Canada: Green Building Litigation Update: Destiny USA v. Citigroup

Last Updated: November 10 2010
Article by Michael Klose

This article originally appeared in Focus On Construction/Infrastructure - November 2010

In the Canadian Construction industry, we often refer to the American litigation experience to identify potential project risks which merit attention in contract drafting and project administration. With the recent trend in Canada towards the development of green projects, we continue to monitor how the courts are dealing with the unique risks of green building projects.

A recent U.S. court case is of some interest, not because it identifies new risks, but since it highlights how the courts may approach green projects generally.

In Destiny USA v. Citigroup,1 a New York appellate court upheld a lower court decision which found that the green elements of a project made it so unique that the developer of the project would incur irreparable harm if the project's lender was not ordered by the court to continue funding the project.

The Project

The project was touted to be a "groundbreaking new financing paradigm for green economic development." It was a massive 850,000‐squarefoot development located in Syracuse, New York, that included retail and entertainment space, a hotel and a scientific research facility. The extensive incorporation of state‐of‐the‐art green technologies attracted tax breaks and other incentives from federal, state and municipal governments. The project even utilized "green" financing through the use of the newly created Federal Green Bonds to partially finance the project.

The Problem

The project moved forward, apparently without significant problem, until it was about 90% complete. At that point, and during the midst of the depths of the market turmoil in early 2009, the lender stopped funding the project, alleging that the developer was in default for unresolved deficiencies. The developer sued the lender and sought an injunction to force the lender to continue to advance funds in order to complete the project.

The Court Decision

In granting the injunction, the court held that due to the unique nature of the project, the developer would suffer irreparable harm if the lender was not required to advance further funds. The court specifically cited the utilization of cutting‐edge green technology and green financing mechanisms which made the project very unique. Due to this uniqueness, in the view of the court, the value of the project was incalculable.

Implications

While the legal context of the decision is somewhat unusual, Destiny USA demonstrates that courts may consider "green" elements of construction projects when considering remedies and damages. We are not aware of any instances of Canadian courts yet considering "green" building issues in a similar manner; however, it is only a matter of time before Canadian courts are forced to grapple with these issues. All parties in the Canadian construction industry should continue to consider the risks associated with green building projects, and how those risks may best be allocated and mitigated in the current uncertain legal environment.

Footnote

1 Destiny USA Holdings, LLC v. Citigroup Global Markets Realty Corp., 2009 WL 3790441 (N.Y.A.D. 4 Dept.). A copy of the decision can be found at http://www.nycourts.gov/ad4/

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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