Wakilii

AC Yafeng Construction Company Limited v The Living World Assembly and Others (Civil Suit 739 of 2021)

High Court · [2022] UGCOMMC 103 · 2022 Preliminary Objections Dismissed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
First instance civil suit concerning a fraudulent call on a performance guarantee arising from a construction contract
Decision
All preliminary objections dismissed; suit to proceed to trial on merits

Observed later treatment

Treatment recorded in citing cases applied in 1 Sequitur — Uganda’s citator · Derived from citing cases in the Wakilii corpus — not an assertion that this case is good law.

Citator coverage is limited to judgments in the Wakilii corpus and source-matched treatment records. Absence of a signal is not an assertion that the case remains good law.

Good law Followed in 0 cases and applied in 1 case, with no adverse treatment recorded. Citations rising — 5 citing cases on record, 5 in the most recent three data years. Derived from citing cases in the Wakilii corpus — a deterministic signal, not legal advice.

AI-generated summary. This summary was generated by AI from the full text of the judgment. It may contain errors or omissions—always read the source judgment before relying on it.

Holding

Held that the court has jurisdiction to hear the plaintiff's claim concerning an alleged fraudulent call on a performance guarantee despite an arbitration clause in the underlying construction contract. The performance guarantee is autonomous and involves a party not privy to the construction agreement. The plaint discloses causes of action against all defendants including the bank as guarantor and the director for alleged personal complicity in fraud. The suit is not res judicata as the earlier interlocutory application did not finally determine the issues on the merits. All preliminary objections overruled with costs to the plaintiff.

Outcome

All preliminary objections dismissed; suit to proceed to trial on merits

Facts

On 10 September 2019 the 1st defendant contracted the plaintiff for construction of church facilities at contract price of US$11,372,367. The plaintiff obtained from the 3rd defendant bank an advance guarantee and a performance guarantee in the 1st defendant's favour for shs. 4,169,772,511. The 1st defendant made an advance payment and construction began. By December 2020 differences emerged and the 1st defendant terminated the contract by letter dated 23 December 2020. On 28 December 2020 the 1st defendant notified the 3rd defendant of the plaintiff's default and demanded payment under the performance guarantee. The 3rd defendant demanded payment from the plaintiff on 29 December 2020. The plaintiff wrote seeking appointment of an arbitrator on 30 December 2020 and filed suit challenging the call on the guarantee as fraudulent collusion between the 1st and 3rd defendants with the aid of the 2nd defendant as director. The construction contract contained an arbitration clause at Clause 36(1). The defendants raised preliminary objections that the plaint disclosed no cause of action against the 2nd and 3rd defendants and that the court lacked jurisdiction due to the arbitration clause.

Issues

  1. Whether the defendants waived the objection to litigation in favour of arbitration by filing defences to the suit.
  2. Whether the plaint discloses a cause of action against the 2nd and 3rd defendants.
  3. Whether the court's jurisdiction is ousted by a valid submission to arbitration.
  4. Whether the suit is barred by the doctrine of res judicata.

Orders

  • Preliminary objection that defendants waived arbitration by filing defences overruled.
  • Preliminary objection that plaint does not disclose a cause of action against 2nd defendant overruled.
  • Preliminary objection that plaint does not disclose a cause of action against 3rd defendant overruled.
  • Preliminary objection that court lacks jurisdiction due to arbitration clause overruled.
  • Preliminary objection based on res judicata overruled.
  • All preliminary objections overruled with costs to the plaintiff.

Rules and key headnotes

Arbitration — Waiver of right to arbitrate — Defendants filing defences without seeking stay
Participation in litigation can constitute waiver of the right to arbitrate if a party delays invoking the arbitration clause until substantial litigation steps have been taken, but mere filing of a defence to preserve a right to raise preliminary objections does not constitute waiver where the party has not engaged in litigation of substantial issues going to the merits.
Preliminary Objections — Cause of Action — Demand Guarantees — Fraud Exception
A plaint discloses a cause of action against a beneficiary and guarantor bank where it alleges a fraudulent calling on a demand performance guarantee with collusion between the beneficiary and the bank, as the contractor has the right to take emergency measures to prevent payment under an unfair or fraudulent call and to claim damages for losses occasioned by a fraudulent call.
Piercing the Corporate Veil — Joinder of Directors — Pleading Requirements
For purposes of joining a director to proceedings with a view to seeking the lifting of the corporate veil, the plaintiff needs only to plead facts which show that the director wields undue dominion and control over the corporation such that the corporation is a device or sham used to disguise wrongs, obscure fraud, or conceal crime; the plaintiff need not prove these facts at the pleading stage but must later establish control coupled with impropriety by evidence.
Arbitration — Scope of Arbitration Clause — Multiple Contracts — Performance Guarantees
An arbitration clause in a construction agreement does not extend to disputes concerning an alleged fraudulent call on an autonomous performance guarantee executed between the contractor and a bank, even where the guarantee and construction contract form part of one overall transaction, because the guarantee is autonomous and involves a party not privy to the construction agreement and arbitration is consensual and cannot bind a non-signatory.
Demand Guarantees — Autonomy Principle — Independence from Underlying Contract
Demand guarantees are autonomous and independent of the underlying contract; a guarantor's obligations are not subject to claims or defences arising from the underlying relationship; under the URDG the guarantor bank's liability is limited to the terms of the guarantee itself, thereby protecting it from liabilities emanating from other agreements of which it may not even be aware.
Arbitration — Parallel Proceedings — Multiple Contracts with Different Dispute Resolution Clauses
Where different agreements within an overall transaction contain different dispute resolution clauses and involve different parties, courts will not automatically presume that all disputes should be resolved in a single forum; although parallel proceedings may result in some duplication of effort and risk of inconsistent findings, a party cannot be compelled to arbitrate where it has not agreed to do so, and the court may allow litigation to proceed alongside arbitration where the claims involve separate autonomous agreements.
Res Judicata — Interlocutory Orders — Findings on Interim Applications
The principle of res judicata does not apply to findings made on interlocutory applications; an order on an application for interim measures of protection does not encroach upon the merits of the controversy and cannot bar a party from litigating the same issues at trial where more detailed evidence will be adduced and the heightened burden of proof applicable at the interlocutory stage does not apply.

Legislation cited (5)

Cases cited (36)

  • Mukisa Biscuit Manufacturing Co Ltd v West End Distributors Ltd [1969] EA 696
  • Rankin v. Allstate Ins. Co., 336 F.3d 8
  • Attorney General v Major General Tinyefuza (Constitutional Petition No. 1 of 1997)
  • Cooke v. Gull, LR 8E.P 116
  • Read v. Brown 22 QBD 31
  • Auto Garage and others v Motokov (No 3) [1971] EA 514
  • Kebirungi v Road Trainers Ltd and two others [2008] HCB 72
  • Babcon Uganda Ltd v Mbale Resort Hotel Ltd (Civil Appeal No. 87 of 2011)
  • Premium Nafta Products Ltd v Fili Shipping Company Ltd [2008] 1 Lloyd's Rep 254
  • Harbour Assurance Co (UK) Ltd v Kansa General International Assurance Co [1993] QB 701
  • Continental Bank NA v Aeakos Compania Naviera SA [1994] 1 WLR 588
  • Deutsche Bank AG v Sebastian Holdings Inc (No 2) [2011] 2 All ER (Comm) 245
  • UBS AG v HSH Nordbank [2009] 1 CLC 934
  • Broken Hill City Council v. Unique Urban Built Pty Ltd [2018] NSWSC 825
  • Lucky-Goldstar International (HK) Ltd v. NG Moo Kee Engineering Ltd [1993] HKCFI 14
  • Bulkbuild Pty Ltd v. Fortuna Well Pty Ltd & Ors [2019] QSC 173
  • Yan Jian Uganda Company Ltd v Siwa Builders and Engineers (Miscellaneous Application No. 1147 of 2014)
  • Surrey County Council v Suez Recycling and Recovery Surrey Ltd [2021] EWHC 2015
  • Credit Suisse First Boston (Europe) Ltd v MLC (Bermuda) Ltd [1999] 1 Lloyd's Rep 767
  • Amtrust Europe Ltd v Trust Risk Group SpA [2016] 1 All ER (Comm) 325
  • Deutsche Bank AG v Tongkah Harbour Public Co Ltd [2011] EWHC 2251
  • Merchandise Transport Ltd v British Transport Commission [1962] 2 QB 173
  • Trustor v Smallbone (No 2) [2001] WLR 1177
  • DHN Food Distributors Ltd v Tower Hamlets London Borough Council [1976] 1 WLR 852
  • Antonio Gramsci Shipping Corp and others v Stepanovs [2011] 1 Lloyd's Rep 647
  • Salim Jamal and two others v Uganda Oxygen Ltd and two others [1997] II KALR 38
  • Reckitt Benckiser (India) Private Limited v. Reynders Label Printing India Private Limited and others, (2019) 7 SCC 62
  • Chloro Controls (I) Pvt. Ltd. v. Severn Trent Water Purification Inc. and others., (2013) 1 SCC 641
  • William Sebuliba Kayongo and another v Barclays Bank of Uganda Ltd (Miscellaneous Application No. 325 of 2008)
  • Sztejn v. Henry Schroder Banking Corporation 31 NYS 2d 631 (1941)
  • Alternative Power Solution Ltd v Central Electricity Board [2014] UKPC 31
  • Discount Records Ltd v Barclays Bank Ltd [1975] 1 Lloyd's Rep 444
  • United Trading Corporation SA v Allied Arab Bank Ltd [1985] 2 Lloyd's Rep 554
  • United City Merchants (Investment) Limited v Royal Bank of Canada [1979] 1 Lloyd's Rep 267
  • Banco Santander Sa v Bayfern Ltd [1999] EWHC 284 (Comm)
  • Themehelp Ltd v West [1995] 4 All ER 215

Cases citing this judgment (5)

How later Ugandan judgments in the Wakilii corpus have cited this case. Treatment labels come from Sequitur — Uganda’s citator — each backed by a verbatim span from the citing judgment, and are not an assertion that this case is, or is not, good law.

Full judgment

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AC Yafeng Construction Company Limited v The Living World Assembly and Others (Civil Suit 739 of 2021) [2022] UGCommC 103 (27 December 2022)
Source: this page presents Wakilii’s issue analysis and metadata for a publicly reported Ugandan judgment. Any AI-generated summary is marked as such. Judgment text is sourced from the Uganda Legal Information Institute (ulii.org). Wakilii is not affiliated with ULII.