ventures. Defendant could have included a force majeure provision
in the indenture, but it failed to do so. Instead, defendant
entered into an agreement that explicitly precludes force majeure
events as a defense to full performance.
2. No Showing of "Impossibility"
Assuming arguendo that section 501 does not itself bar
defendant's claim of impossibility, defendant's claim must still
fail because defendant cannot, as a matter of law, meet the
requirements of an impossibility defense. I note at the outset,
that parties attempting to invoke impossibility of performance
have an uphill battle. New York courts have been consistently
hostile to the defense, allowing it to excuse performance only in
the most extreme circumstances.
a. Objectively Impossible
As set forth above, the first element of an impossibility
defense is a showing by defendant that performance has been
rendered objectively impossible: "Impossibility excuses a party's
performance only when the destruction of the subject matter of
the contract or the means of performance makes performance
objectively impossible." Kel Kim, 70 N.Y.2d at 902,
524 N.Y.S.2d 384, 519 N.E.2d 295; see also 407 East 61st Garage,
Inc. v. Savoy Fifth Avenue Corp., 23 N.Y.2d 275, 281,
296 N.Y.S.2d 338, 244 N.E.2d 37 (1968) ("[I]mpossibility of
performance is limited to the destruction of the means of
performance by an act of God, vis major, or by law.").
Of particular relevance to this case is the well-settled rule
in New York that "`where impossibility or difficulty of
performance is occasioned only by financial difficulty or
economic hardship, even to the extent of insolvency or
bankruptcy, performance of a contract is not excused.'"
Venezolanos, 740 F. Supp. at 267 (quoting 407 East 61st
Garage, 23 N.Y.2d at 281, 296 N.Y.S.2d 338, 244 N.E.2d 37); see
also Barclays Bus. Credit, Inc. v. Inter Urban Broad. of
Cincinnati, Inc., 90 Civ. 2272, 1991 WL 258751, *8 (S.D.N Y
1991) (finding that "New York law is absolutely clear" regarding
rule that impossibility cannot be premised on financial hardship,
no matter how severe). Moreover, even where the financial
hardship is caused by a government policy, performance cannot be
excused as "impossible": "[A]bsent an express contingency clause
in the agreement allowing a party to escape performance under
certain specified circumstances, compliance is required even
where the economic distress is attributable to the imposition of
governmental rules and regulations or the inability to secure
financing." Stasyszyn v. Sutton E. Assocs., 161 A.D.2d 269,
555 N.Y.S.2d 297, 299 (1st Dep't 1990).
Defendant's allegations of impossibility fall squarely within
this line of "financial hardship" cases. According to defendant,
[i]t is undisputed that as a result of the regulatory
changes in China, Traffic Stream's only source of
income — the remittance of guaranteed payments by
Chinese joint venture partners — has dried up. Thus,
the regulatory change, which indisputably has delayed
the ability to collect guaranteed payments out of
China, has made it impossible for Traffic Stream to
make the required payments within the time frames set
forth in the Indenture.
Def. Opp. at 11. Stripping away the conclusory language, Traffic
Stream merely alleges that the SAFE Notice has "delayed" its
ability to collect payments from the Joint Ventures, leaving
Traffic Stream without enough money to meet its financial
obligations. However, lack of funds, "even to the extent of
insolvency or bankruptcy", can never excuse contractual
performance. Venezolanos, 740 F. Supp. at 267 (internal
Defendant concedes, as it must, that the SAFE Notice merely
"delays" rather than prohibits the remittance of funds from the
Joint Ventures to Traffic Stream. According to defendant's
Chinese legal counsel, the SAFE Notice has "little material
negative impact" on the remittance of Operating Income to Traffic
Stream. See Jingtian Op., Ex. A to Zhao Decl., at 3. Indeed, on
May 16, 1999, local Shandong authorities approved remittance to
the Hong Kong Subsidiaries of the Operating Income for the
Shandong Joint Ventures. See Wong Decl. ¶ 20. The SAFE Notice
delayed that approval by only a few days. See id. ¶ 8.
Similarly, the SAFE Notice does not preclude the remittance of
Guaranteed Income. Rather, it requires that such remittance be
approved by SAFE. See Jingtian Op., Ex. A to Reid Aff., at 3.
Of course, as set forth above, the practical effects of the
SAFE Notice are legally irrelevant to defendant's impossibility
defense. To use plaintiff's words: "The SAFE Notice is not a law
or regulation that prohibits, delays or affects the legal ability
of Traffic Stream, a British Virgin Islands corporation, from
making the required payments, and therefore cannot excuse its
failure to perform." Pl. Reply at 4. Put simply, Traffic Stream
borrowed $119,000,000 from the United States markets based on its
unconditional promise to pay. That Traffic Stream now claims it
has no money, whatever the reason, cannot as a legal matter
support a claim for objective impossibility. See Stasyszyn, 555
N YS.2d at 299. Indeed, to excuse Traffic Stream's performance
under these circumstances would open the floodgates and undermine
our system of financial contracting.*fn23
To succeed on an impossibility defense, not only must
performance be objectively impossible, but "the impossibility
must have been produced by an unanticipated event that could not
have been foreseen or guarded against in the contract." Kel
Kim, 70 N.Y.2d at 902, 524 N.Y.S.2d 384, 519 N.E.2d 295. Because
defendant cannot make a showing of objective impossibility, the
Court need not reach this second prong. However, for the sake of
thoroughness, I briefly address the issue.
Traffic Stream argues that it "did not foresee" the actions of
the Chinese Government,
nor could it "have reasonably contemplated them." Def. Opp. at 9.
In support of its argument, Traffic Stream has submitted a
declaration from Traffic Stream's Executive Director, Mr. Wong.
In his declaration Mr. Wong states:
The [Chinese] government has, during the recent years
given high priority to the development of
transportation infrastructure. . . . It is envisaged
that more and more toll road projects in [China] will
be funded by international financial institutions,
foreign government loans, and various other sources
of the global capital market.
Against this platform, [Traffic Stream] has never
expected that the [Chinese] government would stage
any new policies or regulations to the contrary, nor
The regulatory and policy changes in [China] were
completely beyond [Traffic Stream's] control and were
not within its reasonable anticipation.
Wong Decl. ¶¶ 27-29. Mr. Wong has also attached several newspaper
articles discussing China's commitment to development of a
transportation infrastructure through foreign investment. See
id. at Ex. D.
As set forth supra Part IV.B.1.b., section 501 anticipates
the possibility that government action might cause an event of
default, and it assigns the risk of such government-induced
default to defendant. Thus, pursuant to section 501, not only was
the Chinese government's action foreseeable, it was foreseen and
expressly provided for in the contract.
However, assuming arguendo that section 501 does not address
adverse government action, the issue of whether the SAFE Notice
could have been foreseen and guarded against is a question of
fact. Although just barely, Mr. Wong's declaration and
attachments raise an issue of fact that cannot be resolved on
That said, I find it highly implausible that sophisticated
companies involved in foreign business ventures in China —
business ventures that are intertwined with the State and local
governments — "could not have foreseen the possibility" that the
Chinese Government might pass unfavorable foreign exchange or
foreign investment regulations. Business ventures involving
foreign governments and foreign corporations are always fraught
with risk. However, business ventures in a communist state that
is just warming to the foreign capital markets seems a
particularly risky undertaking.
Moreover, despite China's announced commitment to foreign
investment, there were signs of trouble well in advance of the
parties' execution of the Indenture. Defendant's own expert
references the 1997 Asian financial crisis stating: "I believe
that the adoption of the [SAFE] Notice by the [Chinese
Government] is in response to the 1997 Asian financial crisis and
to strengthen the control on foreign exchange." Zhao Decl. ¶ 4.
For the reasons set forth above, I find that defendant's
impossibility defense is precluded by the plain language of
section 501 of the Indenture. Moreover, I find that even absent
the provisions of section 501, defendant has not made a
sufficient legal showing of impossibility. Accordingly,
plaintiff's motion for summary judgment is granted with respect
to its claims for breach of contract and replevin of collateral
(claims one and two).
V. Additional Claims
As set forth above, plaintiff also seeks summary judgment with
respect to its claims for specific performance, an accounting and
reasonable attorneys' fees.
A. Reporting Obligations
Plaintiff seeks specific performance of defendant's reporting
obligations under section 1009 of the Indenture. As set
forth above, the Indenture authorizes Chase to bring suit for
"specific performance of any covenant or agreement in the
Indenture." Indenture, Ex. A Reid Aff., § 503.
In its opposition, defendant concedes that it is "bound by its
contractual obligations to provide Chase with the reports
required by the Indenture." Def. Opp. at 25. Accordingly,
plaintiff's motion for summary judgment is granted with respect
to its claim for specific performance (claim three), and
defendant is hereby directed to provide Chase with the required
In claim four of the complaint, plaintiff seeks an accounting.
However, because plaintiff is entitled to specific performance of
defendant's financial reporting obligations under section 1009 of
the Indenture, including audited financial statements, see
supra Part V.A; Indenture, Ex. A to Reid Aff., § 1009,
plaintiff's additional request for an accounting is moot.
C. Collection Costs
Plaintiff seeks collection costs in the form of reasonable
attorneys' fees pursuant to section 503 of the Indenture. See
Pl. Mem. at 24. Section 503 requires defendant to pay the Trustee
"such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel." Indenture, Ex. A to Reid Aff.,
§ 503 (emphasis added).
Under New York law, "[r]easonable attorneys' fees are properly
awarded when authorized by agreement." Granada Condominium I v.
Morris, 225 A.D.2d 520, 639 N.Y.S.2d 91, 93 (2d Dep't 1996).
Moreover, defendant does not oppose plaintiff's request for
attorneys' fees. Therefore, plaintiff is entitled to reasonable
attorneys' fees and should submit its request for such fees no
later than February 18, 2000.
For the foregoing reasons, plaintiff's motion for summary
judgment is granted in its entirety.*fn24 Plaintiff is directed
to foreclose on the Collateral Accounts and to submit a request
for a deficiency judgment by February 18, 2000.
Defendant must provide the required financial reports to
plaintiff by February 18, 2000. Once the Court sets reasonable
attorneys' fees, the parties are directed to prepare a final