Wakilii

Ac Yafeng Construction Limited v Registered Trustees of Living Word Assembly Church and Another (Civil Miscellaneous Application 1 of 2021)

High Court · [2021] UGCOMMC 150 · 2021 Application Dismissed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Application for interim measures of protection pending arbitration arising from Miscellaneous Cause No. 1 of 2021
Decision
Application dismissed; interim injunction vacated; 2nd respondent may honour performance guarantee

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

Court allowed amendment of applicant's name from AC Yafeng Construction Limited to AC Yafeng Construction Company Limited, treating the error as a misnomer rather than misidentification. Application for interim measures restraining call on performance guarantee dismissed. Court held that the performance guarantee was unconditional and on-demand, subject to the Uniform Rules of Demand Guarantee (ICC Publication 758), requiring payment upon written demand declaring default without proof of breach. Applicant failed to demonstrate that honouring the guarantee would prejudice arbitral proceedings or that damages were inadequate remedy. Interim injunction order vacated; costs awarded to 1st respondent.

Outcome

Application dismissed; interim injunction vacated; 2nd respondent may honour performance guarantee

Facts

On 10 September 2019, the 1st respondent contracted the applicant for construction of a church complex at Kajjansi for US$11,372,367, to be completed by 24 October 2022. The applicant obtained a performance guarantee from the 2nd respondent (United Bank of Africa) in the sum of UGX 4,169,772,511 in the 1st respondent's favour. The 1st respondent made an advance payment of UGX 5,569,772,512. By December 2020, differences emerged regarding contract performance. The 1st respondent terminated the contract by letter dated 23 December 2020. On 28 December 2020, the 1st respondent notified the 2nd respondent of the applicant's default and demanded payment under the performance bond. On 29 December 2020, the 2nd respondent demanded the applicant pay damages. On 30 December 2020, the applicant sought appointment of an arbitrator. The applicant then sought interim measures preventing the respondents from enforcing the performance guarantee pending arbitration.

Issues

  1. Whether the applicant's misnaming (AC Yafeng Construction Limited instead of AC Yafeng Construction Company Limited) constituted a fatal defect or a curable misnomer.
  2. Whether the court should grant interim measures of protection preventing the respondents from calling on an unconditional performance guarantee pending arbitration proceedings.
  3. Whether the performance guarantee issued by the 2nd respondent was conditional or unconditional.
  4. Whether the applicant demonstrated a serious question to be arbitrated with a sufficient likelihood of success.
  5. Whether the applicant would suffer irreparable loss if the injunction was not granted.
  6. Whether the balance of convenience favoured granting the interim injunction.

Orders

  • Applicant's name corrected by amendment from 'AC Yafeng Construction Limited' to 'AC Yafeng Construction Company Limited'.
  • Interim injunction order issued on 5 January 2021 restraining the 2nd respondent from honouring the 1st respondent's demand under the performance guarantee is vacated.
  • Application dismissed.
  • Costs of this application and the interim injunction application awarded to the 1st respondent.

Rules and key headnotes

Parties — Misnomer versus Misidentification — Amendment of Party Name
Where a party to proceedings is given an incorrect name but the identity of the correct party is certain, this constitutes a misnomer rather than misidentification and may be corrected by amendment. Misnomer occurs when the identity of the person is certain but he or she is given an incorrect name, whereas misidentification occurs when an entirely wrong person is named. The test is whether a reasonable person reading the name in all the circumstances would say 'of course it must mean so and so, but they have got his or her name wrong.'
Interim Measures of Protection — Grounds for Grant
Under section 6(1) of the Arbitration and Conciliation Act, a court may grant interim measures of protection before or during arbitral proceedings. To justify issuance of an injunction restraining call on a performance bond pending arbitration, the contractor must show that: (i) the performance bond is conditional; (ii) the employer is attempting to call on the guarantee beyond circumstances permitted under the underlying contract; or (iii) the employer's call is founded on a claim that is specious, fanciful or untenable.
Performance Guarantees — Unconditional versus Conditional Guarantees
A performance guarantee is unconditional where payment is triggered by written demand without requirement to prove breach of the underlying contract. An unconditional on-demand performance guarantee constitutes a primary independent obligation to pay upon demand, autonomous from the underlying construction contract. In contrast, a conditional performance guarantee is payable only upon proof of breach and loss suffered. The distinction depends on the wording of the guarantee, construed to ascertain the parties' intention.
Performance Guarantees — Autonomy Principle — Application of URDG
Where a performance guarantee incorporates the Uniform Rules of Demand Guarantee (URDG) ICC Publication 758, the obligations of the guarantor are independent of any issues in the underlying contract. Article 5(a) of URDG provides that a guarantee is by its nature independent of the underlying relationship and the guarantor is in no way concerned with or bound by such relationship. The undertaking of a guarantor to pay is not subject to claims or defences arising from any relationship other than between guarantor and beneficiary.
Performance Guarantees — Exceptions to Enforcement — Fraud and Unconscionability
Courts will prevent a party from calling upon an unconditional and irrevocable performance guarantee only where the beneficiary: (i) is acting fraudulently; (ii) is acting unconscionably; or (iii) has made a contract not to call upon the guarantee. Save for fraud or unconscionable conduct, the principal debtor cannot fetter the beneficiary's capacity to call on an unconditional performance guarantee until after a binding determination has been made as to whether there has been breach of contract.
Performance Guarantees — Purpose and Function in Construction Disputes
The purpose of an unconditional and irrevocable performance guarantee is twofold: to secure the contractor's performance and provide security against insolvency; and to give the employer access to funds it claims notwithstanding that a dispute with the contractor is afoot. It serves as a risk allocation device, allocating the risk between parties as to who will be out of pocket during a contractual dispute. To grant an injunction restraining call on such a guarantee would defeat this purpose.
Interim Measures — Balance of Convenience — Irreparable Loss
Where a performance guarantee is unconditional and on-demand, an applicant seeking interim measures to restrain its enforcement must demonstrate that honouring the guarantee would cause imminent harm or prejudice to the arbitral process, or that it is necessary to preserve assets from which a subsequent award may be satisfied. Damages for breach of contract constitute an adequate remedy where damage to commercial reputation can be quantified in the prospective arbitration.

Legislation cited (3)

Cases cited (28)

  • Fort Hall Bakery Supply Co v Fredrick Muigai Wangoe ([1959] EA 474)
  • Trustees of Rubaga Miracle Centre v Mulangira Ssimbwa (High Court Miscellaneous Application No. 576 of 2006)
  • J B Kohli and Others v Bachulal Popatlal ([1964] EA 219)
  • Datskow v. Teledyne, Inc., 899 F.2d 1298, 1301-02 (2d Cir.), cert. denied, 498 U.S. 854 (1990)
  • Montalvo v. Tower Life Bldg, 426 F.2d1135, 1146-47 (5th Cir. 1970)
  • Travellers Indem. Co. v. United States ex rel. Construction Specialties Co., 382 F.2d 103 (10th Cir. 1967)
  • Shoap v. Kiwi S.A., 149 F.R.D. 509 (M.D. Pa. 1993)
  • Dunham v. Innerst, 50 F.R.D. 372 (M.D. Pa. 1970)
  • Adams v. Beland Realty Corp., 187 F. Supp. 680 (E.D.N.Y. 1960)
  • Davies v. Elsby Brothers Ltd [I960] 3 All ER 672
  • Edward Owen Engineering Ltd v. Barclays Bank International Ltd [1978] QB 159
  • RD Harbottle (Mercantile) Ltd v. National Westminster Bank Ltd [1978] QB 146
  • Kiyimba Kaggwa v Katende Haji Abdu Nasser ([1985] HCB 44)
  • Kirames Sdn Bhd v. Federal Land Development Authority [1991] 2 MLJ 198
  • Esso Petroleum Malaysia Inc v. Kago Petroleum Sdn Bhd [1995] 1 MLJ 149
  • IE Contractors Ltd v. Lloyd's Bank Plc and Rafidain Bank [1990] 2 Lloyd's Rep 296
  • Teknik Cekap Sdn Bhd v. Public Bank Berhad [1995] 3 MLJ 449
  • Meritz Fire and Marine Insurance Co. Ltd v. Jan De Nul NV and another [2011] 2 Lloyd's Rep. 379
  • Fasda Heights Sdn Bhd v. Soon Ee Sing Construction Sdn Bhd & another [1999] 4 MLJ 199
  • Kiyimba-Kagwa v Haji Abdu Nasser Katende ([1985] HCB 43)
  • Mugenyi Yesero v Wandera Philemon K ([1987] HCB 78)
  • Uganda Moslem Supreme Council v Kagimu Mulumba and Four Others ([1980] HCB 110)
  • AES-3C Maritza East 1 EOOD v (1) Credit Agricole Corporate and Investment Bank and Alstom Power Systems GmbH [2011] EWHC 123
  • Clough Engineering Limited v. Oil & Natural Gas Corporation Limited [2008] FCAFC 136
  • Sirius International Insurance Co v. FAI General Insurance Ltd [2003] 1 WLR 2214
  • Kawasaki Heavy Industries Ltd v. Laing O'Rourke Australia Construction Pty Ltd [2017] NSWCA 291
  • Simon Carves Ltd v. Ensus UK Ltd [2011] EWHC 657; 135 Con LR 96, [2011] BLR 340
  • Ward Petroleum Corp. v. Federal Deposit Inc. Corp (1990) 903 F. 2d 1299

Full judgment

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Ac Yafeng Construction Limited v Registered Trustees of Living Word Assembly Church and Another (Civil Miscellaneous Application 1 of 2021) [2021] UGCommC 150 (9 March 2021)
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.