETITIONER APPLICATION FOR PRE. INJUNCTION:
petitioner and respondent LHC or otherwise determined in
accordance with the Turnkey Contract; and The RTC, in its Order[19] dated 24 November 2000, denied
petitioners application for a writ of preliminary injunction. It
(2) petitioner is entitled to claim extensions of time (EOT) for ruled that petitioner had no legal right and suffered no
reasons enumerated in the Turnkey Contract, among which are irreparable injury to justify the issuance of the writ.
variations, force majeure, and delays caused by LHC itself.
Employing the principle of independent contract in
Further, in case of dispute, the parties are bound to settle their letters of credit, the trial court ruled that LHC should
differences through mediation, conciliation and such other means be allowed to draw on the Securities for liquidated
enumerated under Clause 20.3 of the Turnkey Contract. damages.
(The contract provides for a period for which the It debunked petitioners contention that the principle of
project is to be completed and also allows for the independent contract could be invoked only by respondent banks
extension of the period provided that the extension is since according to it respondent LHC is the ultimate beneficiary of
based on justifiable grounds such as fortuitous event.) the Securities.
In order to guarantee performance by Transfield, two stand-by The trial court further ruled that the banks were mere custodians
letters of credit were required to be opened. of the funds and as such they were obligated to transfer the same
to the beneficiary for as long as the latter could submit the
During the construction of the plant, Transfield requested for
required certification of its claims.
extension of time citing typhoon and various disputes delaying the
construction. APPEAL TO CA:
LHC did not give due course to the extension of the period prayed Dissatisfied with the trial courts denial of its application for a
for but referred the matter to arbitration committee. writ of preliminary injunction, petitioner elevated the case to the
Court of Appeals via a Petition for Certiorari under Rule 65, with
Meanwhile, foreseeing that LHC would call on the Securities
prayer for the issuance of a temporary restraining order and writ
pursuant to the pertinent provisions of the Turnkey Contract,[12]
of preliminary injunction.
petitionerin two separate letters both dated 10 August 2000
advised respondent banks of the arbitration proceedings already Petitioner submitted to the appellate court that LHCs call on the
pending before the CIAC and ICC in connection with its alleged Securities was premature considering that the issue of its default
default in the performance of its obligations. had not yet been resolved with finality by the CIAC and/or the ICC.
Asserting that LHC had no right to call on the Securities until the It asserted that until the fact of delay could be
resolution of disputes before the arbitral tribunals, petitioner established, LHC had no right to draw on the Securities
warned respondent banks that any transfer, release, or disposition for liquidated damages.
of the Securities in favor of LHC or any person claiming under LHC
would constrain it to hold respondent banks liable for liquidated Refuting petitioners contentions, LHC claimed that petitioner had
damages. no right to restrain its call on and use of the Securities as payment
for liquidated damages.
As petitioner had anticipated, on 27 June 2000, LHC sent notice to
petitioner that pursuant to Clause 8.2[14] of the Turnkey Contract, It averred that the Securities are independent of the
it failed to comply with its obligation to complete the Project. main contract between them as shown on the face of
the two Standby Letters of Credit which both provide
Despite the letters of petitioner, however, both banks that the banks have no responsibility to investigate the
informed petitioner that they would pay on the authenticity or accuracy of the certificates or the
Securities if and when LHC calls on them. declarants capacity or entitlement to so certify.
LHC asserted that additional extension of time would not be CA DECISION: Dismissed Certiorari and Expressed Conformity with
warranted; accordingly it declared petitioner in default/delay in Lower Court
the performance of its obligations under the Turnkey Contract and
demanded from petitioner the payment of US$75,000.00 for each On 2 February 2001, the appellate court dismissed the petition for
day of delay beginning 28 June 2000 until actual completion of the certiorari.
Project pursuant to Clause 8.7.1 of the Turnkey Contract.
The appellate court expressed conformity with the trial courts
At the same time, LHC served notice that it would call decision that LHC could call on the Securities pursuant to the first
on the securities for the payment of liquidated principle in credit law that the credit itself is independent of the
damages for the delay. underlying transaction and that as long as the beneficiary
complied with the credit, it was of no moment that he had not
RTC: Transfield Filed Complaint for INJUNCTION complied with the underlying contract.
LETTERS OF CREDIT
Further, the appellate court held that even assuming that the trial
courts denial of petitioners application for a writ of preliminary
injunction was erroneous, it constituted only an error of judgment
which is not correctible by certiorari, unlike error of jurisdiction.
ISSUE: Whether or not LHC can collect from the letters of credit
despite the pending arbitration case
HELD: YES